[Startup Must-Read Law] Understanding and Implications of the Commercial Act Amendment under the Lee Jaemyung Administration

A Must-Read Law for Startups by Heecheol Ahn

Heecheol Ahn Attorney

The amendment to the Commercial Act, which passed the National Assembly on July 3 this year, can be seen as a significant turning point in the corporate governance of Korean companies. Until now, the Korean Commercial Act, compared to major corporate legal systems such as that of Delaware in the United States, did not specifically address the duties of directors in relation to shareholders, resulting in practical confusion and interpretive gaps.

The recently amended Commercial Act, which passed the National Assembly, codifies the duty of loyalty for directors and clarifies their responsibility to protect shareholders, thereby strengthening accountability in corporate governance. The most important change is the revision of Articles 382 and 382-3 of the Commercial Act, which expands the scope of directors' duties from the "company" alone to "the company and shareholders." It also introduces a new provision stipulating that directors must "protect the interests of all shareholders and treat all shareholders' interests fairly." Previously, the duty of loyalty of directors was understood to be directed mainly toward the company, making it difficult to hold directors accountable for violations of minority shareholders' rights in cases such as mergers and acquisitions (M&A) or physical spin-offs. However, with this amendment, there is now a legal basis requiring directors to consider not only the interests of controlling shareholders but also those of minority shareholders.

In addition, the title "outside director" for listed companies has been changed to "independent director," and the mandatory appointment ratio has been raised from one-fourth to one-third. The "3% rule," which applied to the appointment of audit committee members, has also been expanded so that the shares held by the largest shareholder are always aggregated with those of related parties and subject to restrictions. Furthermore, starting January 1, 2027, the electronic general shareholders' meeting system will be introduced. Listed companies with assets above a certain threshold will be required to hold electronic general shareholders' meetings, allowing shareholders to participate in real time remotely. This aims to address the limitations of the existing electronic voting system and to strengthen shareholders' substantive right to participate.

This amendment to the Commercial Act is an institutional change that reflects an intention to newly establish a social consensus on managerial autonomy and directors' discretion, and to improve decision-making structures centered on controlling shareholders. Under the revised act, the legitimacy of transaction structures and the securing of procedural transparency are emphasized, and it is expected to contribute especially to the protection of minority shareholders and the restoration of market trust. However, the expanded scope of directors' responsibilities may lead management to become more conservative in decision-making due to concerns over legal risks, and there are concerns that the flexibility and speed of large-scale transactions such as M&A may be diminished. In addition, it may be practically difficult to determine the "interests of all shareholders," which could result in conflicts of interest between controlling and minority shareholders.

While the amended Commercial Act is undoubtedly an institutional advancement, balanced implementation and interpretation in practice are required. In the long term, it is hoped that the responsibility and transparency of boards of directors will be strengthened, shareholder trust will be restored, and ultimately, corporate governance will be solidified, leading to sustainable enhancement of corporate value.