Corporate Governance 2024 Comparisons

There are five types of corporate/business organisation is Korea, as follows.

• Joint stock company (chusik hoesa) – Similar to a corporation in the United States, this is the most commonly seen form of corporate/business organisation in South Korea. A joint stock company secures its capital and assets by issuing stocks, and shareholders are liable only to the extent of their investment (ie, they have limited liability), and also have equity rights in the company based on the number of shares they hold.
• Limited company (yuhan hoesa) – Like a joint stock company, the members of a limited company (equivalent to the shareholders in a joint stock company) are liable only to the extent of their contributions, but the set-up process is simpler and the units (equivalent to the shares in a joint stock company) are not freely transferable, making it suitable for smaller corporate/business organisations.
• Limited liability company (yuhan chaekim hoesa) – This is a company where unitholders can directly participate in management while each bears legal responsibility up to the amount that they invested. However, use of this form of company is rare due to (i) its lack of any meaningful benefits compared to a joint stock company and limited company, and (ii) a general lack of familiarity with this type of entity in the market, as it is a relatively new form of corporate/business organisation created in 2012.
• Unlimited partnership (hapmyung hoesa) – Here, each member, who is also a shareholder, assumes unlimited liability in proportion to their shareholding, and has the authority to execute the company’s business and represent the company, making it suitable for joint business ventures among closely related individuals such as family members, relatives or close friends.
• Limited partnership company (hapja hoesa) – This type of company has members who bear unlimited liability and members who bear limited liability up the amount of their investment. Those with unlimited liability manage the business and members with limited liability provide capital and participate in the distribution of profits generated by the business.

According to a survey published by the National Tax Service, approximately 94% of companies in South Korea are joint stock companies. The following guide therefore uses these as context.

The primary sources of law governing corporate governance in South Korea are as follows.

Korean Commercial Code (KCC)

The KCC is the most fundamental law relating to corporate governance, which applies to both publicly traded and private companies. The KCC comprehensively regulates all aspects of corporate governance, such as the formation, decision-making, and dissolution of companies. It takes precedence over civil law with respect to corporate governance. However, for publicly traded companies, the Financial Investment Services and Capital Markets Act take precedence over the KCC.

Financial Investment Services and Capital Markets Act (FISCMA)

From a corporate governance perspective, the FISCMA provides for requirements around public disclosure, audit committees, outside directors and insider trading. It is mandatory for publicly traded companies to comply with listing rules, including those derived from the FISCMA and the applicable listing rules of the Korea Exchange (eg, KOSPI Market Listing Rules and KOSDAQ Market Listing Rules).

Act on External Audit of Stock Companies (External Audit Act)

The External Audit Act is a crucial legal framework that mandates companies to undergo external audits and prescribes essential matters related to accounting management for companies subject to external audits and the auditing process conducted by external auditors. It ensures transparency, maintains investor trust and upholds corporate integrity by verifying a company’s financial health and the appropriateness of its financial reports. Please refer to Section 6.1 Financial Reporting for details on the External Audit Act.

Various corporate governance requirements for publicly traded companies are provided by the KCC and FISCMA, as well as listing rules for the Korea Exchange (KRX), including the following.

Appointment of Outside Directors and Statutory Auditors

Listed companies are required to appoint at least one-quarter of the total number of their directors as outside directors (ie, independent directors). Publicly traded companies with total assets equal to or above KRW2 trillion must have three or more outside directors, and a majority of the total number of directors must be outside directors. Furthermore, the individuals that have been involved in the company’s business activities within the preceding three-year period cannot be appointed outside directors. The total tenure of outside directors cannot exceed nine years.

Regarding statutory auditors, publicly traded companies with total assets equal to or above KRW100 billion must appoint a full-time auditor or establish an audit committee to oversee the company’s affairs and accounting practices, and publicly traded companies with total assets equal to or above KRW2 trillion must set up an audit committee. Individuals appointed as auditors or audit committee members must meet specific qualifications, as stipulated under the KCC.

