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Recent Amendments to Korea’s Commercial Act: Key Changes and Implications for Businesses

2025.08.18

<span style="font-size:18px;"><span style="color:#c0392b;"><strong>Introduction</strong></span><br />
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On July 3, 2025, Korea’s National Assembly passed significant amendments to the Commercial Act introducing changes to corporate governance provisions.  These reforms are designed to enhance transparency, strengthen shareholder protections, and promote fairer board appointment and decision-making processes.  The principal amendments include: (i) the expansion of directors’ duty of loyalty, (ii) the establishment of a legal framework for electronic general meetings, and (iii) the introduction of mandatory cumulative voting and separate election of audit committee members for large, listed companies.<sup><span style="color:#c0392b;">1)</span></sup>  This article outlines these core changes, examines their practical implications, and suggests strategies for compliance in the evolving regulatory landscape.</span><br />
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<span style="font-size:18px;"><span style="color:#c0392b;"><strong>1. Expansion of Directors’ Duty of Loyalty</strong></span></span><br />
 
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			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="45%"><span style="font-size:16px;"><strong>Previous Provision</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="55%"><span style="font-size:16px;"><strong>Amended Provision</strong></span></td>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 22px;">Article 382-3 (Duty of Loyalty by Directors)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">Directors shall perform their duties in good faith in the interest of the <strong style="line-height: 25px;">company</strong> in accordance with statutes, and the articles of incorporation.</div>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 18px;">Article 382-3 (Duty of Loyalty by Directors, etc.)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① Directors shall perform their duties in good faith in the interest of the <strong style="line-height: 22px;">company and its shareholders</strong> in accordance with statutes, and the articles of incorporation.</div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">② Directors, in performing their duties, shall protect the interests of the <strong style="line-height: 22px;">shareholders</strong> as a whole and treat the interests of all shareholders equitably.</div>
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<span style="font-size:18px;">Previously, the duty of loyalty was interpreted as aligning company interests with those of shareholders, often providing only indirect protection to shareholders.  The amended provision explicitly requires directors to consider both the company and its shareholders as distinct but equally important constituencies.  Directors must now ensure equitable treatment of all shareholders and safeguard their collective interests.<sup><span style="color:#c0392b;">2)</span></sup>  To comply, companies should update internal policies, provide board-level training, and implement measures to identify and manage conflicts of interest.  Enhanced transparency in board activities and improved communication with shareholders are also recommended. <br />
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<span style="color:#c0392b;"><strong>2. Legal Framework for Electronic General Meetings</strong></span></span><br />
 
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			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="45%"><span style="font-size:16px;"><strong>Previous Provision</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="55%"><span style="font-size:16px;"><strong>Amended Provision</strong></span></td>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 364 (Place for Convocation)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">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.<br />
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			(Newly Established)</div>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 364 (Place and Manner of Convocation)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① (Omitted)</div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">② <strong style="line-height: 25px;">The company shall hold general meetings in such a manner that shareholders are present in person at the place of convening on the date of the meeting.</strong></div>
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			<div style="line-height: 25px; font-size: 16px">(Newly Established)</div>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 542-14 (Electronic General Meeting of Shareholders)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① Unless otherwise provided for in the articles of incorporation, the listed company may, by resolution of the board of directors, hold a general meeting of shareholders in such a way that some of its shareholders may participate in the resolution by electronic means from a remote location without being physically present at the place of the meeting (hereinafter referred to as an “<strong style="line-height: 25px;">electronic general meeting</strong>”).</div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">② ~ ⑥ details attendance policies, meeting notices, etc.</div>
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			<div style="line-height: 25px; font-size: 16px">(Newly Established)</div>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 542-15 (Operation, etc. of Electronic General Meeting)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① If the listed company holds an electronic general meeting 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.</div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">② ~ ⑥ details provisions regarding efficiency, fairness, record keeping, etc.</div>
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<span style="font-size:18px;">The amendments, except for the revised provisions of Articles 542-14 to 542-15 (relating to electronic general meetings), will come into effect one year after promulgation.  Companies should invest in secure digital platforms, robust authentication systems, and real-time monitoring tools to ensure the integrity of electronic voting and prevent disruptions.  Companies should review and update their meeting procedures and technology infrastructure to facilitate effective and secure electronic participation.<br />
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<span style="color:#c0392b;"><strong>3. Mandatory Cumulative Voting and Separate Election of Audit Committee Members</strong></span></span><br />
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<strong>A. Mandatory Cumulative Voting System for Large, Listed Companies</strong><br />
 
