Since the new government came into power as a result of the June 3rd presidential election, the market has shown a great deal of interest in the new administration’s policies aimed at enhancing corporate governance and systems related to corporate law, as well as initial amendments to the Korean Commercial Code (the “KCC”) as a starting point to implement such policies.
Shortly after President Lee Jae-myoung’s inauguration on June 5, 2025, the Stock Market Revitalization Task Force of the Democratic Party of Korea (the “DPK”) held a press conference to announce its position on various proposed amendments to the KCC. Subsequently, on June 27, 2025, the DPK established its “KOSPI 5,000 Special Committee” and further released a statement urging the swift passage of such proposed amendments to the KCC.
As outlined in our previous newsletter (Link), the DPK has been discussing plans to (i) expand fiduciary duties of directors to include protection of shareholders’ interests, (ii) obligate listed companies to hold virtual general meetings of shareholders, (iii) adopt a system of independent directors, (iv) expand the separate election of audit committee members, and (v) mandate the implementation of cumulative voting for the appointment of directors. Shortly after the start of the new administration, the DPK submitted a separate legislative bill to amend the KCC to address (i) and (ii) above.
Previously proposed amendments to the KCC (including the bill submitted by the DPK discussed above) were submitted to the National Assembly’s Legislation and Judiciary Committee on July 1, 2025 for its consolidated review. Through bipartisan discussions, these proposed amendments (collectively, the “Amendment”) were passed at the plenary session of the National Assembly on July 3, 2025. The Amendment is intended to (i) expand the fiduciary duties of directors to include protection of shareholders’ interests, (ii) obligate listed companies to hold virtual general meetings of shareholders, (iii) adopt a system of independent directors, and (iv) expand application of the “3% rule” (i.e., the rule under the pre-amended KCC which aggregates and limits the voting rights of the largest shareholder and related parties to 3% in the appointment of statutory auditors and members of the audit committee who are not outside directors) to audit committee members who are outside directors. The provisions of item (i) above will take effect immediately, without any grace period, from the date of promulgation, while the provisions of item (ii) will come into force on January 1, 2027, and the provisions of items (iii) and (iv) will take effect after a grace period of one year. As for the other amendments proposed by the DPK which are not reflected in the Amendment, including those to expand the separate election of audit committee members and to mandate the implementation of cumulative voting for the appointment of directors, the Legislation and Judiciary Committee will discuss them further by gathering opinions through public hearings.
The provisions of the Amendment are summarized as follows (revisions of Articles 400(2), 524-4(3), 542-8(2) through (5), 542-11, and 635 are omitted from our summary below because they merely reflect the change of the term “outside directors” of a listed company to “independent directors”):
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Current Provisions |
Proposed Amendment |
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Article 364 (Place for Convocation) Unless otherwise provided for in the articles of incorporation, a general meeting of shareholders shall be convened at the place of the principal office or at any place adjacent thereto. |
Article 364 (Place and Method of Convocation) (1) Unless otherwise provided for in the articles of incorporation, a general meeting of shareholders shall be convened at the place of the principal office or at any place adjacent thereto. (2) A company shall convene a general meeting of shareholders in such a way that requires shareholders to be present in person at the place of convocation. |
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Article 368 (Methods of Adopting Resolutions and Exercise of Voting Rights) (1) (Omitted) (2) A shareholder may cause a proxy to exercise his/her voting rights. In such cases, the proxy shall submit a document proving his/her power of representation at a general meeting of shareholders. (3) (Omitted) |
Article 368 (Methods of Adopting Resolutions and Exercise of Voting Rights) (1) (Omitted) (2) A shareholder may cause a proxy to exercise his/her voting rights. In such cases, the proxy shall submit a physical or electronic document proving his/her power of representation at a general meeting of shareholders. (3) (Omitted) |
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Article 382-3 (Fiduciary Duty of Directors) (1) Directors shall perform their duties in good faith for the interest of the company in accordance with statutes, and the articles of incorporation. |
Article 382-3 (Fiduciary Duty, etc., of Directors) (1) Directors shall perform their duties in good faith for the interest of the company and shareholders in accordance with statutes, and the articles of incorporation. (2) In performing their duties, directors shall protect the interests of all shareholders and treat the interests of all shareholders fairly. |
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Article 542-8 (Appointment of Outside Directors) (1) A listed company shall ensure that outside directors comprise no less than one fourth of the total number of directors except in cases prescribed by Presidential Decree in light of the scale of assets; provided, that listed companies prescribed by Presidential Decree based on the scale of assets, etc., shall appoint three or more outside directors and the number of outside directors shall account for more than half of the total number of directors. |
Article 542-8 (Appointment of Independent Directors) (1) A listed company shall ensure that independent directors (referring to outside directors under Article 382(3) that perform functions independently from inside directors, executive directors, and persons who instruct other individuals to conduct business; hereinafter the same shall apply) comprise no less than one third of the total number of directors except in cases prescribed by Presidential Decree in light of the scale of assets; provided, that listed companies prescribed by Presidential Decree based on the scale of assets, etc., shall appoint three or more independent directors and the number of independent directors shall account for more than half of the total number of directors. |