Corporate Governance Report

Listed companies above a certain size are required to disclose corporate governance reports in accordance with the Corporate Governance Report Guidelines issued by the KRX.

Corporate governance reporting was voluntary when first introduced to Korea in 2017. However, with disclosure requirements gradually expanding, it is anticipated that, by 2026, such requirements will become applicable to all publicly traded companies on the KOSPI market.

In addition to the above, publicly traded companies are subject to various other regulations under applicable laws and regulations, such as the requirement to include certain information about candidates for directors or auditors in the notice convening a shareholders meeting, and the requirement to make disclosures on a regular basis or in relation to transactions of a certain nature.

Key issues in corporate governance reporting will be discussed hereafter.

ESG Disclosure Rules

The Financial Services Commission announced plans to adopt mandatory ESG disclosure rules for publicly companies traded on the KOSPI with assets exceeding KRW2 trillion by 2025 and for other publicly traded companies by 2030. South Korea is preparing disclosure standards and timelines to align with global standards, to include establishment of the Korea Sustainability Standards Board (KSSB).

The Financial Services Commission plans to establish standards by referring to relevant standards from the EU, the US, and other jurisdictions, while taking into account the specific characteristics of the domestic market and companies. These standards will be introduced gradually, beginning with large publicly traded companies, based on the readiness of the disclosing entities. However, considering the delay in discussions on mandatory ESG disclosures in major countries such as the US, introducing ESG disclosure regulations in Korea may be further delayed.

Rise in Shareholder Activism

Shareholder activism has been on the rise in recent years, increasing ninefold since 2019 in Korea with 77 companies headquartered there targeted by activist campaigns in 2023, according to a report published by the Federation of Korean Industries. For further information on shareholder activism campaigns, please refer to the Trends & Development section (link).

For publicly traded companies, the Corporate Governance Report system aims to enhance governance transparency.

Currently, companies in the KOSPI with assets exceeding KRW1 trillion are required to submit corporate governance reports according to the guidelines of the Korea Exchange, which are continuously revised. As per the revised guidelines in 2024, the corporate governance report must include compliance with a total of 15 key indicators for shareholders, the board of directors, and internal audit. These indicators must show:

• whether dividend predictability is ensured;
• that communication with minority shareholders and institutional investors is improved;
• the status of financing, with different shareholder interests;
• that the board is sufficiently diverse;
• that a reasonable compensation policy for directors is in place; and
• that no unqualified executives have been appointed.

The principal bodies involved in the governance and management of a company in South Korea are (i) the general meeting of the shareholders, (ii) the board of directors, and (iii) the statutory auditor (or audit committee).

General Meeting of the Shareholders

The shareholders’ meeting is the highest decision-making body that resolves important matters for the company. As the name implies, the members of the shareholders’ meeting are shareholders, while directors and auditors may attend the meeting but are not official members.

The Board of Directors

The board of directors is a standing body organised to make key decisions on the conduct of a company's business. Most companies have a board of directors, but for smaller companies of under a certain size, the shareholders’ meeting or directors may serve in this role.

The board of directors is composed of all directors, regardless of whether they are inside directors, outside directors or non-executive directors. However, as mentioned above, in the case of a publicly traded company, the board of directors must be composed of at least a certain percentage of outside directors.

Statutory Auditor/Audit Committee

The statutory auditor has the authority to attend the board of directors’ meetings and inspect and supervise directors’ performance, audit the accounts and ensure general compliance with the law (similar to outside directors).

According to the KCC, joint stock companies with paid-in capital of KRW1 billion or more must appoint a statutory auditor or establish an audit committee, regardless of whether they are publicly traded companies or not, while publicly traded companies with total assets exceeding KRW2 trillion must establish an audit committee instead of simply appointing a statutory auditor.

An audit committee must consist of three or more directors, with outside directors making up two-thirds or more of its members. In the case of publicly traded companies, at least one member of the audit committee must be a financial or accounting expert, and the chairperson must be an outside director.

