Recently there has been active discussion regarding measures to protect the rights and interests of general shareholders and to enhance the procedural fairness of the board of directors’ decision-making in connection with reorganization transactions of listed companies, such as mergers, spin-offs, comprehensive exchanges and transfers of shares, and the listing of subsidiaries. In particular, in 2026, a series of regulatory developments has been taking shape, including (i) the reform of the dual-listing review system by the Financial Services Commission (the “FSC”) and the Korea Exchange (the “KRX”), (ii) the issuance of the “Guidelines on the Standards of Directors’ Conduct in the Context of Corporate Restructuring” (the “Guidelines”) by the Ministry of Justice (the “MOJ”), and (iii) the proposed amendment to the Financial Investment Services and Capital Markets Act (the “FSCMA”), to shift the calculation standard for merger values and other relevant transaction valuations toward a fair value-based approach.

Since the amended Korean Commercial Code (the “KCC”) introduced the directors’ fiduciary duty to protect shareholder interests in 2025, protecting general shareholders and ensuring the procedural legitimacy of the board of directors’ decision-making have become key concerns in reorganization transactions. In particular, as market interest in the fairness of transaction terms and the impact on general shareholders persists after some listed companies announced their reorganization plans, the need to establish the legitimacy of the transaction purpose and to ensure fair transaction terms is growing.

Improvements to the systems related to reorganization transactions that have been or are expected to be made to date can be broadly divided into (i) the improvement of the listing system to prohibit dual-listings by the FSC and the KRX, (ii) the issuance of the Guidelines by the MOJ and strengthened disclosure of reorganization transactions, and (iii) the amendment to the FSCMA that changes the standard for calculating merger value and related valuations to the fair value evaluation standard. In the following sections, we will examine the key details of each system improvement and its practical impact.
 

• Review scope: In principle, the separate listing of a non-listed subsidiary that is substantially controlled by a listed parent company or deemed to be effectively the same economic entity as such parent company will be subject to review. The review scope includes subsidiaries subject to consolidated financial statements under the Act on External Audit of Stock Companies and affiliates in a vertical control relationship under the Monopoly Regulation and Fair Trade Act, including affiliates in which the parent company holds 20% or more of the shares, or companies in which such affiliates hold more than 50% of the shares.
   

• Review criteria: Operational independence, managerial independence and investor protection for the parent company’s shareholders will be comprehensively reviewed. In particular, the proposed special review criteria require (i) independence of the subsidiary’s business and management, (ii) compliance with the duties of the parent company’s board and an affirmative resolution by the parent company’s board, and (iii) sufficient shareholder protection efforts commensurate with the need to protect the parent company’s general shareholders.
   

• Duty of parent company’s board of directors: The proposed rules would require a parent company’s board of directors, when listing its subsidiary, to assess the impact on general shareholders and prepare shareholder protection measures, communicate with shareholders or confirm shareholder consent, pass a board resolution on the listing and notify the subsidiary, and disclose its performance of these duties, including the reason for not holding a shareholder vote, if applicable. These steps would require prior review and approval by an independent special committee and would also apply to overseas listings of subsidiaries. In-kind distribution of shares of the subsidiary, the cancellation of treasury shares and other measures are being considered as shareholder protection measures.
   

• Shareholders’ consent: With respect to shareholder protection efforts, obtaining consent from the parent company’s shareholders would generally be recommended, and would be mandatory for subsidiaries established through a vertical spin-off. For other subsidiaries, obtaining shareholder consent would create a presumption that the shareholder protection efforts requirement has been satisfied, while, absent such consent, the adequacy of shareholder protection efforts would be subject to strict case-by-case review, subject to a limited exemption for low-materiality subsidiaries. The level of shareholder consent would be assessed by applying standards similar to the “3% rule” applicable to the appointment of audit committee members, which limits voting rights in excess of 3% and requires approval by a majority of voting rights present and at least one-fourth of total voting rights.
   

