"Stronger Commercial Act Amendment" Passes National Assembly... What Has Changed? [Legal Issue Check]

Following the passage of the first amendment to the Commercial Act in early July, which focused on strengthening directors' fiduciary duties to shareholders and mandating electronic general meetings of shareholders, the so-called "stronger Commercial Act amendment" (the second amendment) was passed by the National Assembly on August 25.

On the 25th, a 'stronger' amendment to the Commercial Act is being passed in the National Assembly plenary session led by the ruling party. The amendment mandates the introduction of a cumulative voting system for listed companies with assets exceeding 2 trillion won and expands the separate election of audit committee members from the current one to two or more. August 25, 2025 Photo by Kim Hyunmin

The second amendment to the Commercial Act, which passed the National Assembly on this day, includes the mandatory introduction of a cumulative voting system and the expansion of the separate election of audit committee members as measures to protect the rights of minority shareholders. The amended Commercial Act will take effect one year after its promulgation, following deliberation and resolution by the Cabinet.

Exclusion of Cumulative Voting by Articles of Incorporation Prohibited for Listed Companies... Minority Shareholder Influence Grows

The cumulative voting system allows shareholders, when electing two or more directors, to concentrate all their votes, corresponding to the number of directors to be elected per share owned, on a single candidate. For example, if three directors are to be elected, each shareholder receives three votes per share. A shareholder with ten shares would have thirty votes, which can be cast entirely for one candidate rather than distributed among three.

The current Commercial Act stipulates cumulative voting under Article 382-2 (Cumulative Voting).

If a general meeting is convened to elect two or more directors, shareholders holding at least 3% of the total number of issued shares (excluding non-voting shares) may request, in writing or via electronic document, that directors be elected by cumulative voting up to seven days before the general meeting.

If such a request is made, each shareholder is granted as many votes per share as the number of directors to be elected, and these votes may be concentrated on one or more candidates. The candidates receiving the highest number of votes are sequentially elected as directors.

For instance, in a shareholders' meeting to elect three directors with 100 voting rights, under the current law, a candidate must receive at least 51 votes to be elected. However, once the amended law takes effect, a candidate who comes in second with 30 votes or even third with 5 votes, both less than a majority, can also be elected as directors.

Thus, even candidates who do not meet the usual majority requirement of "more than half of the voting rights of shareholders present" can be elected as directors if they receive a relatively higher number of votes. This increases the influence of minority shareholders in director elections.

Meanwhile, Article 542-7 (Special Provisions on Cumulative Voting) of the current Commercial Act stipulates that, for listed companies, requests for cumulative voting must be submitted to the company in writing or via electronic document at least six weeks before the general meeting. The second clause allows shareholders holding at least 1% of shares in certain listed companies, as defined by Presidential Decree based on asset size and other factors, to also request cumulative voting for director elections.

However, the third clause of the same article provides a special exemption, stating, "If a listed company as defined in Clause 2 excludes cumulative voting in its articles of incorporation or intends to amend such exclusion, shareholders holding more than 3% of the total issued shares (excluding non-voting shares) cannot exercise voting rights for the excess shares." As a result, about 95% of listed companies are known to have such provisions.

However, the second amendment to the Commercial Act passed on this day explicitly states in Article 542-7(3) that "Notwithstanding Article 382-2(1), listed companies as defined in Clause 2 cannot exclude cumulative voting through their articles of incorporation." The provision allowing a lower shareholding ratio to be set in the articles of incorporation has also been deleted.

Separate Election of Audit Committee Members Increased from One to Two... Expansion of the 3% Rule

The separate election of audit committee members is a system where, instead of selecting audit committee members from among the elected directors, directors who will serve as audit committee members are elected separately.

Because the voting rights of major shareholders are limited to 3% from the initial stage of the election process, this system imposes greater restrictions on major shareholders compared to the collective election method due to the application of the 3% rule.

Currently, Article 542-12(2) (Composition of the Audit Committee, etc.) of the Commercial Act states, "A listed company as defined by Presidential Decree based on asset size and other factors must, after electing directors at the general meeting, select audit committee members from among the elected directors. However, at least one audit committee member (which may be set at two or more in the articles of incorporation, and if so specified, in accordance with that number) must be elected separately as an audit committee member by resolution of the general meeting."

In other words, the minimum number of audit committee members to be elected separately from directors is currently set at one, but the amended law increases this to two. It also allows the articles of incorporation to specify three or more.

Meanwhile, Article 415-2(2) (Audit Committee) of the Commercial Act requires that the audit committee be composed of at least three directors, and in practice, most companies have audit committees of three directors.

With the second amendment, if two out of three audit committee members are elected separately, a majority of the audit committee could be representatives of minority shareholders, increasing the likelihood that audit committee decisions will be influenced by minority shareholders.

This content was produced with the assistance of AI translation services.