Representative Director

The representative director has the authority to represent the company externally and execute internal operations, and is an essential figure within a joint stock company. According to the KCC, the representative director must be appointed by the board of directors, although the articles of incorporation may allow for appointment by the shareholders’ meeting.

While many companies typically have only one representative director, it is also permitted for companies to have more than one. In the case of multiple representative directors, such representative directors may be granted (i) the authority to jointly represent the company, in which case they will act together in their executive actions, or (ii) the authority to independently represent the company, in which case each of them will, alone, act independently in their executive action.

General Meeting of the Shareholders

The major decisions made by the general meeting of shareholders include, without limitation, the following:

• appointment of directors and auditors;
• approval of the financial statements;
• dividend distribution; and
• amendments to the articles of incorporation and other significant corporate actions (such as M&A, corporate restructuring, dissolution and liquidation, etc).

Under the KCC, the following decisions must be reserved for the shareholders, and may be resolved by a majority of votes among the shareholders present at the general meeting representing more than a quarter of the total outstanding shares of the company:

• appointment of a director or a statutory auditor;
• approval of the annual financial statements;
• approval of remuneration of directors and statutory auditors; and
• declaration of dividends.

For the following decisions that are reserved for the shareholders, the KCC requires a special resolution achieving more than two-thirds of the votes of shareholders present at the general meeting representing more than a third of the total outstanding shares of the company:

• transfer of all or a material portion of the company’s business;
• removal of directors and statutory auditors;
• amendments to the articles of incorporation of the company;
• capital reduction;
• mergers and spin-offs of the company;
• dissolution or continuance of the company; and
• granting of stock options.

The Board of Directors

The major decisions made by the board of directors relate to, without limitation, the day-to-day operation of the company (to the extent not reserved for a general meeting of shareholders).

According to the KCC, resolutions of the board of directors must be made by a majority vote of the attending directors, in the presence of the majority of directors. The main resolutions of the board of directors include:

• the convening of the meeting of shareholders;
• appointment of representative directors;
• issuance of new shares;
• disposal of significant assets;

(On the other hand, the requirements for board resolutions may further be reinforced by laws or articles of incorporation. For example, the approval of two-thirds of the directors is required for the following under the KCC, and companies may have different (ie, higher, but in no case lower than stipulated under the applicable laws) resolution requirements in their articles of incorporation.)

• use of business opportunities of the company by directors;
• transactions between directors and the company.

The board of directors will have decision-making authority over the execution of business and other important matters as designated by the KCC, articles of incorporation, regulations of the board of directors and resolutions passed by the board of directors. However, the representative director will have decision-making authority over the details of business execution or routine business.

General Meeting of the Shareholders

The general meeting of the shareholders (”Ordinary General Meeting of the Shareholders”) must be held at least once every year and at any time that is necessary giving two weeks’ notice, although the notice period may be waived or shortened by the unanimous consent of the shareholders, in which case the meeting becomes the ”Extraordinary General Meeting of the Shareholders”, according to the KCC.

As specified above, pursuant to the KCC, voting at the general meeting of the shareholders generally requires majority approval (ie, a majority of votes from the shareholders present at the general meeting, representing more than a quarter of the total outstanding shares of the company), although certain matters (including amendment to the articles of incorporation or dissolution/liquidation) require special majority approval (ie, more than two-thirds of the votes of the shareholders present at the meeting, representing more than a third of the total outstanding shares of the company). According to the KCC, only one vote is allowed per share. Additionally, proxy voting is permitted. If specified in the articles of incorporation, publicly traded companies may notify minority shareholders of the general meeting through publication in two or more daily newspapers or by electronic means.

Meeting of the Board of Directors

The meetings of the board of directors may be held regularly (as stipulated in the articles of incorporation and/or shareholders agreement/joint venture agreement, if applicable) and at any time, provided that a week’s notice is given, in accordance with the KCC. The notice period may be waived or shortened by the unanimous consent of the members of the board of directors. However, unlike the shareholders’ meeting, the notice period can be shortened by the articles of incorporation, with the result that many companies shorten notice to one or three days in their articles of incorporation.

