1.

Highlights and Practical Considerations of September 9, 2025 Amendment to KCC
 

(1)

Introduction of Mandatory Cumulative Voting for Large Listed Companies

Prior to the amendment, the KCC provided that shareholders holding 3% or more of the total issued shares – or, in the case of a listed company with total assets amounting to KRW 2 trillion or more (a “large listed company”), shareholders holding at least 1% or more of the total issued shares – could request that directors be elected through means of cumulative voting, unless otherwise stipulated in the articles of incorporation. However, since companies could opt out of cumulative voting through their articles of incorporation, as of June 30, 2025, only 21 out of 264 large listed companies (i.e., 8% of the total number) subject to corporate governance report submission had adopted cumulative voting, with the majority including provisions to exclude the cumulative voting system (for more information, please refer to the Korea Institute of Corporate Governance and Sustainability’s report (available in Korean, Link)).

The second amendment to the KCC prohibits large listed companies from excluding cumulative voting in their articles of incorporation and also revises rules in connection with related administrative fines. This mandatory cumulative voting requirement will apply from the first general meeting of shareholders convened for the election of directors after the amendment takes effect.

The supplementary provisions to the second amendment do not address the validity of existing provisions in articles of incorporation that exclude cumulative voting. However, the new cumulative voting requirements are likely to be considered mandatory provisions under the KCC. According to precedents, provisions in articles of incorporation that contradict such “mandatory legal provisions” are void (see Seoul Central District Court Decision 2006Gahap98304, rendered on July 24, 2008, etc.). Therefore, large listed companies that previously excluded cumulative voting in their articles of incorporation will be required to implement the cumulative voting system once the second amendment to the KCC takes effect.

Under the amended KCC, minority shareholders and activist funds are expected to make use of the cumulative voting procedure to participate more actively in company management. In addition, as further explained in part (2) below, it is also anticipated that there will be cases where requests would be made by shareholders for multiple audit committee members subject to separate election to be elected through cumulative voting. Given these developments, large listed companies should carefully follow legal changes and the actions of key stakeholders. It would also be advisable to review and, if necessary, amend the articles of incorporation – particularly provisions concerning the number and terms of directors. Companies should also reexamine their board governance structures and decision-making processes to prepare for potential shifts in board composition. Furthermore, establishing regular communication channels and providing transparent information can help strengthen trust and foster constructive relationships with minority shareholders.

If the introduction of cumulative voting coincides with the mandate for large listed companies to implement electronic general shareholders’ meeting systems – scheduled to be introduced on January 1, 2027 – inadequate internal systems and infrastructure could result in significant confusion during meetings. To mitigate such risks, companies should thoroughly prepare for the new regulatory environment by (i) proactively establishing reliable platforms and robust security systems in relation to both cumulative voting and electronic shareholders’ meetings, and (ii) developing comprehensive internal procedures and protocols to rapidly address unforeseen issues, such as system failures, through simulations and mock sessions of cumulative voting and electronic general shareholders’ meetings.
 

(2)

Expansion of Separate Election Procedures for Audit Committee Members in Large Listed Companies

Prior to the amendment, the KCC required that, in the case of large listed companies and listed companies with total assets of KRW 100 billion or more that had established an audit committee in lieu of a standing statutory auditor, audit committee members were to be elected from among the directors appointed at the general shareholders’ meeting. However, at least one audit committee member had to be separately elected as an audit committee member.

The second amendment to the KCC expands the required number of audit committee members subject to the separate election requirement to two, while allowing companies to stipulate in their articles of incorporation that the number of audit committee members subject to the separate election may be set at three or more. However, as no supplementary provisions have been enacted to specifically address the timing of this expanded requirement, it remains unclear whether companies must comply with the new separate election requirement for audit committee members immediately upon the amendment’s effective date. This amendment is expected to make it easier for minority shareholders and activist funds to gain representation on the board of directors and within the audit committee. If the updated requirement is implemented alongside the rule established by the first amendment to the KCC on July 22, 2025 – which limits the aggregated voting rights of the largest shareholder and related parties to 3% for the appointment and removal of outside directors serving as audit committee members – the chances that candidates nominated by minority shareholders or activist funds will be elected as separately elected audit committee members in large listed companies will increase significantly. Additionally, directors who represent or are aligned with minority shareholders will have greater opportunities to play an active role in corporate management by exercising their rights to request information and to investigate business affairs as members of the audit committee.