The proposed amendments to the KRX regulations and the proposed dual-listing guidelines announced on July 7, 2026 are expected to be finalized following the comment period and review and approval by the Securities and Futures Commission and the FSC. Accordingly, it is necessary to continue reviewing the exact wording of the final rules, their effective date and the scope of their application.
 

The Guidelines themselves are not legally binding, and failure to take measures to enhance fairness in accordance with the Guidelines does not by itself amount to a breach of directors’ fiduciary duty to shareholders. However, in recent securities market transactions, such as comprehensive exchanges of shares and mergers involving multiple listed companies, descriptions of how measures under the Guidelines were implemented have in some cases been supplemented following review by the financial supervisory authorities and their requests to correct the securities registration statement. As such, the Guidelines have become an important practical reference for reorganization transactions. The key items supplemented in these descriptions include the following:
 

• Whether the transaction was pursued in consideration of the directors’ fiduciary duty to shareholders under the amended KCC and the purpose of the Guidelines;
   

• Whether an independent organization, such as a special committee, was established and operated, and whether an external expert’s review was conducted;
   

• Whether sufficient information was provided to the shareholders; and
   

• The background and purpose of the transaction, its impact on shareholder value, future restructuring plans, risks related to the exercise of appraisal rights or litigation by minority shareholders, calculation of exchange ratio and external valuation.
   

• Determination of merger values and related valuations based on a fair value that comprehensively takes into account share price, asset value and earnings value;
   

• Statutory codification of the duty of the board of directors to prepare and disclose a written opinion on mergers, etc.; and
   

• Strengthening of external appraisers’ obligations to assess and disclose information.
   

The specific wording of the NPC’s alternative has not been disclosed yet, and may be amended or modified in the future during the review process by the Legislation and Judiciary Committee and the plenary session of the National Assembly. In particular, at the subcommittee stage, only the broad direction of reflecting asset value, earnings value and similar factors in calculating merger value was discussed, and detailed shareholder protection mechanisms such as directors’ and auditors’ liability for damages or deeming fairness based on approval by a majority of minority (“MOM”) have not yet been determined. Accordingly, there are concerns that the introduction of the fair value-based calculation method may increase disagreements and legal disputes among stakeholders over the valuation of a company and complicate the process and timeline of reorganization transactions.
 

The above-mentioned system improvements indicate that protecting general shareholders and ensuring procedural fairness in decision-making are becoming increasingly important in the reorganization transactions of listed companies. Listed companies pursuing reorganization transactions such as mergers, spin-offs, comprehensive exchanges and transfers of shares, and listing of subsidiaries should fully discuss, at the board level, the purpose and necessity of the transaction, the fairness of its terms and conditions, the impact on general shareholders and possible alternatives. They should also record and manage the steps taken to secure procedural legitimacy in board minutes and internal review materials in preparation for potential legal disputes with shareholders or future reviews by supervisory authorities. In addition, for transactions that may create a conflict of interest between controlling shareholders and general shareholders, companies should actively consider introducing objective measures to enhance fairness, such as the establishment of a special committee and/or review by an independent external expert.

Furthermore, companies should ensure that the background of the transaction, its impact on shareholder value, the assumptions underlying the calculation of value and the valuation method are explained consistently across external materials such as securities registration statements, reports on material fact, and explanatory materials for the general meeting of shareholders and internal materials such as materials reviewed by the board of directors and external valuation materials.

However, because the detailed standards for reviewing dual-listings have been released only in draft form and are expected to be finalized following the comment period and review and approval by the Securities and Futures Commission and the FSC, and because the related legislative process for introducing the fair value-based calculation method under the FSCMA is still underway, listed companies planning to engage in restructuring transactions should closely review the finalization and effective date of the KRX regulations and dual-listing guidelines, the progress of the proposed amendment to the FSCMA through the Legislation and Judiciary Committee and the plenary session of the National Assembly, the timing of implementation and the scope of application, and subsequently establish a restructuring strategy aligned with the evolving regulatory environment.

[Korean Version]