As mentioned above, voting at board of directors meetings generally requires majority approval unless stipulated otherwise by the articles of incorporation and/or shareholders agreement/joint venture agreement, if applicable. Unlike shareholder meetings, the board of directors meeting does not recognise proxy voting, requiring directors to be present and vote in person.

The board of directors in South Korea usually has a one-tier structure, and typically consists of inside directors (executive directors), outside directors (independent directors) and non-executive director (other directors not directly engaged in the regular business of the company). One or more of the inside directors is also appointed as (a) representative director(s) of the company.

While statutory auditors are not members of the board of directors, they have the right to attend board of directors meetings. The audit committee is treated as a subcommittee established within the board of directors.

There are three types of director: inside director, outside director and non-executive director. While specific roles are not expressly designated by the KCC, there are some differences among them. For instance, outside directors are required to have independence, and only inside directors can be appointed as the representative director. A brief instruction of each director is as as follows.

Inside Director

Inside directors are those engaged in the day-to-day management of a company.

Outside Director

Outside directors are those not directly engaged in the day-to-day management of a company but are expected to take care of the objective oversight of the day-to-day matters, including those relating to governance and general compliance. To be appointed as an outside director, one must not have any of the disqualifications specified by the KCC.

Non-executive Director

Non-executive directors are those that are not directly engaged in the day-to-day management of a company, but are not deemed to be outside directors. They are not required to have independence, unlike outside directors, and are treated like inside directors in terms of legal regulations.

Regardless of whether a member is an inside director, outside director or non-executive director, each (other than the statutory auditor) shall have an equal vote over any matter submitted to the board of directors for approval, and no casting vote is permitted under the KCC.

Under the KCC, a company with total capital of less than KRW1 billion may have one or two directors, otherwise the requirement is to appoint at least three directors. The size of the board of directors can also be determined in the articles of incorporation, subject to the foregoing requirements under the KCC.

For outside directors (ie, one of the members of the board of directors), a publicly traded company must appoint more than one-quarter of its directors as outside directors; a large publicly traded company with total assets of equal to or above KRW2 trillion must appoint three or more outside directors, making up the majority of the board of directors.

As stated, when establishing an audit committee within the board of directors, the committee must consist of three or more directors, with outside directors making up two-thirds or more of the members. In the case of publicly traded companies, at least one member of the audit committee must be a financial or accounting expert, and the chairperson of the audit committee must be an outside director.

Shareholders have the power to appoint or remove directors through the general meeting of the shareholders. Under the KCC, the appointment of directors will require a majority of votes of shareholders present at the general meeting representing more than a quarter of the total outstanding shares of the company; for the removal of directors, more than two-thirds of the votes will be required from those shareholders present at meeting, representing more than a third of the total outstanding shares of the company.

Although there are no particular criteria for becoming a director, a statutory auditor of a company cannot also hold the office of director.

Furthermore, a person who falls within any of the following categories cannot be an outside director of a company:

• directors and employees engaged in the regular business of the company, or directors, auditors and employees who have been engaged in the regular business of the company within the previous two years;
• in instances where the largest shareholder is a natural person, the largest shareholder, their spouse, lineal ascendants and lineal descendants;
• in instances where the largest shareholder is a company, directors, auditors and employees of the largest shareholder;
• spouses, lineal ascendants and lineal descendants of directors, auditors or executive officers of the company;
• directors, auditors, executive officers and employees of the parent or subsidiary of the company;
• directors, auditors, executive officers and employees of another company that has a significant interest in the company, such as business relations with the company; and
• directors, auditors, executive officers and employees of another company in which directors or employees of the relevant company work as directors, auditors, executive officers or employees.