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Article 542-12 (Composition, etc., of Audit Committees) (1) ~ (3) (Omitted) (4) In appointing or dismissing a member of the audit committee under paragraph (1), a shareholder (in the case of the largest shareholder, when appointing or dismissing a member of the audit committee who is not an outside director, the shares held by his/her related parties and other persons prescribed by Presidential Decree shall be aggregated) who holds more than 3/100 of the total number of issued and outstanding shares (a lower shareholding ratio may be determined by the articles of incorporation, and if a lower shareholding ratio is set forth in the articles of incorporation, such ratio shall apply) of a listed company, excluding non-voting shares, shall not exercise his/her voting rights with respect to such excess shares. (5) · (6) (Omitted) (7) Paragraph (4) shall apply mutatis mutandis to the appointment or dismissal of an auditor by a listed company. In such cases, if a shareholder is the largest shareholder, shares held by his/her related parties and other persons prescribed by Presidential Decree shall be aggregated. (8) (Omitted) |
Article 542-12 (Composition, etc., of Audit Committees) (1) ~ (3) (Omitted) (4) In appointing or dismissing a member of the audit committee under paragraph (1), a shareholder (in the case of the largest shareholder, the shares held by his/her related parties and other persons prescribed by Presidential Decree shall be aggregated) who holds more than 3/100 of the total number of issued and outstanding shares (a lower shareholding ratio may be determined by the articles of incorporation, and if a lower shareholding ratio is set forth in the articles of incorporation, such ratio shall apply) of a listed company, excluding non-voting shares, shall not exercise his/her voting rights with respect to such excess shares. (5) · (6) (Omitted) (7) Paragraph (4) shall apply mutatis mutandis to the appointment or dismissal of an auditor by a listed company. [Second sentence deleted] (8) (Omitted) |
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[No Article 542-14 in current provisions] |
Article 542-14 (Virtual General Meetings of Shareholders) (1) Except as otherwise provided for in the articles of incorporation, a listed company may hold a general meeting of shareholders by a resolution of the board of directors, in such a way that some of the shareholders may participate in the resolution by electronic means from a remote location, without being present in person at the place of convocation (hereinafter referred to as “virtual general meeting of shareholders”). (2) A listed company prescribed by Presidential Decree based on the scale of assets, etc., shall hold virtual general meetings of shareholders. (3) Where a listed company holds a virtual general meeting of shareholders, shareholders may attend the general meeting only by either being present in person at the place of convocation, or by attending the meeting by electronic communication means. (4) Shareholders and others present at a virtual general meeting of shareholders shall be deemed to have been present in person at the place of convocation under Article 364. (5) Where a listed company holds a virtual general meeting of shareholders, the notice of convocation under Article 363(1) shall include the company’s intent to hold the virtual general meeting of shareholders, the method of attendance, and other matters prescribed by Presidential Decree. (6) Means of electronic communication, requirements for holding a virtual general meeting of shareholders under paragraphs (1) through (5), and other necessary matters shall be prescribed by Presidential Decree. |
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[No Article 542-15 in current provisions] |
Article 542-15 (Operation, etc., of Virtual General Meetings of Shareholders) (1) Where a listed company holds a virtual general meeting of shareholders pursuant to Article 542-14, it shall properly operate the general meeting so that shareholders can participate in the proceedings and resolutions of the general meeting in real time. (2) In order to ensure the efficiency and fairness of the operation of virtual general meetings of shareholders, a listed company may designate an institution in charge of managing virtual general meetings of shareholders and entrust the institution with the operation of the procedures for participating in the proceedings and resolutions of virtual general meetings of shareholders, as prescribed by Presidential Decree. (3) The institution designated to manage virtual general meetings of shareholders in accordance with paragraph (2) and its officers/employees shall not use any information that they have become aware of in the course of performing their duties and is not disclosed to the public, for their own or a third party’s benefit without any justifiable reason. (4) A listed company shall preserve the records relating to the holding of virtual general meetings of shareholders, for five years from the closing date of each general meeting, as prescribed by Presidential Decree. (5) A listed company shall keep the records under paragraph (4) at its principal office for three months from the closing date of each general meeting, and shareholders may request access to such records during business hours. (6) Matters necessary for the operation of virtual general meetings of shareholders, such as the method of and procedure for inquiries by shareholders and the proceedings of the chairperson, shall be prescribed by Presidential Decree. |
The Amendment will be forwarded to the government and, assuming the President does not request reconsideration, promulgated within 15 days after completion of deliberation by the State Council and receipt of Presidential approval.
The Amendment may significantly impact companies’ corporate restructuring, investments, strategic planning, financial capabilities and investor relations (“IR”) decisions. In particular, considering the introduction of the duty of directors to protect shareholders’ interests, which is in addition to their existing duty to protect the company’s interests and is scheduled to take effect without a grace period, it is essential for companies to place a greater emphasis on establishing fairness and transparency in the decision-making process of their directors and management, thereby mitigating the risk of liability due to the breach of directors’ duties. From a legal perspective, in order to comply with the directors’ duty to protect shareholders’ interests for each type of transaction and decision-making, it may be important to identify and review the substance of shareholders’ interests under various circumstances, along with the matters requiring deliberation and consideration in relation to directors’ decision-making. As the Amendment requires listed companies to hold virtual general meetings of shareholders, minority shareholders’ participation in general meetings is likely to increase. Further, through the introduction of the system of independent directors, the requirements for independence in the composition of boards of directors will be strengthened. As a result, the Amendment has placed greater importance on the operation of general meetings of shareholders, execution of IR activities for shareholders, and solicitation of proxy voting. Companies should therefore consider improving their corporate governance structures to ensure compliance with these requirements.
Companies and other market participants should pay close attention to the Amendment.
