From Next Year, Public Interest Corporations Must Disclose 'Internal Transactions Over 5 Billion KRW' Within 7 Days After Board Approval

Fair Trade Commission to Amend and Enforce Four Notices Including 'Regulations on Board Resolutions and Disclosures for Large Internal Transactions' from the 30th

[Sejong=Asia Economy Reporter Joo Sang-don] In the future, public interest corporations will also be required to disclose internal transactions exceeding 5 billion KRW within 7 days after board approval. Failure to comply will result in fines.

On the 28th, the Fair Trade Commission announced that it will revise and implement four notifications, including the "Regulations on Board Approval and Disclosure of Large-scale Internal Transactions," starting from the 30th, to ensure the smooth enforcement of the disclosure obligations newly established for public interest corporations and the same person under the fully amended Fair Trade Act (effective December 30).

The fully amended Fair Trade Act requires public interest corporations to obtain prior board approval and disclose when acquiring or disposing of shares of domestic affiliates or conducting internal transactions above a certain scale. The enforcement decree imposes disclosure obligations on internal transactions subject to board approval if they exceed 5 billion KRW or 5% of the larger amount between the public interest corporation's total net assets or basic net assets.

Accordingly, the regulations on board approval and disclosure of large-scale internal transactions require disclosure within 7 days after board approval for reportable acts. The disclosure must include the purpose and subject of the transaction, the counterparty, transaction amount and conditions, total transaction balance of the same transaction type, and contract method. However, for goods and services transactions, a transaction period within one year may be set for collective board approval and disclosure. If goods and services transactions decrease by 20% or more compared to the board-approved transaction amount, the actual transaction amount must be disclosed within 45 days after the quarter ends without board approval.

Through amendments to the regulations on disclosure of important matters of companies belonging to disclosure-subject business groups, general status, shareholding status (shareholders and investment status), and circular shareholding status, which are disclosure obligations of the same person (head of the group), must be disclosed. This must be disclosed once a year by May 31, based on the designation date of the disclosure-subject business group (usually May 1 annually).

The disclosure burden on small unlisted companies has been reduced. Small unlisted companies with less than 20% ownership by the head of the group, not subject to private benefit appropriation regulations, and with total assets under 10 billion KRW are exempt from disclosure obligations related to ownership and control structure, financial structure, and important management activities.

The Fair Trade Commission reflected the newly established board approval and disclosure obligations for public interest corporations in the fine imposition standards under the fully amended Fair Trade Act. The basic amount per violation is imposed as a fine according to whether the public interest corporation delayed, omitted, falsified, failed to approve, or failed to disclose. If the larger amount between basic net assets and total net assets is 5 billion KRW or less, the fine cannot exceed 1% of that amount; if it exceeds, 1% of the larger amount is set as the basic amount.

Fines are also imposed if the same person violates disclosure obligations for overseas affiliates. Depending on the number of violations in the past five years, fines increase by 10% for 4-6 violations, 20% for 7 or more, and 50% if transactions were intentionally split. Conversely, fines are reduced by 20% for first-time violations or no violations in the past five years, and by 50% if violations occur within 30 days after new designation or changes.

A Fair Trade Commission official said, "Confusion during the disclosure process and the workload associated with fulfilling disclosure obligations will be significantly reduced, and the disclosure of large-scale internal transactions of public interest corporations and shareholder status of overseas affiliates will increase user satisfaction. Especially, exempting small unlisted companies from important disclosure obligations will ease corporate burdens and serve as an opportunity to establish a reasonable level of disclosure system."