In addition, the KCC stipulates additional reasons for disqualification of an outside director of a publicly traded company, including the following:

• a minor or a person of incompetence or of quasi-incompetence;
• a person for whom two years have not passed since being dismissed or removed from office after they violated acts relating to finance separately determined by presidential decree, including, but not limited to, the FISCMA, the Banking Act and the Insurance Business Act;
• the largest shareholder and their specially related persons;
• a shareholder who owns more than 10% of the total number of issued shares, other than non-voting shares, by their calculation, regardless of the name of a shareholder, or who exerts de facto influence on important matters related to the management of publicly traded companies and their spouse, lineal ascendants and lineal descendants; and
• a person determined by presidential decree to have difficulty faithfully performing their duty as an outside director, or who may have an influence on the management of publicly traded companies.

Generally, the board of directors takes a holistic approach to ensuring the independence of directors and preventing potential conflicts of interest, including by considering the totality of fact and circumstances to determine whether there is any special/material relationship between a director and the affairs of the company. According to court decisions, a special/material relationship between any director and the affairs of the company exists if there is a personal conflict with the matter being discussed and decided upon (eg, if the director becomes a counter-party to a transaction with or in a matter against the company, or if the discussion and vote concern their compensation).

If it is determined that there is any special/material relationship between any director and the affairs of the company, the director will not be permitted to vote on the company’s relevant affairs.

With regard to the rules and requirements around the independence of ”outside directors,” please refer to 4.4 Appointment and Removal of Directors/Officers.

Under the KCC, a company director is considered an agent of that company with two primary categories of duty: (i) the duties of a good faith caretaker toward the company (“Duty of Care”) (Article 382(2) of the KCC; Article 681 of the Civil Act); and (ii) the duties to act in good faith in the interests of the company in compliance with the relevant laws and the company’s articles of incorporation (“Duty of Loyalty”) (Article 382-3 of the KCC). Furthermore, based on court decisions interpreting the KCC, a director is recognised as having a duty to oversee other directors’ duties (“Duty of Oversight”). Duty of Care, Duty of Loyalty and Duty of Oversight shall hereinafter be collectively referred to as “Fiduciary Duties”.

Duty of Care

Directors execute the company’s affairs according to the delegation relationship, thereby assuming a duty of care towards the company. Duty of care entails a standard of care that is generally and objectively expected of directors in transactions. It requires directors to actively execute their duties in the company’s best interests, utilising the company’s human and material resources to their fullest extent while prudently assuming risks. If a director breaches their duty of care, they may be subject to criminal prosecution in addition to liability for damages to the company.

However, based on court rulings, in assessing whether there has been a breach of the duty of care by a director, the Business Judgment Rule is applied. Under this rule, if a director exercised their duties based on business judgment, even if that judgment is later found to be incorrect and results in harm to the company, it does not constitute a breach of the duty of care so long as it was made in good faith and with reasonable attention.

Duty of Oversight

This is an obligation to monitor the conduct of other directors in order to prevent them from violating their duties. The scope of the duty required of directors varies depending on their roles. Inside directors, including representative directors, have the duty to oversee and supervise the general affairs of the company and the performance of all employees, including other directors.

On the other hand, based on case law, outside directors, not possessing executive authority and not engaging in day-to-day management, do not have the same scope of the duty as inside directors. However, they are judged to have violated their duty of oversight (i) when they knew or had reason to suspect that business execution by other directors has been illegal and ignored it, or (ii) have failed to fulfil appropriate actions to ensure that the company’s compliance system is adequate and meets the necessary requirements to operate in the industry within which the the company operates.

The duty of oversight for directors is gradually strengthening, leading directors to more actively fulfil their oversight responsibilities, and resulting in an increase in cases of directors joining directors’ and officers’ liability insurance.

The KCC also stipulates the following duties of a director:

• duty of confidentiality;
• duty of non-competition;
• duty against usurpation of corporate opportunities and assets;
• duty against self-dealing;
• duty to prepare financial statements; and
• duty to report.

Although members of the board of directors are appointed by the shareholders of the company, the board of directors (and each of its members) represents, and owes legal duties such as Fiduciary Duties to, the company and the company only.

