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Announcement of a Comprehensive Plan to Eradicate AI-Generated False or Exaggerated Advertisements On December 10, 2025, at the 7th National Policy Coordination Meeting, the Korean government (the “Government”) finalized and announced the “Comprehensive Plan to Eradicate AI-Generated False or Exaggerated Advertisements” (the “Plan”). The Plan aims to establish a Government-wide response system to address the recent surge in so-called “AI-generated fake advertisements” that impersonate professionals, such as doctors, or misappropriate the likenesses of celebrities using generative AI and deepfake technology. The Plan seeks to do so by (i) proactively preventing the distribution of such advertisements, (ii) promptly blocking them once distributed, and (iii) strengthening financial sanctions against violators. In particular, the Plan includes (i) requiring a person who creates, edits, and posts AI-generated content (“Direct Information Provider”) to label that their photos or videos were generated by AI, (ii) requiring platform operators to monitor whether Direct Information Providers comply with such labelling obligation, and (iii) amending the Act on Promotion of Information and Communications Network Utilization and Information Protection (the “Network Act”) to significantly reinforce regulations, including the introduction of punitive damages. The key points of the Plan are as follows. 1. Proactive Prevention of False or Exaggerated Advertisement: “AI-generated” Labeling Obligations for Direct Information Providers, Users, Portal and Platform Operators, and Establishment of Relevant Guidelines The Government plans to amend the Network Act to require parties involved in the distribution of AI-generated content to label content generated by AI, and to finalize guidelines on transparency obligations for AI business operators under the Act on the Development of Artificial Intelligence and Establishment of Trust (the “AI Basic Act”). (1) By the first quarter of 2026, the Korea Media and Communications Commission (the “KMCC”) plans to amend the Network Act to (i) require Direct Information Providers, users, portal and platform operators to label content generated by AI, and (ii) impose administrative penalties on platform operators that violate their monitoring obligation, and on any person who removes or alters an “AI-generated” label. Direct Information Providers: To label that the content is generated by AI when they directly create, edit, or post AI‑generated content. Users: To not arbitrarily remove or alter an “AI-generated” label that was added pursuant to the Network Act and the AI Basic Act. Portal and Platform Operators: To monitor whether Direct Information Providers and users have labeled their content as “AI-generated” (including by providing labeling methods and notice of labeling obligations). If enacted, this amendment may impose obligations not only on AI business operators under the AI Basic Act, but also on Direct Information Providers, users, and portal and platform operators, including obligations to include an “AI-generated” label, prohibitions on removing or altering such labels, and duties to monitor compliance with these requirements. (2) To ensure compliance with the AI Basic Act, which is scheduled to take effect in January 2026, the Ministry of Science and ICT plans to officially finalize and implement AI Transparency Guidelines to support AI business operators in fulfilling their transparency obligations, such as the requirement to notify or label deepfake content. 2. Prompt Blocking of False or Exaggerated Advertisements Once Distributed: Promoting Industry Self-Regulation and Enhancing the Effectiveness of the Government Blocking Measures The Government plans to (i) promote and encourage platform operators’ self-regulation to block false or exaggerated AI-generated advertisements, (ii) apply a fast-track system to its review of illegal information, and (iii) introduce procedures for emergency corrective orders. (1) The Korea Media and Communications Standards Commission (the “KMCSC”) plans to expand its fast-track system, through which the Ministry of Food and Drug Safety (“MFDS”) may currently request the KMCSC to review illegal information regarding narcotics, to also cover food, pharmaceuticals, and cosmetics, and to introduce written (or electronic) reviews by amending the Act on the Establishment and Operation of Korea Media and Communications Standards Commission. (2) By amending the Network Act, the KMCC plans to establish procedures that will allow the KMCC to issue emergency corrective orders to platform operators even prior to the review by the KMCSC in case a relevant authority (e.g., MFDS, Korea Fair Trade Commission (“KFTC”), etc.) requests deletion of illegal information that is clearly determined to cause harm to the lives or property of Korean citizens. 