Boards and Audit Committees Poised for Change: Key Implications of the Second Package of Commercial Act Amendments
On August 25, 2025, the National Assembly passed the second package of amendments to the Commercial Act, following the first package adopted in July. The new amendments mandate cumulative voting for large listed companies and increase the number of audit committee members required to be elected separately.
The second package of amendments will enter into force one year after promulgation, and the provision on cumulative voting will apply from the first general meeting of shareholders held after the Act enters into force. In other words, beginning with extraordinary general meetings held from September 2026 and ordinary general meetings from 2027, the compositions of boards of directors and audit committees at large listed companies are expected to change substantially.
1. Mandating Cumulative Voting
■ Summary:
When appointing directors, companies with total assets of KRW 2 trillion or more (referred to as ‘large listed companies’) are mandated to adopt the cumulative voting system under Article 382-2 of the Commercial Act.
■ Reason for Proposal:
To diversify the composition of boards of directors.
■ Current Status of the Cumulative Voting System:
· When multiple directors are appointed at once, cumulative voting allows each shareholder to exercise votes equal to the number of shares held multiplied by the number of directors to be appointed, and to allocate all votes to a single candidate or distribute them among several candidates.
· When cumulative voting was first introduced in 1998, companies were permitted to opt out via their articles of incorporation. Although some provisions were adopted to promote its use, most listed companies currently exclude cumulative voting through their articles of incorporation.
■ Expected Implications:
· It is expected that minority shareholders’ influence over director appointments will increase, board compositions will become more diverse, and overwhelming power of some large shareholders will be constrained more effectively.
· Nonetheless, even with mandatory cumulative voting, appointing shareholder-proposed directors may remain challenging, as companies may attempt to neutralize the mechanism by limiting the number of board seats put up for election at a given meeting.
2. Increasing the Number of Audit Committee Members Required to be Elected Separately
■ Summary:
For large listed companies that are required to establish an audit committee, at least two audit committee members must be appointed separately from other directors at the general meeting of shareholders.
■ Reason for Proposal:
To diversify the composition of boards of directors.
■ Current Status of the Separate-election Regime:
· Under current law, listed companies with total assets of KRW 2 trillion or more are required to establish an audit committee. The authority to appoint audit committee members lies within the general meeting of shareholders. As a rule, shareholders first elect directors and then, from among those elected directors, appoint audit committee members. However, the law requires at least one audit committee member to be separately elected at the director-election stage.
■ Expected Implications:
· Since the Commercial Act requires audit committees to consist of three or more members, 78% of listed companies had audit committees composed of three members as of 2022. Given that at least two of the three must now be separately elected, it becomes more likely that independent audit committee members will form a majority of the committee.
· The amendment also appears to apply to listed companies with assets between KRW 100 billion and KRW 2 trillion that voluntarily adopt an audit committee.
· As a method to prevent the arbitrary control of a dominant shareholder, the separate election of audit committee members is expected to strengthen the committee’s independence, enhance the effectiveness of its oversight, and improve transparency in corporate governance.
These amendments represent a pivotal institutional shift that will significantly reshape board composition and strengthen shareholder protections. The influence of the largest shareholder over the composition of the audit committee is expected to be significantly constrained as the mandatory cumulative voting and expanded separate election of audit committee members are applied together with the ‘aggregated 3%’ rule.
In this regard, potential revisions to the Presidential Decree - such as raising the threshold for “large listed companies” to KRW 5 trillion and narrowing the definition of “specially related persons” - should be closely monitored.
For companies, the amendment calls for a fundamental reassessment of board operation strategies; for investors, it encourages a more active exercise of shareholder rights. Ongoing monitoring of the direction of Presidential Decree revisions and emerging practices will be essential.
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