Accordingly, directors assume various duties noted in 4.6 Legal Duties of Directors/Officers, which, if breached, will subject them to various liabilities, as detailed hereafter.

Civil Charges and Compensation for Damages

According to the KCC, directors who intentionally or negligently violate the articles of incorporation of the company or applicable laws, or omit to perform their duties, are jointly and severally liable for damages resulting from such acts or omissions.

Furthermore, if a director’s violation of their duties as a director also constitutes a violation of applicable laws, the civil code requires adequate compensation for any damages resulting from such illegal actions. Whilst the Business Judgement Rule is considered when the court decides on any compensation for damages, if the director is considered to have violated their duties as a director in violation of the applicable laws, the Business Judgement Rule does not apply according to precedents.

Criminal Charges

If a director is found to intentionally have acquired, or caused any third party to acquire, any assets such as money or property as a result of any violation of their duties, resulting in any losses or damages to the company, the director shall be considered to have committed a breach of their Fiduciary Duties. This carries a prison sentence of 10 years or less, or a fine of KRW30 million or less.

If the value of the assets, such as money or property, acquired by the director or caused to be acquired by a third party is equal to or above KRW500 million but less than KRW5 billion, the applicable prison sentence will be three years or more. If the value of the assets is equal to or above KRW5 billion, the applicable prison sentence will be five years or more (with up to life imprisonment).

It should be noted that a director owes their Fiduciary Duties only towards the company, and losses or damages to the company only (and not to the shareholders) will be used as a basis for determining the applicable penalties.

In cases of breach of duty by directors, breach of Fiduciary Duties is mainly at issue, but directors can also be held criminally liable for jeopardising the company’s assets (Article 625 of the KCC) or for misrepresenting payments (Article 628 of the KCC).

A director may also be liable for damages to any third party resulting from their intentional or grossly negligent conduct.

Liability of a director can be limited, as follows:

• Indemnification: under the KCC, a company may indemnify a director by unanimous approval of the shareholders; or in accordance with its articles of incorporation, a company may indemnify an amount of liability incurred by a director that exceeds up to six times (or three times for outside directors) their remuneration for the year; however, this shall not apply in respect of loss or damage caused by the wilful misconduct or gross negligence of a director.
• Exemption: liability of a director may be exempted by the unanimous approval of the shareholders.
• D&O liability insurance: Directors’ and officers’ liability insurance is permitted under the KCC. Listed companies and large Korean companies are increasingly adopting such policies into their corporate governance framework. It is common practice for Korean companies to bear the cost of the premiums of such policies.

Unless provided otherwise in the articles of incorporation, director remuneration is determined by the shareholders at the shareholders’ general meeting. In practice, shareholders typically set the aggregate amount of funds available for remunerating the board of directors and then authorise the board of directors to determine between themselves the individual remuneration payable to each director. Companies that are required to submit annual reports (as described in 6.1 Financial Reporting) must include in such reports the amount of remuneration approved at the general meeting of the shareholders and the amount of remuneration paid to all directors and statutory auditors.

Failure to comply with the requirements may result in (i) legal challenges by the shareholders, which may result in potential liabilities for directors; (ii) restitution by the member of the board of directors having received such remuneration; and/or (iii) unfavourable tax implications (ie, treatment of the company’s expenses as non-deductible expenses).

According to the FISCMA, publicly traded companies must disclose payment to registered directors and officers with an annual salary of KRW500 million or more, as well as specific criteria and methodology for calculating such payment.

Apart from the requirement for publicly traded companies to disclose the remuneration of executive officers exceeding KRW500 million, there is no specific disclosure obligation required, and private companies are not obliged to disclose the remuneration of directors and officers.

The board of directors is empowered to execute the business of the company in accordance with the KCC. Accordingly, apart from their ability to appoint or remove directors and their voting rights in shareholders’ meetings, shareholders do not otherwise possess any power to require the board of directors to pursue a particular course of action.

