On July 3, 2025, Korea’s National Assembly passed a landmark amendment to the Commercial Act that will significantly reshape the governance of listed companies.

Here is a quick overview of what’s changing—and why it matters:

• · Implementing directors’ fiduciary duty to shareholders

  · Mandating implementation of virtual shareholder meetings

  · Renaming “outside directors” as “independent directors” and increasing their required ratio

• · Adopting the "aggregated 3% rule" for appointing and removing audit committee members

• 
  

These reforms represent a turning point not only in how audit committees are structured—but also in how courts will assess corporate decisions involving shareholder rights and fiduciary duties.

1. Introduction of Directors’ Fiduciary Duty to Shareholders

Effective Date: Immediately upon promulgation (July 2025)

■ Summary:
The amendment codifies directors’ fiduciary duty to shareholders, requiring them to act in the best interests of all shareholders, not just the company.

■ Background:
Previously, the Korean Commercial Act only required directors to perform their duties faithfully in the interest of the company, without any explicit obligation toward shareholders. This legal gap has led to criticism—particularly during corporate restructurings such as mergers of divisions—where controlling shareholders often benefit at the expense of minority shareholders.

The absence of a clear fiduciary duty to shareholders has contributed to the perception among both domestic and foreign investors that Korean corporate law lacks sufficient protection for shareholder rights. This has been a deterrent to foreign capital inflows and has hindered the development of a more vibrant equity market.

■ Expected Implications:
The introduction of a fiduciary duty to shareholders is expected to have wide-ranging effects on governance disputes and judicial review of capital transactions. In particular:

• · Boards will be required to consider the interests of all shareholders in their business judgments

  · Heightened scrutiny of misappropriation of company’s opportunities and unfair internal transactions

  · Increased judicial oversight of capital restructuring and equity transactions

  · Stronger legal review of squeeze-outs of minority shareholders

  · More substantive enforcement of appraisal rights for dissenting shareholders

  · Reinforced obligation of director neutrality in control disputes

2. Application of the “Aggregated 3% Rule” for Audit Committee Appointments and removals

 Effective Date: One year after promulgation (expected July 2026)

■ Summary:
When appointing and removing audit committee members, the voting rights of the largest shareholder and its specially related persons will now be aggregated and limited to 3%.

■ Background:
Previously, when the largest shareholder appoints or removes member of the audit committee who is not an outside director, the voting rights of shares held by the largest shareholder and its specially related persons are aggregated and capped at 3%. However, when appointing or removing an outside director who serves as an audit committee member, the shares held by related parties are not aggregated, and the 3% rule is assessed based solely on the individual holdings. 

Applying different rules whether the audit committee member is an outside director, has been subject to criticism. Accordingly, the proposed amendment aims to require that, in the appointment or removal of audit committee members, the largest shareholder must always aggregate the shares held by specially related persons to determine whether their ownership exceeds 3% of the total number of issued shares. 

■ Expected Implications:
This change will make it significantly more difficult for controlling shareholders to place affiliated individuals on the audit committee. As a result, audit committees are expected to become more independent and neutral, enhancing their oversight functions and credibility. 

In this case, it will become difficult to appoint an audit committee member who is affiliated with the largest shareholder. If the separate election of audit committee members is implemented in the future, it is expected that independent audit committee members, free from the influence of the largest shareholder, will be appointed, thereby significantly enhancing the independence and neutrality of the audit committee. 

3. Renaming “Outside Directors” to “Independent Directors” and Increasing Their Ratio

Effective Date: One year after promulgation (expected July 2026)

■ Summary:
The term “outside director” will be replaced with “independent director”, and the required proportion of independent directors has been increased from one-fourth to one-third of the total number of directors. In general, at least one-third of the board must now consist of independent directors. Independent directors are defined as directors who perform their duties independently from internal executives, including inside directors, executive officers, and decision-making delegates.

■ Background:
In order to enhance the fairness and transparency of corporate decision-making processes and to emphasize independence from the largest shareholder, the term 'Independent Director' has been adopted, and the required proportion has been increased 

■ Expected Implications:
With the new emphasis on substantive independence, companies will be expected to nominate directors who are not only formally qualified, but also practically independent from controlling shareholders.

This is likely to raise the importance of recommending candidates who can truly serve as effective monitors and counterbalances during the director nomination process at shareholder meetings.

4. Mandatory Implementation of Electronic Shareholder Meetings

Effective Date: January 1, 2027

■ Summary:
Listed companies prescribed by Presidential Decree in light of the scale of assets (referred to as ‘large listed companies’) will be required to offer electronic shareholder meetings under the amended Commercial Act.

■ Background:
Previously, shareholders were allowed to vote by electronic means without attending shareholder meetings. However, unlike other countries such as Germany or Japan, it did not include rules concerning electronic shareholder meetings – a shareholder meeting where the remote shareholders can attend through electronic means. The goal of amendment is to improve fairness and transparency of decision making by allowing electronic shareholder meetings for the listed companies and mandating it for the large listed companies.

■ Expected Implications:
This change will require companies to upgrade their technical infrastructure and revise internal policies to accommodate virtual formats. While this may involve some transition costs, it is expected to increase shareholder participation and modernize corporate governance practices.

Looking Ahead

These reforms mark a fundamental shift in how shareholder rights are protected and how board decisions will be evaluated by courts in Korea. They are not just procedural updates—they represent a broader move toward transparency, accountability, and investor trust. Investors—both domestic and global—will be watching how these new standards are implemented in practice. 

 Meanwhile, proposals such as mandatory cumulative voting for large listed companies and expanded separate elections for audit committee members were not included in the latest amendment. These measures remain under discussion and will be subject to further public hearings. 

 If adopted, they are expected to further strengthen the independence of boards and audit committees, as well as enhance shareholder rights. 

 It will be important to closely monitor upcoming legislative discussions and prepare for potential institutional changes. 

#CorporateGovernance #Korea #CommercialAct #ShareholderRights #BoardOversight #FiduciaryDuty #GovernanceReform #HannuriLaw