3. Expansion of Sanctions and Enforcement Power: Introduction of Punitive Damages and Higher Administrative Fines The Government plans to clarify legal standards and increase penalties to enhance predictability regarding what constitutes illegal AI advertising practices and to eliminate economic incentives for such conduct. (1) The KFTC and the MFDS announced that they will clarify the standards for determining the illegality of AI-generated advertisements by amending the Guidelines on Review of Labeling and Advertisements Regarding Recommendations and Endorsements. In particular, they stated that any advertisement that recommends a product using an AI-generated “virtual person” or “fake professional” will, unless clearly labeled as “AI-generated,” be regarded as “unfair labeling and advertising” or “consumer-misleading advertising,” and thus subject to sanctions. (2) The KFTC and the KMCC plan to amend the relevant laws to reduce incentives for unlawful conduct and strengthen monetary sanctions to ensure strict enforcement against violations. The Network Act amendment will introduce punitive damages of up to five times the actual loss for the malicious distribution of false or manipulated information. In addition, administrative fines for false or exaggerated advertising under the Act on Fair Labeling and Advertising (the “Labeling and Advertising Act”) will be significantly increased from the current level of up to 2% of the revenues and, in case it is difficult to calculate the revenues, up to KRW 500 million. 4. Implications The key points of the Plan are: (i) introducing mandatory labeling requirements for distributors of AI-generated content, (ii) establishing transparency guidelines to AI business operators, (iii) expanding and refining industry self-regulation on AI-generated false or exaggerated advertising, (iv) applying a fast-track system to the KMCSC’s enforcement process, and (v) strengthening monetary sanctions against violators. The Plan is expected to expand AI-content?related obligations under the AI Basic Act beyond AI business operators to also encompass Direct Information Providers, users, and distributors, and to strengthen monetary sanctions for violations involving AI-generated false or exaggerated advertising. Accordingly, relevant companies and personnel should carefully assess these regulations and associated risks when distributing AI-generated content or using AI in advertising. Furthermore, we recommend closely monitoring amendments to the Network Act, the Labeling and Advertising Act, and the Guidelines on Review of Labeling and Advertisements Regarding Recommendations and Endorsements, and, once the specific regulations under the amendments are finalized, promptly reviewing internal work processes and identifying areas for improvement to ensure compliance. [Korean Version]
2025.12.16

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Key HR Amendments for 2026 The following are updates on amendments to key labor and employment laws that we believe companies should take note of now and in 2026. 1. Minimum Hourly Wage for 2026: KRW 10,320 (The Minimum Wage Act / Effective as of January 1, 2026) The minimum hourly wage for 2026 will be KRW 10,320, which is an increase by KRW 290 (approximately 2.9%) compared to the 2025 rate of KRW 10,030. The total amount of regular bonuses and cash welfare benefits will be fully included in the calculation of minimum wage. 2. Amendment to the Trade Union and Labor Relations Adjustment Act (the “TULRAA”), commonly known as the “Yellow Envelope Act” (Effective as of March 10, 2026) The Yellow Envelope Act will become effective on March 10, 2026. The key aspects of the amendment are as follows. (1) Expansion of the Scope of an “Employer” (Article 2, Subparagraph 2) This Amendment recognizes an entity as an “employer” under the TULRAA if it has substantial and specific control over working conditions, even if it is not the direct employer under an employment contract. Accordingly, if a contracting entity substantially and specifically controls or determines the working conditions of a subcontractor’s employees, it may be deemed an employer and be obligated to engage in collective bargaining with the subcontractor’s union. (2) Expansion of the Scope of “Union Membership” (Article 2, Subparagraph 4) Currently, the TULRAA stipulates that an organization is not considered a trade union if it allows non-employees to join. This Amendment deletes this provision, thereby ensuring the right to organize for various types of workers, including special employment workers and platform workers, and aligning with recommendations from international organizations such as the ILO. (3) Expansion of the Scope of an “Industrial Dispute” (Article 2, Subparagraph 5) Currently, the TULRAA defines an industrial dispute as “a state of dispute arising from a disagreement over claims concerning the determination of working conditions, such as wages, working hours, welfare, dismissal, and other treatment.” This definition limits industrial disputes to disagreements arising during the process of determining working conditions applicable to all union members. However, this Amendment redefines an industrial dispute as “a state of dispute arising from a disagreement over claims concerning the determination of working conditions, such as wages, working hours, welfare, dismissal, the status of employees, and other treatment, and business management decisions that affect working conditions, as well as from the employer’s clear violation of a collective bargaining agreement regarding matters set forth in Article 92, Subparagraph 2, Items (a) through (d).” Thus, this change expands the scope of legitimate industrial action. (4) Limitation on Damage Claims Against Unions (Article 3) While the current TULRAA grants immunity to unions or workers from liability for damages resulting from legitimate collective bargaining and industrial actions, this Amendment broadens this protection to cover damages arising from “other activities of the trade union” as well. It also clarifies that a union or worker is not liable for damages caused to an employer when acting in defense against the employer’s illegal acts. It prohibits employers from exercising their right to claim damages for the purpose of interfering with union activities. Moreover, this Amendment outlines specific factors that