With that said, please refer to 3.2 Decisions Made by Particular Bodies for matters that are subject to shareholder approval.

Furthermore, please note that controlling shareholders do not owe duties to the company or to non-controlling shareholders under the KCC. It is provided, however, that any person, including a controlling shareholder, who instructs a director to conduct business by using their influence over the company, conduct business under the name of a director, or conduct business by using a title that may give the impression that they are authorised to conduct the business of the company will, in each instance, be seen as a director for the purposes of the KCC, thereby attracting liability and responsibility as a de facto director for compensating losses resulting from such actions.

Under the KCC, a shareholder’s liability is limited to the acquisition or subscription price of their shares; however, the Supreme Court of Korea has held that there may be exceptions for situations where companies are essentially sole proprietorships or deemed to have no substance, but incorporated merely for the purpose of shielding legal implications that would otherwise apply against the individual proprietor, leading to a ruling that, in such cases, the corporate veil may be pierced – thereby imposing personal liability on the individual proprietor. In addition, under Korean tax law, a shareholder who owns more than 50 per cent of the total outstanding shares of a company may, in certain cases, be liable for the company’s secondary tax liability in proportion to their ownership interest.

In short, other than by voting on the matters reserved for shareholders, the shareholders are not permitted to direct the management of a company. However, they are able to influence the management of a company through appointment and/or dismissal of directors or by exercising their statutory rights to influence the management of a company.

Key statutory shareholder rights include the right to demand a shareholders’ meeting, the right to demand the dismissal of directors/auditors, the right to inspect accounting books, and the right to maintain legal action against unlawful acts of directors/auditors.

In particular, the right to demand the dismissal of directors/auditors or to maintain legal action against unlawful acts allows shareholders to influence the management of the company.

Shareholders exercise these minority shareholder rights and may seek a court injunction to suspend the directors’ performance of their duties.

Under the KCC, a company is required to convene an Ordinary General Meeting of the Shareholders annually. While the KCC does not specifically stipulate the timing for holding the Ordinary General Meeting of the Shareholders, in practice, the majority of companies hold the meeting within three months of the end of the preceding fiscal year.

In addition to the Ordinary General Meeting of the Shareholders, the Extraordinary General Meeting of the Shareholders may be held from the time to time as necessary.

Please refer to 3.2 Decisions Made by Particular Bodies and 3.3 Decision-Making Processes for the procedures and resolutions related to the general meeting of the shareholders.

Claims Against Directors

For claims against directors discussed in 4.8 Consequences and Enforcement of Breach of Directors’ Duties, shareholders of a company are also considered third parties that can claim compensation for damages from directors due to negligence in their duty to act. However, court decisions have only allowed for compensation claims for damages where the shareholder directly incurs damages from the director’s negligence, and not in situations in which the company is the one to incur damages, which then affects the shareholder negatively (indirect damages).

Derivative Actions

With respect to any indirect damages (through damages incurred by the company), the shareholders may bring a derivative action against the directors on behalf of the company.

Specifically, if a director causes damage to the company through violation of laws or articles of incorporation, or through negligence in performing their duties, the shareholders can demand that the company file a lawsuit to hold the director accountable. If the company does not file a lawsuit against the director within 30 days of receiving such a demand, the shareholders can immediately file a lawsuit against the director on behalf of the company to claim damages as derivative actions (Article 403 of the KCC).

In the case of private companies, shareholders owning more than 1% of the total issued shares can file such lawsuits. However, for publicly traded companies, only the shareholders who have continuously held at least 0.01% of the total issued shares for the past six months can initiate representative lawsuits (Article 542-6, Paragraph 6 of the KCC).

The 5% Reporting Rule

Any individual or entity holding 5% or more of a publicly traded company’s total outstanding shares must report their share-ownership status, changes in holdings, and the purpose of their holding to the Financial Services Commission. The 5% threshold for disclosure is calculated by aggregating not only the shares held by the relevant shareholder but also the shares held by such shareholder’s related parties. In this case, the individual holding the largest number of shares (when aggregated with the shares held by their related parties) has the right to file the report as the representative reporter, enabling consolidated reporting.

