Government Limits 'Shareholder Protection' to Four Actions by Listed Companies

Amendment to Article 165-4 of the Capital Markets Act
Only Four Capital Transactions Including Mergers and Divisions Applied
Ruling Party to Propose Capital Markets Act Amendment Bill This Week

Kim Byung-hwan, Chairman of the Financial Services Commission, is announcing the direction of amendments to the Capital Markets Act to strengthen the protection of general shareholders' interests on the 2nd at the Government Seoul Office in Jongno-gu, Seoul. Photo by Jo Yong-jun

The government will protect the rights of minority shareholders through amendments to the Act on Capital Markets and Financial Investment Services (Capital Markets Act) instead of revising the Commercial Act. This marks a significant shift from the 'Commercial Act revision' stance announced earlier this year by President Yoon Seok-yeol. It is interpreted as a decision to formalize 'shareholder protection' only for four types of capital transactions by listed companies, after failing to overcome strong opposition from the business community amid a severe economic situation.

On the morning of the 2nd, the Financial Services Commission held a briefing at the Government Complex Seoul to explain the 'Direction of Amendments to the Capital Markets Act to Strengthen the Protection of General Shareholders' Interests.'

Kim Byung-hwan, Chairman of the Financial Services Commission, said, "When a listed company undertakes actions such as mergers, splits, comprehensive transfer or exchange of stocks, or transfer of major businesses in accordance with Article 165-4 of the Capital Markets Act, its board of directors must prepare and disclose opinions on the purpose of the merger, expected effects, and appropriateness of the valuation, etc., to ensure that the legitimate interests of shareholders are protected."

Article 165-4 of the Capital Markets Act, which provides special provisions on mergers, stipulates that standards must be followed for ▲mergers ▲transfer or acquisition of business or assets ▲comprehensive exchange or transfer of stocks ▲splits (including split mergers). This means that a new clause on shareholder protection principles will be established only for these four major capital transaction types of listed companies.

The reason for changing from revising the Commercial Act to amending the Capital Markets Act is due to strong opposition from the business community. Concerns were raised that amending the Commercial Act would apply to about 1.02 million companies, including unlisted companies, potentially causing a contraction in management. By amending the Capital Markets Act, only about 2,500 listed companies will be subject to the law.

Chairman Kim explained the purpose of the Capital Markets Act amendment, saying, "By limiting the applicable entities to listed companies, we aim to minimize the negative impact on many companies, including unlisted, small, and medium-sized enterprises that are not listed, which would have been affected by the Commercial Act revision."

The amendment bill is planned to be proposed by a member of the People Power Party as early as this week. This is because member-initiated legislation can be processed faster procedurally than government legislation. Currently, the National Assembly's Legislation and Judiciary Committee is discussing the Commercial Act revision proposed by the Democratic Party of Korea. The Capital Markets Act amendment proposed by the ruling party is also expected to be discussed together in the National Assembly.