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			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="45%"><span style="font-size:16px;"><strong>Previous Provision</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="55%"><span style="font-size:16px;"><strong>Amended Provision</strong></span></td>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 542-7 (Special Cases concerning Cumulative Voting)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① ~ ② (omitted)</div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">③ When a listed company under paragraph (2) <strong style="line-height: 25px;">intends to exclude cumulative voting</strong> by its articles of association or revise the excluded provisions in the articles of association, shareholders who hold stocks exceeding three percent of the total number of issued and outstanding shares other than nonvoting stocks <strong style="line-height: 25px;">shall be prohibited from exercising their voting rights on the stocks held in excess</strong>: (Omitted)</div>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 542-7 (Special Cases concerning Cumulative Voting)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① ~ ② (Same as the current provisions)</div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">③ Notwithstanding Article 382-2 (1), the listed company under paragraph (2) <strong style="line-height: 25px;">shall not exclude cumulative voting</strong> by its articles of incorporation. (Deleted the provison)</div>
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			<div style="line-height: 25px; font-size: 16px">④ (Omitted)</div>
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			<div style="line-height: 25px; font-size: 16px">③ (same as the current provision)</div>
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<span style="font-size:18px;">The cumulative voting system allows each shareholder to cast a number of votes per share equal to the total number of directors to be elected.  These votes may be concentrated on a single candidate or distributed among multiple candidates, with the individuals receiving the highest number of votes securing the available seats.  </span><span style="font-size:18px;">While previously allowed only at shareholder request and often excluded through articles of incorporation, the amended Commercial Act now makes it mandatory for large, listed companies with assets of KRW 2 trillion or more.  This change reduces the influence of majority shareholders and enhances the ability of minority shareholders to elect directors.  Companies should anticipate increased board diversity and consider strategies such as separate elections for audit committee members, active proxy solicitation, and engagement with minority shareholders.</span><br />
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<strong>B. Expansion of Separate Election of Audit Committee Members and the 3% Rule</strong><br />
 
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			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="45%"><span style="font-size:16px;"><strong>Previous Provision</strong></span></td>
			<td style="border: 1px solid rgb(187, 187, 187); background-color: rgb(242, 242, 242); border-top: 2px solid #cc0000; padding: 8px; vertical-align: top;" width="55%"><span style="font-size:16px;"><strong>Amended Provision</strong></span></td>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 542-12 (Composition, etc. of Audit Committees)</strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① (Omitted)</div>
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			<div style="line-height: 25px; font-size: 16px"><strong style="line-height: 25px;">Article 542-12 (Composition, etc. of Audit Committees) </strong></div>