The 10% Reporting Rule

An individual (“major shareholder”) who acquires ownership of 10% or more of the total issued shares of a company is required to disclose this ownership, and any subsequent changes in the number of shares owned must also be disclosed. However, if the change in the shareholding involves less than 1,000 shares and the applicable amount is lower than KRW10 million, the obligation to report the change does not apply. Unlike the 5% rule, the 10% rule does not aggregate the number of shares held by related parties.

There is no disclosure obligation in relation to the ultimate beneficial owner of publicly traded companies, although such disclosure may be required in certain regulated industries (eg, financial institutions).

Listed and certain other companies are obliged to submit an annual report, and regular disclosures must be made on its business through quarterly, semi-annual and annual reports, which are made available to the public on an electronic public disclosure platform maintained by the Financial Supervisory Service such as the “Data Analysis, Retrieval and Transfer System” (DART).

In addition, such companies must submit timely reports setting forth information on material events having an effect on the management or assets of the company (eg, mergers, spin-offs, comprehensive exchanges of shares, transfers of a material business (assets), sales or transfers of treasury stock and issuance of convertible bonds or bonds with warrants). Such reports are also made available to the public on DART.

”Certain other companies” include those that (pursuant to the External Audit Act and FISCMA) intend to be publicly traded in the relevant or subsequent fiscal year and meet the following conditions:

• have total assets of KRW50 billion or more as at the end of the preceding fiscal year or total revenue of KRW50 billion or more for the preceding fiscal year.
• fulfil any two of the conditions below:
1. have total assets of KRW12 billion or more as at the end of the preceding fiscal year;
2. have total liabilities of KRW7 billion or more as at the end of the preceding fiscal year;
3. have total revenue of KRW 10 billion or more for the preceding fiscal year; or
4. have a total headcount of 100 or more as at the end of the preceding fiscal year.

For private companies, the articles of incorporation must be kept at the head office and are not made publicly available, although certain parts of the articles (such as the business objectives of the company and the terms of the preferred shares and convertible or redeemable securities) may be gathered from the commercial registry maintained with the court registrar. Any shareholders or creditors of a company may, at any time during its business hours, inspect the articles of incorporation and request a copy thereof.

For publicly traded companies, the articles of incorporation are attached to the annual report and are publicly available on DART.

Furthermore, under the FISCMA, companies that are required to submit annual reports, such as publicly traded companies, must submit quarterly, semi-annual and annual reports to the Financial Services Commission and to the Korea Exchange, which are then publicly disclosed. These reports contain information relating to the composition of the board of directors, major items resolved by the board of directors, including whether each outside director voted in favour of or against such items and, if applicable, the composition and activities of the subcommittees of the board of directors.

Certain key information relating to a company, including the registration number, name, registered address, method of public notification, capitalisation, business purposes, information on directors and statutory auditor and information on rights of class shares, among other information, is required to be registered with the court registrar.

Failure to comply with this requirement may result in penalties or other sanctions (eg, fines). Companies that consistently fail to comply with this requirement may also lose their good standing and, in extreme cases, be subject to administrative dissolution.

Listed companies and certain other companies (as described in 6.1 Financial Reporting) must appoint an external auditor for its financial statements.

Pursuant to the External Audit Act, individuals with a vested interest in the company cannot serve as auditors, ensuring that external auditors can perform their duties independently in a separate/independent capacity.

There is no specific and express legal requirement for directors with regard to the management of risk and internal controls in a company, although they are expected (within the scope of their Fiduciary Duties) to assess and manage risks, oversee internal controls and monitor general compliance.

Specifically, the responsibilities that directors bear as trustees with respect to internal controls can include Fiduciary Duties, including their oversight duty described in 4.6. Legal Duties of Directors/Officers.If directors breaches these duties, they may be held liable for civil damages and subject to criminal penalties.