SOUTH KOREA Law and Practice Contributed by: Bo Hee Park, Minhyun Cho, Ian Kim and Jun Hee Kwon, Jipyong LLC
• Shareholder derivative Suit: A shareholder holding 1% or more of the total issued and outstanding shares may demand that the company file a lawsuit to pursue the director’s liability. If the company fails to file the suit within 30 days of the demand, the shareholder may immediately file the suit for the benefit of the company. For listed companies, a shareholder who has held 0.01% or more for at least six months may initiate a derivative suit. Directors’ Liability for Damages to Third Parties (Including Shareholders) The KCC recognises a director’s liability to third par - ties by providing that, if a director neglects their duties intentionally or due to gross negligence, the director is jointly and severally liable to third parties for dam - ages. If a shareholder suffers direct personal damage due to a director’s neglect of duty, they may pursue a claim for damages against the director based on this KCC provision. However, a shareholder cannot claim compensation for “indirect damages” where a loss is primarily incurred by the company and consequently affects the shareholder’s economic interests. Mean - while, with the 2025 KCC amendment strengthening and clarifying the director’s duty of loyalty, it has both theoretically and practically become more feasible for shareholders to hold directors accountable in cases where the shareholders suffered harm directly and not through the company. Criminal Liability If a director, in violation of their duties, obtains pecu - niary benefits or causes a third party to obtain such benefits, thereby inflicting pecuniary damage on the company, the director may bear criminal liability for occupational breach of trust. 3.9 Other Claims/Enforcement Against Directors/Officers Injunction Against Illegal Acts If a director performs an act in violation of laws or the AOI, and there is a concern that such an act may cause irreparable damage to the company, the auditor (or the audit committee) or a shareholder holding 1% or more of the total issued and outstanding shares may demand that the director cease such an act. For listed companies, the shareholding requirement is relaxed to 0.05% or more (0.025% for listed compa -
nies with total capital of KRW100 billion or more) held continuously for at least six months. Limitation and Exemption of Directors’ Liability A director’s liability to the company may be exempted by the unanimous consent of all shareholders. Fur - thermore, if provided for in the AOI, a company may exempt a director from liability for an amount exceed - ing six times (three times in the case of independent/ outside directors) the amount of their compensation for the latest one year prior to the date of the act. Such exemption of liability under the AOI is not permitted in cases of: • neglect of duty due to intent or gross negligence; • violation of a non-compete clause; • misappropriation of corporate opportunities; or • self-dealing. Directors’ and Officers’ (D&O) Liability Insurance There is a growing trend among listed companies in Korea to subscribe to D&O liability insurance. 3.10 Payments to Directors/Officers Determination Procedure for Directors’ Remuneration The KCC requires that the remuneration of directors be determined by the AOI or by a resolution of the general meeting of shareholders. While it is permis - sible for the AOI or a general meeting of shareholders resolution to determine only the total amount or the ceiling of officers’ remuneration and delegate specific matters, such as the amount to be paid to individual directors, to the board of directors, a comprehensive delegation of matters concerning directors’ remunera - tion to the board of directors is not allowed. It is also not permitted to delegate the allocation of individual directors’ compensation to the representative director. A remuneration agreement not based on AOI provi - sions or a general meeting of shareholders resolution is null and void, and the director in question does not hold a claim for remuneration. Recently, Korean courts have restricted the voting rights of a shareholder who is also a director in rela - tion to a general meeting of shareholders agenda item
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