Cabinet Approves Commercial Act Amendment Expanding Directors' Fiduciary Duties and Introducing "3% Rule"

Mandatory Electronic General Meetings for Listed Companies
Expansion of Independent Directors Included
First Bipartisan Bill Passed Under the Lee Administration

On July 15, the government held a Cabinet meeting at the Presidential Office and approved a promulgation bill for partial amendments to the Commercial Act, which includes expanding the fiduciary duty of company directors to cover both the company and its shareholders.

The amendment expands the scope of directors' fiduciary duties to include both the company and its shareholders, and stipulates that directors must protect the interests of shareholders and treat the interests of all shareholders fairly when performing their duties.

The so-called "3% rule," which limits the combined voting rights of the largest shareholder and related parties to 3% when appointing or dismissing audit committee members, is also included.

The amendment also makes electronic general meetings of shareholders mandatory for listed companies and converts outside directors into independent directors. The mandatory proportion of independent directors on the board is increased from the previous one-fourth to at least one-third.

Among the key provisions, the expansion of the scope of directors' fiduciary duties will take effect immediately upon promulgation, while the 3% voting rights restriction will take effect one year after promulgation. Certain provisions, such as the mandatory holding of electronic general meetings of shareholders, will be applied from January 1, 2027.

The amendment to the Commercial Act, for which the promulgation bill was approved on this day, previously passed the National Assembly plenary session on July 3 through bipartisan agreement.