Summary
I. Legal basis
On July 3, 2025, the National Assembly of the Republic of Korea passed the draft “Partial Amendment to the Commercial Act,” marking a significant development in the country’s capital market. The draft amendment is regarded as a key measure to address the long-standing “Korea Discount” issue, while simultaneously strengthening the protection of the rights and interests of approximately 14 million individual investors. The passage of the draft is expected to have a positive impact on the Korean economy. The amendment aims to expand the focus of corporate governance from prioritizing the “interests of the company” to ensuring the “interests of both the company and all shareholders. These adjustments are expected to fundamentally improve the corporate governance framework as well as the overall business environment. This is not merely a technical modification within the legal system, but also demonstrates the lawmakers’ strong commitment to enhancing and advancing the quality of Korea’s capital market.
II. Changes in the draft amendment to the Korean Commercial Act 2025
The key focus of the draft amendment to the Korean Commercial Act is the expansion of the scope of the fiduciary duty that directors are required to observe. Whereas previously the law stipulated that this duty was to be exercised “for the benefit of the company” only, the amendment now explicitly provides that it must be exercised “for the benefit of the company and the shareholders.” At the same time, the draft introduces a new provision requiring directors to “protect the interests of all shareholders and treat all shareholders fairly,” thereby clearly establishing directors’ responsibilities toward the entire shareholder body rather than solely toward controlling shareholders. This adjustment is expected to enhance transparency in the role of directors and ensure that the interests of all shareholders are duly considered.
Prior to the amendment, it was common in practice for business divisions to be spun off in a manner favoring major shareholders or for merger ratios to be determined to the detriment of minority shareholders. In such circumstances, holding directors legally accountable was extremely difficult. However, under the new provision, shareholders now have a legal basis to bring claims if they believe that their “shareholder interest ratio” has been adversely affected, even where the director’s actions do not cause direct harm to the company’s financial statements. This revision is regarded as an important step toward strengthening the protection of minority shareholders’ rights. The provision will take effect immediately upon promulgation of the law, and from that point forward, every board of directors will be required to consider the question: “Does this decision ensure fairness to all shareholders?” in the decision-making process.
2. Enhancing the independence of the Audit Committee and the 3% Aggregate Rule
The second major change is the strengthening of the “3% rule,” which aims to limit the influence of controlling shareholders in the appointment of Audit Committee members. The new provision is expected to contribute to greater transparency in corporate governance structures.
Previously, due to a loophole in the “individual 3% rule,” major shareholders and specially related parties were able to separate their voting rights, with each party being subject to its own 3% cap. As a result, controlling shareholders could, in effect, still influence the selection of Audit Committee members in their favor. This mechanism is no longer valid under the revised framework.
The amended law introduces measures to prevent the undue influence of controlling shareholders. Accordingly, when appointing or dismissing Audit Committee members in large public companies, the voting rights attached to the portion of shares exceeding 3% held by major shareholders and their related parties will be restricted.
This new provision — also referred to as the “3% aggregate rule” — will substantially reduce the power of controlling shareholders and create opportunities for candidates nominated by minority shareholders or institutional investors to be elected to the Audit Committee. This change is considered a significant enhancement to transparency within corporate governance structures.
Enhancing the independence of the Audit Committee is essential to preventing accounting fraud and unfair insider transactions. The core mechanism to achieve this objective has been established, and it will officially take effect after a one-year grace period from the date of promulgation.
Finally, to enhance the effective exercise of shareholders’ voting rights, an electronic general meeting system will be formally implemented. This mechanism expands opportunities for shareholders to participate in the decision-making process in a more convenient and flexible manner.
Under the new regulation, listed companies may hold general meetings of shareholders in a hybrid format, combining in-person and online participation, based on a resolution of the Board of Directors. Notably, for large listed companies with substantial assets, the use of electronic general meetings will become mandatory as of January 1, 2027.
It is evident that shareholder democracy has been significantly strengthened. Whereas previously, due to constraints of time and location, many minority shareholders or foreign investors were unable to attend general meetings of shareholders in person, they can now review proposals, participate in discussions, and exercise their voting rights online and in real time.
This change is expected to significantly increase shareholder attendance at general meetings, while also facilitating more effective oversight of unilateral decisions by controlling shareholders or the management team. In turn, transparency and accountability in corporate governance will be further enhanced.
III. Conclusion
The 2025 draft amendment to the Commercial Act is regarded as a landmark, bringing about profound changes to the corporate governance environment in Korea. The amendment clarifies that directors’ fiduciary duties encompass shareholders, while also strengthening the mechanism limiting voting rights under the “3% rule” and introducing electronic general meetings of shareholders, thereby significantly enhancing the protection of shareholder rights. These measures are regarded as a foundational step toward addressing the “Korea Discount” issue, while also promoting transparency and reinforcing confidence in corporate operations.
However, the changes also pose several challenges for businesses. The expansion of directors’ legal responsibilities and the increased risk of disputes raise concerns regarding their impact on strategic decisions, including mergers and acquisitions and large-scale investments. In this context, companies need to conduct a comprehensive review of board operations, standardize and clearly document decision-making processes, and strengthen mechanisms for shareholder engagement. Reinforcing the internal control system becomes particularly imperative. At the same time, investors—whose rights have been strengthened—need to closely monitor corporate activities and exercise the role of responsible shareholders to promote long-term corporate value. The amendment to the Commercial Act requires coordination among companies, investors, and regulatory authorities to mitigate the negative consequences of legal disputes and governance limitations, thereby contributing to the sustainable development of Korea’s capital market. This collective effort is expected to result in an effective reform.
IV. About NYLA – Korean Legal Office
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