courts must consider when determining the extent of individual liability for illegal acts committed by the union and/or workers and provides a framework for such union and/or workers to request a reduction in damages. In line with the above, the Ministry of Employment and Labor (the “MOEL”) has announced a legislative notice for a partial amendment to the Enforcement Decree of the TULRAA (the “ED Amendment”) to facilitate a substantive collective bargaining process. The key highlights of the proposed ED Amendment are provided below. (1) Establishing Grounds for Extension of Labor Relations Commission Decision Period (Article 14-3, Para. 3 and Article 14-5, Para. 5) Currently, when an employer fails to make a public announcement regarding the fact of a request for bargaining, a trade union may request the relevant Labor Relations Commission (“LRC”) to address this situation. Thus, when the LRC receives such a request for correction, it shall decide thereon within 10 days from the date it receives the request. However, under the ED Amendment, the LRC’s current 10-day decision-making period may be extended once by up to an additional 10 days, allowing for a maximum total of 20 days, as grounds for such extension have been established. (2) Clarification of Criteria for Separation and Integration Decisions of Bargaining Unit (Article 14-11, Para. 3) The ED Amendment establishes clear criteria for the LRC when separating or integrating bargaining units. In making such determinations, the LRC must now consider additional factors, including the union’s scope, the commonality of interests, the adequacy of representation by other unions, potential inter-union conflicts, and the parties’ preferences—expanding upon previous criteria such as differences in working conditions, types of employment, and bargaining practices. 3. Permission of Punishment Against Employers with Habitual Wage Payment Delays Under the Amendment to the Employee Retirement Benefit Security Act (the “ERBSA”) (Article 44 / Effective as of November 11, 2025) To strengthen sanctions against employers who intentionally and repeatedly fail to pay wages and in line with the amendment to the Labor Standards Act (the “LSA”), which now allows punishment against employers (regardless of the victim’s will), the amendment of the ERBSA also allows punishment (regardless of the victim’s will) with respect to delays in retirement benefit payment against employers that are listed in the disclosure list pursuant to Article 43-2 of the LSA. 4. Reinforcement of Support for Substitute Employees and Benefits for Reduced Working Hours during the Childcare Period (The Amendment to the Enforcement Decree and Enforcement Rules of the Employment Insurance Act (the “Act”) / Effective as of January 1, 2026) Where an employer continues to employ a substitute employee after the employee on childcare leave returns to work, subsidies for substitute employees will be additionally provided for up to 1 month, and will be paid in full during the period of substitute employment (Articles 29 Para. 4 and Para. 6 of the Enforcement Decree of the Act). In calculating the amount of benefits for reduced working hours during the childcare period, the upper limit of the reference amount will be increased as follows: for the first 10 hours of reduction per week (100 % of ordinary wages), from KRW 2.2 million to KRW 2.5 million; and for the remaining reduced working hours (80 % of ordinary wages), from KRW 1.5 million to KRW 1.6 million (Article 104-2, Para.2 of the Enforcement Decree of the Act). The procedure to apply for the work-sharing subsidy[1] will be simplified. When filing an application for the work-sharing subsidy, the employer may simply specify the designated duty sharer in the application form without submitting any supporting documents (Article 51, Para.1 of the Enforcement Rule of the Act). [1] Work-sharing subsidy: A system that subsidizes part of the allowance paid to a co-worker who performs the duties of an employee with reduced working hours during the childcare period. [Korean Version]
2025.12.24

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KFTC Presidential Briefing - Review of 2025 and Enforcement Plan for 2026 On December 19, 2025, the Korea Fair Trade Commission (hereinafter “the KFTC”) delivered a presidential briefing titled “Evaluation of 2025 achievements and areas for improvement and future work directions.” The KFTC announced it will actively strengthen enforcement of competition‑related regulations, backed by an unprecedented large-scale increase in personnel and reforms to the administrative fines regime. In particular, the KFTC is expected to step up inspections and investigations into violations of regulations governing large conglomerates, especially in traditional power-imbalanced (“Gap-Eul”) sectors such as subcontracting, franchising, and distribution; sectors closely related to people’s livelihoods; the digital platform market; and unfair intra‑group transactions. Therefore, to mitigate regulatory risk, companies are advised to proactively familiarize themselves with the KFTC’s new and forthcoming rules and inspection priorities, assess potential operational impacts, and strengthen preemptive reviews and voluntary compliance programs. In its briefing, the KFTC highlighted the following main achievements for 2025: (i) implementing comprehensive measures to resolve core management difficulties faced by small and medium-sized enterprises (“SMEs”) and small business owners; (ii) reducing burdens on people’s livelihoods and strengthening consumer rights protection; and (iii) sanctioning unfair practices by large business groups that hinder innovation and competition, while reforming regulations that restricted competition. For 2026, the KFTC set out the following key initiatives: (i) remedying power imbalances between large and small enterprises; (ii) promoting fair competition in sectors closely related to people’s livelihoods; (iii) fostering an innovation ecosystem in digital markets; and (iv) strengthening governance of large business groups and reforming incentive systems. In order to ensure that these initiatives are carried out effectively, the KFTC will enhance the speed and transparency of case handling[1] and increase the effectiveness of economic sanctions[2]. Key details of the KFTC’s 2026 key initiatives are as follows. 