The aforementioned developments could have both positive and negative implications. On the one hand, the appointment of audit committee members representing minority shareholders could enhance transparency and accountability in corporate management by better utilizing the audit committee’s rights (including rights to request information and investigate the company’s business affairs). On the other hand, in certain cases, the board’s decision-making may be delayed and conflicts among stakeholders may surface more prominently. Therefore, large listed companies should strengthen their investor relations (“IR”) activities to secure the support of institutional investors, such as pension funds, as well as minority shareholders. Additionally, they should further develop transparent information disclosure practices and responsible management systems that align with the expectations of a diverse shareholder base. Companies are also encouraged to review their current audit committee election structures and board operation practices, carefully consider the potential implications of the amendment and proactively prepare to adapt to the evolving governance landscape.
 

2.

Additional Legislative Trends Concerning KCC
 

(1)

Proposed Amendments to KCC Regarding Mandatory Cancellation of Treasury Stock

Under the current KCC, companies may acquire treasury stock under certain conditions. However, there has been criticism that such acquisitions do not serve the function of returning value to shareholders, as companies often retain treasury stocks for prolonged periods without cancelling or transferring them to allied parties, thereby using them as a tool to distort corporate governance.

In response, a recently proposed amendment to the KCC would require companies to mandatorily cancel treasury stocks within a set period, except in certain limited circumstances, such as using the shares for executive or employee compensation. The amendment also provides that treasury stocks already held prior to the law’s enforcement would also be subject to mandatory cancellation.
 

(2)

Legislative Developments Concerning Amendments to KCC Including Codification of Business Judgment Rule

There are concerns that the recent expansion of directors’ duty of loyalty to encompass not just the company itself but also its shareholders could increase the risk of individual directors being subject to criminal liability in relation to the board’s decision-making process. As a result, there is a growing recognition of the need to respect management decisions made with due care, based on sufficient information and in the best interests of the company and its shareholders. This approach aims to prevent managerial stagnation, curb indiscriminate lawsuits and minimize retrospective judicial intervention.

In response, a proposed amendment to the KCC has been submitted, clarifying that a director’s management decision will not be considered a breach of duty if such a decision was made with due care and based on sufficient information. In connection with the above-mentioned proposed amendment, on September 2, 2025, the Democratic Party of Korea launched the “Task Force on the Rationalization of Criminal Penalties and Civil Liability for Economic Crimes.” The Task Force announced that, in addition to improving the current breach of trust regime, it will also review the need for introducing a class action system, punitive damages and a Korean-style discovery procedure.
 

3.

Legislative Developments in Financial Investment Services and Capital Markets Act Concerning Introduction of Mandatory Tender Offer System

The current KCC and the Financial Investment Services and Capital Markets Act (the “FSCMA”) provide mechanisms to protect the rights and interests of general shareholders – such as special resolutions at general meetings of shareholders and appraisal rights – in restructuring transactions like mergers and acquisitions. However, in the case of share transfer transactions – which are widely used in corporate M&A – it has been pointed out that there is insufficient protection of general shareholders, since even if the acquirer pays a control premium to acquire shares and thereby gain management control over the target company, the relevant benefits would not be shared with all shareholders as would be the case in restructuring transactions such as mergers.

To address this issue, National Assembly Representative Kim Hyunjung proposed an amendment to the FSCMA (Bill No. 2212501) on August 29, 2025. This amendment bill introduces, among other things: (i) the mandatory tender offer system, under which a shareholder who, together with specially related parties, comes to own 25% or more of the total issued shares of a company would be required to make a tender offer for all of the remaining outstanding shares of the relevant company, and (ii) a tender offer price requirement, requiring the offer price to be set above a threshold prescribed by Presidential Decree, taking into account both the preceding purchase price and the company’s net asset value.

If implemented, this mandatory tender offer system would impose significant additional financial and procedural burdens on those seeking to acquire management control of listed companies, as they would not only need to secure substantial additional funds but also comply with tender offer processes. This could represent a new regulatory risk for companies pursuing strategic M&A or governance restructuring transactions.

Accordingly, companies considering or pursuing the acquisition of shares in listed companies should carefully assess the potential impact of the mandatory tender offer system – including increased costs and possible delays in transaction timetables – and prepare appropriate response strategies in advance. It may also be advisable to consider alternative transaction structures, such as securing strategic minority stakes within the thresholds that do not trigger the mandatory tender offer obligations, depending on the relevant circumstances of the concerned company.