The alternative proposed amendment to the Commercial Code (the “Amendment”) was passed at the plenary session of the National Assembly on March 13, 2025. The Amendment expands the scope of directors’ duty of care to encompass their companies and shareholders and provides for virtual shareholder meetings for listed companies (see our previous newsletter (Link) for details and developments).

The Amendment was originally passed by the 1^st Legislation Review Sub-Committee of the National Assembly’s Legislation and Judiciary Committee on February 24, 2025 and by the full committee on February 26, 2025, respectively, but was put on hold by the Speaker of the National Assembly, calling for a bipartisan consensus. As the ruling and opposition parties were unable to reach an agreement, the Amendment was subsequently tabled and passed at the plenary session.

The Amendment is set to take effect one year after its promulgation under the Addenda provisions of the Commercial Code. However, the People Power Party (i.e., the ruling party) has taken a stance against the Amendment, which means the Amendment can be changed if the Acting President decides to veto it and demand reconsideration.

Once the Amendment comes into effect, it could raise some legal concerns in the following cases: (i) where a controlling shareholder acquires company shares at a low price (such as excessive share-based compensation, tender offers for shares held by minority shareholders, cash-out mergers, comprehensive stock swaps, and transactions involving the squeeze-out right of controlling shareholders stipulated in Article 360-24 of the Commercial Code); (ii) where a controlling shareholder sells their shares at a high price (exclusively selling shares with management control premiums, capital procurement through the split-off listing of core business divisions, etc.); (iii) where there are controversies about the benefits to controlling shareholders or other affiliated companies at the expense of minority shareholders in transactions involving stock-for-stock exchanges, such as mergers, spin-offs, spin-off mergers, and comprehensive stock swaps.

Furthermore, as minority shareholders will be able to directly hold civil and criminal liability against directors for losses incurred as shareholders, there is a possibility that related lawsuits may be filed more frequently. As such, it is increasingly important to review and improve the company’s internal control and compliance systems and to ensure the integrity of operational procedures for the board and general shareholders’ meetings.

In terms of substantive legitimacy, it is necessary to ensure that a thorough review based on objective evidence concerning business needs and the appropriateness of transaction terms is conducted before the company’s decision-making. Furthermore, in terms of procedural legitimacy, it is crucial that materials on substantive legitimacy are adequately shared in board meetings where independent outside directors are present and to ensure that there are ample opportunities for the management to provide explanations, engage in Q&A sessions, and promote discussions among directors. In addition, for agenda items for general meetings of shareholders, there may be a greater emphasis on explaining agenda items to shareholders and gathering feedback from them through IR events with institutional investors and discussions with minority shareholders.

Lastly, the Amendment requires listed companies with a certain asset size (the specific requirement will be defined by presidential decree) to implement virtual shareholder meetings. Therefore, once the Amendment is promulgated and comes into effect, it will be necessary to refer to it when amending the articles of incorporation and introducing an operating system for virtual general meetings of shareholders.

[Korean Version]