1. Remedy Power Imbalances Between Large and Small Enterprises The KFTC announced concrete measures under the overarching principle of ensuring fair compensation for SMEs and small business owners, strengthening detection of unfair practices in power‑imbalanced (“Gap-Eul”) relationships, and boosting the bargaining power of weaker parties to promote mutually beneficial growth. Subcontracting ? Create fair subcontracting conditions by expanding payment‑guarantee obligations, strengthening the effectiveness of principal’s direct payment obligations, mandating the use of electronic payment systems, and broadening the scope of the subcontract‑price linkage system (e.g., to include energy costs). ? Carry out focused inspections of major circumvention practices (such as contract‑splitting), unfair special clauses that shift safety costs to subcontractors, and unfair subcontracting practices in AI‑infrastructure‑related fields. ? Expand ex officio investigations to eradicate technology theft from SMEs and improve systems to ease evidence collection and the burden of proof for harmed firms. Franchising ? Implement phased institutional improvements to strengthen franchisees’ rights across the business lifecycle (start‑up, operation, closure). Proposed measures include providing prompt information to start up business and clarifying franchisees’ rights to terminate contracts. ? Conduct targeted investigations into cost‑shifting through new promotional methods and unfair practices combined with high‑interest lending. Distribution ? Shorten payment deadlines and strengthen monitoring of delayed payments and unwarranted reductions in payments for goods. The KFTC will also reinforce monitoring of unfair practices in power-imbalanced (“Gap-Eul”) sectors through an anonymous reporting center and specialized investigation teams. To strengthen the bargaining power of SMEs and small business owners, the KFTC plans to redesign the competition law framework to secure collective action rights—including exemptions from cartel provisions—and to grant organization rights to franchisees, suppliers, and dealers. 2. Promote Fair Competition in Sectors Closely Related to People’s Livelihoods To correct unfair practices that increase financial burden for the public, the KFTC will carry out focused inspections of collusion in four areas closely related to people’s livelihoods—food, education, construction, and energy. The KFTC will actively consider introducing stronger enforcement tools, such as compulsory investigative powers and price re-determination orders, to improve the effectiveness of investigations and sanctions. For product categories closely tied to daily life (e.g., ice cream, cooking oil, movie theaters, OTT streaming services, agricultural products, alcoholic beverages, and AI‑enabled industries), the KFTC will carry out in‑depth analyses of monopolistic distribution structures, the drivers of high prices, and barriers to market entry, with a view to removing competition‑restricting regulations. In order to enhance effectiveness of remedies for public harm, the KFTC also plans to promote consumer class actions, expand powers to compel submission of documents, and broaden private parties’ access to injunctive relief. It will actively use alternative dispute‑resolution mechanisms—such as promoting mediation through enactment of a Fair Trade Dispute Mediation Act—and strengthen the role of the Korea Consumer Agency to provide faster relief. The KFTC also announced plans to establish a relief fund, financed by administrative fines it levies, to facilitate prompt and effective recovery for consumers and SMEs. Finally, the KFTC will step up regulation in everyday sectors—such as culture events, wedding halls, restaurants, fitness, AI products, and funeral services—by correcting unfair contract terms, creating and revising standard contracts, policing dark‑pattern tactics, and cracking down on misleading labeling and advertising to prevent consumer harm and protect rights. The Commission will actively tackle deceptive practices in digital markets (including AI‑driven false or exaggerated advertising and distorted online price displays) and strengthen direct platform responsibility to better protect consumers who use online platforms. 3. Foster an Innovation Ecosystem in Digital Markets The KFTC will actively monitor, investigate, and remedy abuses of market power in the digital sector (including mobile and digital infrastructure, AI and cloud services, and delivery and driver‑for‑hire app sectors). To strengthen transaction stability and transparency between platforms and the merchants that operate on those platforms, the KFTC will solicit inputs from domestic and international stakeholders and liaise with the National Assembly to support legislative discussions on the digital market. Regarding merger review, the KFTC will actively assess transactions by taking into account the characteristics of innovative industries such as big tech and virtual‑asset platforms. It will promptly and thoroughly review mergers necessary for industrial restructuring in sectors such as petrochemicals and steel, and will continue to rigorously oversee compliance with any corrective measures imposed in merger cases. 