<div style="margin-top: 11px; line-height: 25px; font-size: 16px">① (Same as the current provision)</div>
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			<div style="line-height: 25px; font-size: 16px">② A listed company under Article 542-11 (1) shall appoint members of its audit committee <strong style="line-height: 25px;">from among directors appointed by a general meeting of shareholders</strong>; (omitted)</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 16px">② A listed company under Article 542-11 (1) shall appoint or dismiss a director who shall become an audit committee member, <strong style="line-height: 25px;">separately from the other directors</strong>, by a resolution of the general meeting of shareholders. (Deleted the provison)</div>
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			<div style="line-height: 25px; font-size: 16px">③ A member of the audit committee under Paragraph (1) may be dismissed by a resolution of the general meeting of shareholders under Article 434. In this case, <strong style="line-height: 25px;">the audit committee member under the proviso to Paragraph (2)</strong> shall cease to be both a director and an audit committee member.</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 16px">③ A member of the audit committee under Paragraph (1) may be dismissed by a resolution of the general meeting of shareholders under Article 434. In this case, the <strong style="line-height: 25px;">audit committee member</strong> shall cease to be both a director and an audit committee member.</div>
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			<div style="line-height: 25px; font-size: 16px">④ When appointing or dismissing an audit committee member under Paragraph (1), a shareholder who holds shares exceeding three one-hundredths (3/100) (a lower shareholding ratio may be stipulated in the articles of incorporation, and if so stipulated, that ratio shall apply) of the total issued shares, excluding non-voting shares of a listed company (in the case of the largest shareholder, <strong style="line-height: 25px;">when appointing or dismissing an audit committee member who is not an outside director,</strong> the shares owned by his or her related parties and other persons prescribed by Presidential Decree shall be added together), shall not exercise voting rights with respect to such excess shares.</div>
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			<td style="border: 1px solid rgb(187, 187, 187); font-size: 16px; text-align: left; line-height: 25px; padding: 12px; vertical-align: top">
			<div style="line-height: 25px; font-size: 16px">④ When appointing or dismissing an audit committee member under Paragraph (1), a shareholder who holds shares exceeding three one-hundredths (3/100) (a lower shareholding ratio may be stipulated in the articles of incorporation, and if so stipulated, that ratio shall apply) of the total issued shares, excluding non-voting shares of a listed company (in the case of the largest <u><strong style="line-height: 25px;">shareholder, the shares</strong></u> owned by his or her related parties and other persons prescribed by Presidential Decree shall be added together), shall not exercise voting rights with respect to such excess shares.</div>
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			<div style="line-height: 25px; font-size: 16px">⑤ ~ ⑧ (Omitted)</div>
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			<div style="line-height: 25px; font-size: 16px">⑤ ~ ⑧ (Same as previous provisions)</div>
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<span style="font-size:18px;">The amendments require that all audit committee members in large, listed companies with assets over KRW 2 trillion and in listed companies with assets above KRW 100 billion that have audit committees (in lieu of standing auditors) be elected separately from other directors.  The 3% rule is expanded, limiting the voting rights of shareholders (and their related parties) who hold more than 3% of total issued shares, thereby curbing majority shareholder influence in audit committee appointments.  These changes are expected to increase the influence of minority shareholders, foreign institutional investors, and activist funds in the appointment of audit committee members.  Companies should review their board composition and consider the impact of these rules on governance structures, particularly as a smaller board may result in a higher proportion of audit committee members less influenced by controlling shareholders. <br />
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<span style="color:#c0392b;"><strong>Conclusion</strong></span><br />
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The amendments to Korea’s Commercial Act significantly enhance shareholder protection, board accountability, and corporate transparency.  By reducing majority shareholder control and empowering minority shareholders, these reforms align Korea’s corporate governance standards with global best practices and are likely to increase foreign investor confidence.  Companies should proactively review and adjust their governance frameworks, board composition, and internal policies to ensure compliance and to capitalize on the opportunities presented by these regulatory changes.</span><br />
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<a href="https://www.jipyong.com/kr/board/news_view.php?seq=14226" target="_blank"><span style="color:#2980b9;">[Link to Korean Newsletter]</span></a><br />
 
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<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">1) </span>Law Times, <i>Major Content and Implications of the Commercial Act Amendment</i>, Law Times Korea (Apr. 3, 2025). Available at <a href="https://www.lawtimes.co.kr/LawFirm-NewsLetter/206877" target="_blank"><span style="color:#2980b9;">https://www.lawtimes.co.kr/LawFirm-NewsLetter/206877 </span></a></div>

<div style="margin-bottom: 8px; font-size: 16px; line-height: normal;"><span style="color:#cc0000; line-height:10px">2) </span>In this context, ‘protecting the interests of the shareholders as a whole’ does not mean accommodating the preferences of each individual shareholder; rather, it refers to considering shareholders collectively as a single group, protecting their shared interests.</div>

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