36% of Unlisted Companies "Reconsider or Withdraw Listing Plans if Commercial Act Revised"

KCCI Conducts Survey Targeting 237 Unlisted Companies

As part of the value-up program, several amendments to the Commercial Act have been proposed to expand directors' duty of loyalty from being 'for the company' to 'for shareholder interests.' However, a survey revealed that such amendments could negatively impact unlisted companies' efforts to go public, potentially hindering the development of the capital market.

According to a survey conducted by the Korea Chamber of Commerce and Industry targeting 237 domestic unlisted companies, 46.4% of the companies are pursuing listing, with 13.1% planning to do so within three years and 33.3% pursuing it in the long term.

However, 36.2% of the companies pursuing listing stated that if the directors' duty of loyalty under the Commercial Act is expanded, they would either 'reconsider their listing plans' (34.5%) or 'withdraw' (1.7%).

Seventy-three percent of domestic unlisted companies responded that 'going public is already burdensome,' citing reasons such as 'risk of shareholder lawsuits' and 'disclosure obligations.' Furthermore, 67.9% of unlisted companies predicted that they would be 'more reluctant to go public' if the Commercial Act is amended.

The responding companies identified the most important reason for unlisted companies becoming more reluctant to list as 'increased director liability due to shareholder derivative suits and breach of trust' (70.8%). Other reasons included 'delays in decision-making due to disagreements among shareholders' (40.4%), 'concerns over conservative management' (37.3%), 'increased potential for disputes over governance' (28.0%), 'expanded decision-making based on shareholder interests in cases of conflicts of interest' (24.2%), and 'difficulty in pre-judging illegality due to vague provisions' (16.1%).

In particular, there have been discussions about amending the Capital Markets Act, which applies only to listed companies, to introduce directors' duty of loyalty to shareholders, unlike the Commercial Act. However, this approach has also been criticized as inappropriate.

Professor Kwon Jae-yeol of Kyung Hee University stated, "The Capital Markets Act is based on civil laws such as the Commercial Act and Civil Act," adding, "Even if the Capital Markets Act is amended instead of the Commercial Act, there remains a risk of undermining the foundation of our civil law system, including the principle of majority rule in capital and the corporate system."

Song Seung-hyuk, head of the financial industry team at the Korea Chamber of Commerce and Industry, said, "Unlisted companies, like listed companies, are concerned about increased director liability, conservative management, and shareholder disagreements if the duty of loyalty is expanded." He added, "Especially if companies become reluctant to go public due to these issues, it could run counter to the purpose of value-up and result in hindering the development of the capital market. We hope policymakers fully consider this point."