4. Strengthen Governance of Large Business Groups and Reform Incentive Systems The KFTC will respond strictly to unfair intra‑group transactions and failures to disclose affiliated companies. The KFTC announced measures to strengthen monitoring and enforcement against self-dealing, such as (i) revising the standards for sanctions so that administrative fines can be imposed in proportion to unjust enrichment generated from self‑dealing, (ii) establishing statutory grounds for imposing fines for acts designed to evade regulation, and (iii) excluding treasury shares when determining the shareholding ratio subject to regulation on self-dealing. Meanwhile, to ensure that the special measures under the National High-Tech Strategic Industry Act (enacted to boost investment in high-tech strategic and venture industries) do not lead to indiscriminate expansion of corporate control, the KFTC plans to relax required ownership ratios for third-tier subsidiaries, subject to certain conditions and commitments to regional investment, permit financial leasing activities, and ease limits on external and overseas investment proportions to enable expanded venture investing by non-financial holding companies’ corporate venture capital (CVC) units and to promote strategic investment in globally promising technologies. [1] Measures to improve case handling include a staff increase (167 new positions), establishment of a new regional office in Gyeongin, a dedicated complaints‑handling team, a rapid‑response team for major cases, and operation of an emergency deliberation system; and enhancing complainants’ procedural rights and right to be informed by legislating appeal procedures and expanding opportunities to be heard. [2] The administrative fines system will be comprehensively reformed by strengthening fines for repeat violations, redefining the thresholds for seriousness, and raising the cap on fines. [Korean Version]
2025.12.22

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Personal Information Protection Commission Announced 2026 Work Plan On December 12, 2025, the Personal Information Protection Commission (“PIPC”) announced its 2026 work plan during a presential policy briefing (Link). Under the overarching vision of “Promoting an AI-Integrated Society Grounded in Trust in Personal Information Protection,” the PIPC outlined five strategic directions: (1) Strengthening effective enforcement and encouraging investment in personal information protection (2) Implementing proactive and preventive inspections across public and private sectors (3) Building a trusted AI-driven society (4) Enhancing privacy protection in everyday life (5) Establishing a global data trust network 1. Rigorous Sanctions and Meaningful Compensation Aligned with Public Expectations The PIPC plans to introduce a special provision for punitive administrative penalty under which companies committing repeated or serious violations of the Personal Information Protection Act (“PIPA”), particularly in cases involving willful misconduct, gross negligence, or significant harm, may face administrative penalties of up to 10% of their total revenue. In addition, the PIPC intends to amend the PIPA to allow class actions not only for injunctions, but also for monetary damages claims, thereby ensuring more effective compensation for victims of data breaches. Additionally, the PIPC will enhance the credibility of the ISMS-P certification[1] by introducing preliminary reviews, expanding on-site technical inspections, conducting special audits of companies that experience incidents, and revoking certifications in case of repeated or serious violations. These measures reflect the PIPC’s intent to enhance the effectiveness of the certification system, particularly in light of recent data breach incidents involving ISMS-P certified companies. 2. Strengthening Responsibility and Investment Proportional to Risk The PIPC will provide incentives, such as mandatory reduction in administrative penalties for companies that actively invest in personal information protection. At least 10% of IT investment resources must be allocated to personal information protection. By June 2026, the Chief Executive Officer (CEO) will be designated as the ultimate responsible person for personal information processing and protection, with codified management obligations. In addition, companies handling large-scale sensitive personal information will be required to designate a Chief Privacy Officer (CPO) and report such designation to the PIPC. 3. Transition to Preventative and Continuous On-Site Safety Inspections The scope of preliminary inspections will be expanded to industries processing large volumes of personal information, such as logistics and platform services, as well as sectors handling sensitive or high-risk personal information. The PIPC will also provide practical and qualitative evaluations and feedback on privacy policies for companies operating in areas closely tied to daily life (e.g., food and beverage ordering services, simple authentication providers) and those utilizing AI or emerging technologies. For small and micro enterprises with limited resources, the PIPC will offer rapid technical support in the event of data breaches and reduce the level of sanctions if corrective measures are taken promptly. 