As explained in our previous newsletter (Link), the first recently proposed amendment to the Korean Commercial Code (the “KCC”) was promulgated and went into effect on July 22, 2025. The first amendment is intended to (i) expand the fiduciary duties of directors to include protection of shareholders’ interests, (ii) adopt an independent director system, (iii) extend the 3% rule (i.e., the rule limiting the combined voting rights of the largest shareholder and its related parties to 3%) to the election of outside directors who will serve as audit committee members, and (iv) allow listed companies in general, and obligate large listed companies, to hold general meetings of shareholders virtually. Among these, provisions expanding the fiduciary duties of directors to protect shareholders’ interests went into force immediately.
Following the previous update, on August 1, 2025, the Legislation and Judiciary Committee of the National Assembly approved the second proposed amendment to the KCC (the “Second Proposed Amendment”), which if finally passed would make cumulative voting mandatory and expand the separate election of audit committee members of large listed companies.
The Second Proposed Amendment would (i) amend Article 542-7 to prohibit, notwithstanding Article 382-2(1), large listed companies from excluding the cumulative voting system from their articles of incorporation and (ii) amend Article 542-12 to require large listed companies to (a) elect audit committee members from among the directors elected at general meetings of shareholders and (b) elect, by resolutions of general meetings of shareholders, two audit committee members (or such other number of at least three, as specified in the articles of incorporation) separately from other directors.
The addenda to the Second Proposed Amendment provide that the Second Proposed Amendment will become effective one year after its promulgation. However, the provision mandating the cumulative voting system will be applicable to a listed company from the first general meeting of its shareholders convened for the purpose of electing directors after the Second Proposed Amendment becomes effective.
The Democratic Party of Korea has announced that it would proceed with the passage of the Second Proposed Amendment at the plenary session of the National Assembly. However, as the People Power Party has declared plans to filibuster five legislative bills, including the Second Proposed Amendment, as well as the so-called “three broadcasting laws” and “Yellow Envelope Act,” it is difficult to predict whether the Second Proposed Amendment will pass the plenary session, whether any revisions will be made, or when it will be passed.
If the Second Proposed Amendment is approved, thereby expanding the separate election of audit committee members and mandating cumulative voting, there may be further significant impacts on corporate governance of Korean companies, including regarding considerations in relation to investor relations activities to be addressed at annual shareholder meetings, the management of general shareholder meetings, proxy solicitations for minority shareholder proposals, and the election of officers at general shareholder meetings. The Second Proposed Amendment may also have an important impact on corporate decision-making concerning restructurings, investments, strategies, finance, and investor relations. Accordingly, it is advisable to continue to pay close attention to these legislative developments.
