I. Introduction

On July 3, 2025, the National Assembly passed the amendments to the Commercial Act, a key legislative initiative championed by President Lee Jae-myung during his presidential campaign. The amendments aim to strengthen shareholder rights and corporate governance by (i) codifying directors’ duty of loyalty to shareholders, (ii) reinforcing the three percent voting rights cap on the appointment and removal of audit committee members by applying it uniformly to both executive and outside directors, and (iii) introducing a statutory framework requiring large listed companies to conduct electronic general meetings in parallel with in-person meetings, while renaming “outside directors” as “independent directors” to better reflect their supervisory role.

While the primary objective of these amendments is to strengthen shareholder rights and improve corporate governance, the implementation of the amended Commercial Act is expected to give rise to a number of practical compliance requirements for companies, necessitating institutional adjustments and imposing additional administrative burdens.

This newsletter provides an overview of the key provisions of the amended Commercial Act and offers an analysis of its anticipated impact on corporate governance structures and operational practices in the post-enactment landscape.

II. Key Provisions of the Amended Commercial Act

1. Expansion of Directors’ Duty of Loyalty (Effective Immediately upon Promulgation)

Pursuant to the current provisions of the Commercial Act, directors are required to “perform their duties faithfully for the company in accordance with Acts, subordinate statutes, and the articles of incorporation,” thereby limiting the duty of loyalty solely to the company.

However, the amended Commercial Act expands the scope of directors’ duty of loyalty to encompass both the company and its shareholders. In addition, a new paragraph has been introduced to expressly require that, in performing their duties, directors shall protect the interests of all shareholders and treat them equitably. This revision establishes a clear statutory basis for safeguarding the rights of minority shareholders.

Accordingly, under the previous framework, directors were generally not subject to legal liability even where their decisions, while formally taken in the interest of the company, resulted in substantial harm to minority shareholders. Under the amended Commercial Act, however, if a director makes a decision that considers only the interests of the majority to the detriment of minority shareholders, such conduct may give rise to liability under the Commercial Act.

Nevertheless, as the duty of loyalty under the amended Commercial Act is owed to all shareholders, it is unlikely that a director will be held liable where the director’s decision serves both the interests of the company and of all shareholders, even if such decision conflicts with the interests of certain individual shareholders.

Whether a director’s decision genuinely serves the interests of all shareholders is likely to remain a subject of ongoing debate. As such, it is important to establish a structured decision-making process that facilitates a prior assessment of shareholder alignment and, where appropriate, limits directors’ liability in the event of a dispute.

In cases where a merger or spin-off may infringe upon shareholder interests, or where transactions such as paid-in capital increases resulting in shareholding dilution, or share transactions aimed at defending the control rights of the majority shareholder are planned, the board of directors must conduct thorough prior legal review to ensure that no harm is caused to general shareholders.

2. Limitation on Voting Rights of the Largest Shareholder to Three Percent in the Appointment of Audit Committee Members (Effective One Year After Promulgation)

Under the Commercial Act as currently in force, when appointing an audit committee member who concurrently serves as an executive director, the voting rights of the largest shareholder and its specially related persons are aggregated and limited to three percent. In contrast, when appointing an outside director as an audit committee member, the three-percent cap is applied separately to the voting rights of the largest shareholder and each of its specially related persons, resulting in a less stringent requirement for outside directors.

However, the amended Commercial Act provides that the restriction limiting the voting rights of the largest shareholder and its specially related persons to three percent of the total number of issued voting shares shall also apply to the appointment and removal of outside directors serving on the audit committee. This change reflects the view that, as audit committee members perform functions substantially equivalent to those of statutory auditors, it is no longer appropriate to apply a more relaxed standard to their election and removal.

As a result, companies are now required to apply the three percent rule, which limits the combined voting rights of the largest shareholder and its specially related parties to three percent, uniformly to the appointment and removal of audit committee members, regardless of whether they are executive or outside directors.

Once the amended Commercial Act takes effect, the largest shareholder will be permanently subject to the restriction that limits voting rights to a maximum of three percent, calculated by aggregating the shares held by its specially related parties. Accordingly, the largest shareholder’s influence over the appointment and removal of audit committee members may be substantially reduced. Conversely, the likelihood that candidates nominated by minority shareholders are appointed to the audit committee is expected to increase, thereby resulting in a corresponding decline in the largest shareholder’s overall influence.

The amendments are expected to enhance the independence of audit committees by enabling them to operate without undue influence from the largest shareholder. At the same time, it significantly restricts the largest shareholder’s ability to influence the appointment and dismissal of audit committee members, which may result in reduced control over the company’s governance as a whole.

As a result, the likelihood that minority shareholders and foreign institutional investors will be able to exert influence over the appointment and dismissal of audit committee members has increased. This, in turn, raises the possibility that such influence may extend to broader involvement in corporate management. In view of this, controlling shareholders of companies with dispersed ownership structures should give early consideration to available options for defending management rights, including securing support from friendly shareholders.