4. Establishing a Personal Information Framework to Support AX (AI Transformation) Innovation The PIPC will introduce an “AI Special Exception,” permitting the processing of personal information under strict safeguards and subject to deliberation and resolution by the PIPC, in cases where anonymization or pseudonymization alone cannot achieve public interest objectives. Also, the PIPC will expand and refine the legal grounds for the lawful processing of personal information. This framework aims to allow the use of high-quality personal data as AI training datasets to improve AI model performance. Moreover, the PIPC will introduce (i) a “One-Stop Support System for Pseudonymization” to assist public institutions with pseudonymization and adequate assessments and (ii) a “No-Action Letter System” to promptly resolve legal uncertainties.[2] 5. Building a Secure MyData Ecosystem The right to request the transmission of personal information to third parties (i.e., the right to data portability), introduced in the healthcare and telecommunications sector in 2025, will be expanded in 2026 to cover the energy, education, employment, and culture/leisure sectors. By 2027, this right will extend to the welfare, transportation, real estate, and logistics sectors. 6. Protecting Data Subjects’ Rights and Preventing Harm Currently, data subjects must be notified only when a personal information breach is confirmed. The PIPC plans to amend the law so that the notification obligation will be triggered even when there is merely a possibility of a breach. The PIPC will also establish a “Personal Information Damage Recovery Support Fund” to utilize administrative penalties for supporting victims and introduce a “Consent Decree System for Damage Recovery,” under which companies responsible for incidents may voluntarily propose corrective measures that, once approved, will facilitate swift recovery. 7. Establishing a Strategic Framework for Cross-Border Data Transfers The PIPC will permit cross-border transfers of personal information based on Standard Contractual Clauses (SCCs) and Binding Corporate Rules (BCRs). Under this framework, companies may either utilize SCCs adopted by the PIPC or develop their own BCRs, subject to the PIPC’s approval, to enable the transfer of personal information overseas. Also, the PIPC will introduce a “Cross-Border Transfer Impact Assessment System,” requiring companies to conduct self-assessments when transferring large volume of sensitive personal information overseas. In cases of corporate mergers and acquisitions, companies will be required to undergo a “Pre-Cross-Border Transfer Review.” 8. Additional Initiatives In addition to the above, the PIPC plans to: Actively implement a Preliminary Adequacy Review System from the planning stage of AI and other new technologies and services; Introduce measures to combat crimes involving deepfake misuse, including a right for data subjects to request deletion of AI-generated synthetic content and corresponding obligations for service providers; Enact the Act on Installation and Operation of Visual Information Processing Devices; and Strengthen protections for children and adolescents by ensuring the effectiveness of parental consent procedures and advancing discussions on restrictions on targeted advertising. Against the backdrop of heightened public awareness following a series of recent data breaches, the PIPC’s 2026 plan includes the legislative amendments and policy direction to be pursued in the coming year. Consequently, the obligations and responsibilities of data controllers, as well as the sanctions for violations, are expected to undergo significant changes, making it essential for businesses to closely monitor future enforcement developments. [1] An ISMS-P certification is a voluntary certification that combines both Information Security Management System (ISMS) and Personal Information Management System certifications into a single review process. By obtaining this certification, a company can show that it complies with the information security and personal data protection standards required by the Network Act and the Personal Information Protection Act. [2] Please refer to our previous newsletter, “PIPC Announces Pseudonymized Information System and Operation Innovation Plan,” for further details (Link). [Korean Version]
2025.12.22

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Supreme Court Finds Representative Director Liable for Damages for Rejecting Shareholder Proposal On October 16, 2025, the Supreme Court held that a company’s transfer of shares that it holds in a subsidiary that carries out the company’s core business constitutes a transfer of a material business that requires the approval by a special resolution at the general meeting of shareholders. The Supreme Court further held that where a company unlawfully rejects a minority shareholders’ proposal to include into the agenda of the general meeting of shareholders the ratification of such transfer, the company and its representative director may be liable for that rejection, and the resulting damages would be equal to the purchase price that would have been payable under the dissenting shareholders’ appraisal rights (Supreme Court Decision No. 2019Da236385 rendered on October 16, 2025; the “Decision”). Whether a transaction constitutes the transfer of a “material business” requiring approval by a special resolution at the general meeting of shareholders has long been a contentious issue in M&A practice and corporate governance, particularly where the transaction involves the transfer of shares in a subsidiary as opposed to the transfer of a business operation (e.g., the transfer of the business’ assets, liabilities, contracts, officers and employees). While the Supreme Court has consistently held that any disposal of business assets having the same effect as transferring or discontinuing all or part of a company’s business constitutes a transfer under Article 374(1)1 of the Korean Commercial Code (the “KCC”) and therefore requires the approval by a special resolution at a general meeting of shareholders (Supreme Court Decision No. 2004Da13717 rendered on July 8, 2004, etc.), the Supreme Court has now further clarified that a disposition of shares it holds that, even in the case of subsidiary shares, if, as a result of their disposition, of the company’s sales, performance and business relationships arising from the relevant business are extinguished, such disposition also constitutes a transfer of material business, thereby requiring a special resolution of the general meeting of shareholders under Article 374 of the KCC. As a result, such transactions may also require compliance with the procedures for the exercise of appraisal rights by dissenting shareholders under Article 374-2 of the KCC. The Supreme Court also held that minority shareholders may submit shareholder proposals to include items on the agenda of a general meeting of shareholders for the purposes of exercising appraisal rights as dissenting shareholders, and where the company unlawfully rejects such shareholder proposal, the company and its representative director may be directly liable for the resulting damages to individual shareholders. In reaching this conclusion, the Supreme Court did not rely on Article 401 of the KCC (which governs the liability of directors to third parties), but instead referred to the provisions governing the joint liability of a company and its representative director under Articles 389(3) and 210 of the KCC. The Decision warrants heightened attention in both M&A transactions and the operation of general meetings of shareholders, as it confirms that, where materiality thresholds are met, a transfer of shares in a subsidiary may trigger both: (i) a special resolution requirement applicable to transfer of material businesses and (ii) dissenting shareholders’ appraisal rights. The Supreme Court further held that the representative director, in his personal capacity, was directly liable (together with the company) for unlawfully rejecting a shareholder proposal submitted by minority shareholders, and articulated the legal principles for calculating the resulting damages. In this regard, the Decision has significant implications for the duty of directors to protect shareholder interests under Article 382-3 of the amended KCC, as well as the recognition of directors’ direct liability to shareholders. Below are the details of the Decision. We will continue to keep you informed of any subsequent legislative developments and court decisions relating to corporate governance. 1. Case Overview Defendant Company A is a manufacturer of shoes and shoe components. Around the end of 2010, Company A transferred the shares it held in certain overseas subsidiaries engaged in the manufacturing of cycling shoes and thereby discontinued its cycling shoe manufacturing business. The plaintiffs are shareholders of Company A, who collectively hold approximately 5.42% of Company A’s issued and outstanding shares. The plaintiffs filed a claim for damages against Company A, alleging that Company A’s transfer of the subsidiary shares constituted a “transfer of all or a material part of business” under Article 374 of the KCC. On that basis, the plaintiffs asserted that (i) the transaction required approval by a special resolution at the general meeting of shareholders and (ii) Company A was required to comply with the procedures enabling dissenting shareholders to exercise their appraisal rights. The plaintiffs further asserted that Company’ A’s failure to comply with these requirements deprived them of the opportunity to exercise these rights and sought compensation for the resulting loss. The Seoul High Court held that Company A’s sale of the subsidiary shares violated Article 374 of the KCC, a mandatory provision, and was therefore void. On that basis, the court dismissed the plaintiffs’ claim for damages, reasoning that no appraisal rights could arise where the underlying transfer itself was void and, according, the plaintiffs had not suffered legally cognizable damages. (Seoul High Court Decision No. 2014Na49076 rendered on January 29, 2016). Despite the High Court’s decision, Company A did not recover the subsidiary shares or otherwise unwind the transactions that the High Court deemed void. The plaintiffs, hoping to exercise their appraisal rights as dissenting shareholders, therefore submitted a shareholder proposal to Company A’s representative director to include, as an item on the agenda of the general meeting of shareholders, a resolution to ratify the share transfer agreement effectuating the sale of the subsidiary shares. Company A rejected the proposal, determining that the proposed agenda item concerned “grievances of individual shareholders” or “a matter that cannot be realized by the company.” In response, the plaintiffs filed a claim for damages against Company A, its representative director and its directors, alleging Company A’s unlawful refusal to accept the shareholder proposal caused the plaintiffs to suffer loss in an amount equal to the share purchase price they would have received had they been able to exercise their appraisal rights. 