[Startup Must-Know Laws] Understanding and Implications of the Second and Third Commercial Act Amendments by the Lee Jaemyung Administration

Column by Attorney Heecheol Ahn, DLJ Law Firm

Heecheol Ahn, Attorney at Law, DLG Law Firm

The Lee Jaemyung administration has been gradually pursuing amendments to the Commercial Act with the aim of ensuring transparency in corporate governance and strengthening the rights of minority shareholders. The second amendment to the Commercial Act has passed the National Assembly and will take effect on September 10, 2026, while a third amendment is also underway. The second amendment mandates cumulative voting and expands the requirement for separate election of audit committee members for large listed companies (those with total assets of at least 2 trillion won). The third amendment includes provisions such as the obligation to retire treasury shares acquired by listed companies.

Cumulative voting refers to a method used when electing two or more directors, where each shareholder has voting rights equal to the number of directors to be elected for each share they hold. Shareholders can allocate all their votes to one or several director candidates, and those with the highest number of votes are sequentially elected as directors. Under the current Commercial Act, even large listed companies could exclude cumulative voting through their articles of incorporation. However, this is no longer permitted, increasing the likelihood that candidates supported by minority shareholders can enter the board of directors. This change can be seen as a way to check the management rights of controlling shareholders and to institutionally strengthen checks and balances within the board.

The audit committee is a committee within the board of directors established to audit the company’s work and accounting, essentially performing the audit function in place of an external auditor. Under the current Commercial Act, for large listed companies and those with total assets of at least 100 billion won that have established an audit committee, the principle is to appoint audit committee members from among directors elected at the general shareholders’ meeting. At least one member of the audit committee must be separately elected as an audit committee director. This has now been expanded to require at least two members to be separately elected. As a result, the likelihood that candidates nominated by minority shareholders will be appointed as audit committee members has increased, thereby enhancing the influence of minority shareholders.

The third amendment to the Commercial Act includes a provision that, in principle, requires listed companies to retire treasury shares they acquire. Previously, it was possible for companies to retain treasury shares to strengthen the control of major shareholders or to use them for purposes such as issuing exchangeable bonds. Going forward, the system will shift toward enhancing shareholder value, and except for exceptional cases such as employee compensation, treasury shares must be retired within a certain period after acquisition.

The amendments to the Commercial Act mark a turning point by substantively strengthening the rights of minority shareholders and institutionally checking the monopolistic governance of controlling shareholders. The expansion of separate election of audit committee members and the obligation to retire treasury shares enhance corporate transparency and internal control, contributing to the improvement of shareholder value. This amendment to the Commercial Act signals a fundamental change in corporate governance strategies, along with the values of protecting shareholder rights and strengthening transparency.

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