3. Obligation for Large Listed Companies to Hold Hybrid Shareholders’ Meetings (Effective January 2027)

Although an electronic voting system is currently available for resolutions at general meetings of shareholders, shareholders wishing to vote electronically must do so by casting their votes or submitting a proxy no later than the day before the meeting. As such, shareholders attending electronically have not been able to exercise their voting rights in real time during the meeting.

The amended Commercial Act introduces a provision under which, unless otherwise prescribed by the articles of incorporation, a listed company may, by resolution of its board of directors, permit shareholders to participate in resolutions by electronic means from a remote location. It further provides that shareholders who attend a general meeting by electronic means shall be deemed to have attended the meeting in person at its physical venue.

With the introduction of this provision, the participation rate of minority shareholders in general meetings of shareholders is expected to increase, thereby enhancing the fairness and transparency of decision-making at such meetings. Previously, minority shareholders faced challenges in attending general meetings, including the inconvenience of traveling to the company’s principal office and scheduling conflicts with their personal commitments. In particular, shareholders residing overseas were virtually unable to attend, making it difficult to expect broad and direct participation by a diverse shareholder base.

Upon the implementation of the amended Commercial Act, companies are expected to reduce the costs of convening general meetings of shareholders, and shareholders will be guaranteed broader opportunities to attend and vote at such meetings. This is expected to help restore the substantive function of general meetings of shareholders, thereby enabling them to function more effectively as a mechanism for oversight of corporate decision-making.

However, as participation by minority shareholders increases, companies are likely to face a greater need to share and consult on agenda items with shareholders in advance in order to secure approval. This may require additional procedures to persuade shareholders with varying interests, and accordingly, the overall costs associated with operating general meetings of shareholders may, in fact, increase.

In addition, listed companies will be required to establish or amend their articles of incorporation to facilitate the effective operation of electronic general meetings of shareholders. It will also be necessary to implement the requisite systems in advance to ensure that shareholders are able to exercise their voting rights in a fair and transparent manner.

4. Amendments to Outside Director Requirements for Listed Companies (Effective One Year After Promulgation)

The amended Commercial Act changes the designation “outside director” to “independent director” for listed companies and increases the mandatory proportion of independent directors on the board from at least one-fourth to one-third of all directors.

Under the amended Commercial Act, existing outside directors are deemed to be independent directors. However, listed companies must comply with the new requirements within one year from the date on which the amended Commercial Act enters into force. In the case of unlisted companies, the designation “outside director” shall continue to apply.

The term “independent director” reflects a policy objective to enhance the fairness and transparency of corporate decision-making and management. The recent amendments to the Commercial Act are intended to implement the independent director system as a mechanism for more effective oversight of controlling shareholders and the management of stock companies.

The amended Commercial Act defines an “independent director” as an outside director under Article 382-3 who performs duties independently from directors, executive officers, and persons who give directions regarding the execution of business. By clarifying the qualifications and responsibilities of directors with genuine independence, the amendments are expected to strengthen the board of directors’ supervisory function and bring about a fundamental change in corporate governance.

Given the expanded statutory requirement for the appointment of independent directors, companies must take prompt steps to secure a sufficient pool of qualified candidates prior to the effective date of the amended law. The implementation and expansion of the independent director system is expected to bring about substantive changes to the board’s decision-making dynamics, and in some cases, may complicate the adoption of board resolutions. Accordingly, companies should undertake a comprehensive review of the composition and operation of their boards and establish an internal governance structure that minimizes potential legal risks following the enforcement of the amended Commercial Act.

III. Closing Remarks

The core focus of the recent amendments to the Commercial Act lies in enhancing the transparency of corporate governance and protecting the rights and interests of minority shareholders. Measures such as the introduction of the independent director system and the expansion of directors’ fiduciary duties are expected to increase the confidence of foreign investors, thereby strengthening the overall credibility of Korean stock companies among international institutional investors.

The amended Commercial Act introduces a statutory duty to protect the interests of all shareholders, which represents a meaningful step toward addressing long-standing concerns among foreign investors regarding opaque corporate governance, restrictive dividend practices, and insufficient protection of minority shareholders. These changes may serve as a foundation for improving structural alignment with internationally accepted standards of shareholder rights and corporate accountability.

In parallel, the likelihood of increased engagement by both domestic and foreign activist funds is expected to rise. In particular, activist investors may seek to expand their influence over core management decisions, starting with the appointment and removal of audit committee members. For companies with dispersed shareholding structures, it will be crucial to adopt forward-looking strategies to preserve management stability and mitigate the risk of hostile intervention.

In light of these developments, it is critical for companies to evaluate the implications of the amended Commercial Act and establish an appropriate framework for the composition and operation of the board of directors and shareholder engagement in order to manage any foreseeable legal and financial risks.