2. Lower Court’s Decision The lower court held as follows: (1) because Company A discontinued its cycling shoe manufacturing business as a result of the transfer of the subsidiary shares, the share transfer agreement with respect to such subsidiary shares constitutes a transfer of business (or business assets) requiring an approval by special resolution at the general meeting of shareholders; (2) Company A’s refusal to accept the plaintiffs’ shareholder proposal was unlawful, as the proposal cannot be characterized as either (a) a matter that cannot be realized by the company or (b) a mere grievance of individual shareholders; (3) if such special resolution ratifying the share transfer agreement were to be approved, the plaintiffs would have had specific and legally protected expectations to receive compensation through the appraisal rights prescribed by Article 374-2 of the KCC, and Company A’s failure to carry out the requisite resolution procedure infringed those expectations; and (4) Company A, its representative director and its directors, by intentionally or negligently breaching their duty to carry out the requisite resolution procedures or their fiduciary duties, caused damage to the plaintiffs. 3. Supreme Court’s Decision The Supreme Court clarified that a “transfer of all or a material part of business” under Article 374(1)1 of the KCC requires that the transferee succeed to all or a material part of the transferor’s business activities. Although a mere transfer of business assets does not, by itself, constitute such a transfer, a disposition of business assets that has the same practical effect as transferring or discontinuing all or part of a company’s business falls within the scope of Article 374(1)1 of the KCC and thus requires approval by a special resolution at the general meeting of shareholders (Supreme Court Decision No. 2004Da13717 rendered on July 8, 2004, etc.). Applying this standard, the Supreme Court held that because Company A discontinued its cycling shoe manufacturing business by transferring, at around the end of 2010, its shares in certain overseas subsidiaries that conducted that business, the transfer constituted a transfer of business assets requiring the approval by a special resolution at the general meeting of shareholders, in such circumstances, the appraisal rights of dissenting shareholders are recognized. In connection with the foregoing ruling, the Supreme Court rendered the following specific determinations: (1) Shareholders cannot directly participate in the day-to-day management of company and may influence the company’s affairs only through indirect means, such as through resolutions at a general meeting of shareholders (Supreme Court Decision No. 2000Ma7839 rendered on February 28, 2001; Supreme Court Decision Nos. 2018Da228462 and 2018Da228479 rendered on June 9, 2022; etc.). As a result, shareholders are not permitted to intervene directly in transactions between Company A and its subsidiaries to seek judicial declaration of the invalidity of the transfer of subsidiary shares or demand that the subsidiaries perform their obligation restitution and return such transferred subsidiary shares to Company A. Accordingly, the plaintiffs had no other choice but to submit a shareholder proposal requesting that the ratification of the share transfer agreement be included as an agenda item at the general meeting of shareholders. (2) Even if the actual purpose of the shareholder proposal was for the plaintiffs to oppose the proposed agenda item and thereby exercise appraisal rights, the shareholder proposal cannot be regarded as (i) “a grievance of an individual shareholder” under Article 12, Item 2 of the Enforcement Decree of the KCC, (ii) “a matter that cannot be realized by the company” under Item 5 of the same Article, or (iii) “a violation of laws, regulations, or the articles of incorporation” under Article 363-2(3) of the KCC. Nevertheless, the representative director and directors of Company A took no steps to rectify the previously void transfer of subsidiary shares (such as adopting a board resolution to include the ratification of the void share purchase agreement as an agenda item of the general meeting of shareholders), thereby rejecting the plaintiffs’ shareholder proposal without justifiable grounds. (3) The representative director and directors of Company A, by intentionally or negligently breaching their duties as directors, unlawfully rejected the plaintiffs’ shareholder proposal and failed to take the steps necessary to bring the proposal to ratify the share transfer agreement before the general meeting of shareholders. As a result, the plaintiffs were deprived of the opportunity to exercise their appraisal rights as dissenting shareholders (which they would have been able to exercise had such shareholder proposal been approved), and they suffered losses equal to the amount they would have received as the share purchase price. Accordingly, the representative director and the directors of Company are jointly liable to compensate the plaintiffs for such losses, and Company A is also liable (jointly with its representative director) for the plaintiffs’ losses resulting from its representative director’s unlawful performance of its duties, pursuant to Articles 389 and 210 of the KCC. (4) The damages suffered by the plaintiffs are the amount equal to the share purchase price plaintiffs would have received as of the date of Company A’s ordinary general meeting of shareholders, and statutory default interest accrued on that amount at the annual rate of 5%, as provided under the Civil Act, from the day following the general meeting of shareholders. [Korean Version]
2025.12.15

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