[Asia Economy Reporter Eunju Lee] The scope of relatives of the same person (head of a conglomerate) subject to the Fair Trade Commission's regulations on large business groups will be reduced from within the sixth degree of blood relatives and fourth degree of relatives by marriage to within the fourth degree of blood relatives and third degree of relatives by marriage.
On the 20th, the Fair Trade Commission announced that the partial amendment to the Enforcement Decree of the Fair Trade Act for the rationalization of the large business group system has passed, and will be promulgated and immediately enforced after the President's approval. The main point of this amended enforcement decree is the reduction of the scope of relatives of the same person from within the sixth degree of blood relatives and fourth degree of relatives by marriage to within the fourth degree of blood relatives and third degree of relatives by marriage. However, as an exception, blood relatives of the fifth to sixth degree and relatives by marriage of the fourth degree who own 1% or more of the shares of a company controlled by the same person will be included as relatives. The biological father or mother of a child born out of wedlock acknowledged by the same person will also be included in the scope of relatives.
Under the Fair Trade Act, the same person and related persons (relatives, affiliated companies, non-profit corporations, and their executives) serve as the starting point for determining the scope of large business groups. For example, companies in which the same person holds 30% or more of the shares combined with related persons, or companies where the same person exercises dominant influence through related persons, are incorporated into the same business group. The Fair Trade Commission explained that it pursued the amendment of the enforcement decree reflecting criticisms that the scope of 'relatives,' one of the related persons of the same person, was excessively broad, resulting in excessive obligations for business groups. The Fair Trade Commission can request related data from the same person and related persons for large business groups, and has imposed sanctions if related persons refuse or submit false data.
The biological father and mother of children born out of wedlock of the same person will be newly added as relatives. However, to ensure legal clarity, only biological parents acknowledged by the same person will be included as related persons. The Fair Trade Commission considered that children born out of wedlock of the same person, who are major shareholders of affiliates and support the same person's control, are currently excluded from related persons under the Fair Trade Act, creating regulatory blind spots. For example, Kim Heeyoung, representative of the T&C Foundation and in a de facto marital relationship with SK Group Chairman Chey Tae-won, will now be included as the chairman's 'relative.' Accordingly, there will be an obligation to submit related data to the Fair Trade Commission.
The Fair Trade Commission decided that companies controlled by outside directors will, in principle, be excluded from the scope of affiliated companies of large business groups. Currently, when a large business group recruits an outside director, the company controlled by that director is automatically incorporated into the business group first. Later, after recognizing that the outside director independently manages the company, it is excluded from affiliated companies. The Fair Trade Commission views the current method as imposing excessive obligations on business groups and stipulates that companies controlled by outside directors will, in principle, be excluded from the scope of affiliated companies, except in cases where the company fails to meet certain executive independent management requirements, in which case it will be exceptionally incorporated as an affiliate.
Additionally, the Fair Trade Commission improved the deferral system for the inclusion of small and venture companies into large business group affiliates. Previously, small companies could defer inclusion as affiliates for 7 to 10 years only if their R&D expenses accounted for 5% or more of sales, but this has been relaxed to '3% or more.' It was also clearly stipulated that companies controlled by such companies can also have their inclusion deferred. Small and venture companies already included as affiliates can apply for deferral if they meet certain conditions.
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