[News Terms] The Starting Point of Large Corporation Regulation: the Dongil Injeong System

The Enforcement Decree of the "Monopoly and Fair Trade Act" (Fair Trade Act), which passed the Cabinet meeting on the 7th, is an amendment that specifies the requirements for designating the same person of foreign nationality.

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The same person designation system is a system in which the government designates who the head of a group is to prevent acts that interfere with fair trade, such as the group head using market dominance to give preferential treatment to relatives. It was introduced in 1986 along with corporate group regulations. It can be seen as the starting point of large enterprise regulation in South Korea.

The core of this system, the "same person," refers to the controlling shareholder or the head of the group, but the term itself is a concept not found in other countries. The Fair Trade Act does not provide a clear legal definition of the same person; Article 2, Paragraph 11 only states that "a corporate group means a group of companies that are effectively controlled in their business operations by the same person according to standards prescribed by Presidential Decree." Additionally, the term "same person" appears in laws such as the Banking Act and the Financial Holding Companies Act. According to Article 2, Paragraph 8 of the Banking Act, "the same person means the individual and those who have a special relationship with him or her as prescribed by Presidential Decree." This definition includes special related parties, which differs somewhat from the concept of the same person under the Fair Trade Act.

The business community, which is demanding improvements to the same person designation system, argues that the name "same person" itself needs to be revised. The Korea Chamber of Commerce and Industry argued last year for the necessity of changing the name, pointing out that "when the term 'same person' was first used in 1986, the group head often served as CEO of multiple companies, so the term matched reality. However, nowadays, it is rare for a group head to be CEO of two or more companies, and most companies have professional management systems, so there is a large gap with reality."

Under the Fair Trade Act, if a person, not a corporation, i.e., a natural person, is designated as the same person, they must disclose details of investments and financial transactions related to themselves and their relatives and are subject to monitoring for private interest appropriation. The requirements for designation as the same person are: ▲ the largest shareholder of the top company in the corporate group ▲ the highest-ranking officer of the corporate group ▲ a person exercising dominant influence over the management of the corporate group ▲ a person recognized as the representative both inside and outside the corporate group ▲ a person designated as the same person of the corporate group according to the succession policy.

The amendment passed at the Cabinet meeting clarifies the criteria for determining the same person that can be generally applied without nationality discrimination. The general principle for determining the same person is "a natural person who effectively controls the corporate group." However, ▲ whether the same person is considered a natural person or a corporation, the scope of the corporate group remains the same, ▲ the natural person who effectively controls the corporate group does not invest in domestic affiliates other than the top company, ▲ the natural person's relatives do not invest in or serve as executives of domestic affiliates or participate in management, and ▲ there are no debt guarantees or financial transactions between the natural person and relatives and domestic affiliates, then the corporation can be designated as the same person. If all four of these 'exception conditions' are met, even if there is a head who effectively controls the corporate group, designation as the same person can be avoided.

The amendment to the Enforcement Decree of the Fair Trade Act, which passed the Cabinet meeting, will be promulgated and enforced after the President's approval.