Korea Commercial Act Amendment: What Changed for Minority Shareholders

Between July 2025 and February 2026, South Korea's National Assembly passed three amendments to the Commercial Act, the law that governs how companies are run. For foreign investors, they change how much minority votes count in board elections and what companies may do with the shares they buy back.

Directors now owe a duty to shareholders as well as to the company. Controlling families have fewer votes in some board elections, and companies must cancel bought-back shares within a year unless shareholders approve keeping them.

The stakes are high where foreign investors own more shares than the founding family does. Foreign shareholders held 52.34% of Samsung Electronics, against 19.84% for its founding family, according to a survey the Asia Business Daily published on July 23, 2026.

Most of the rules are already in force, and hybrid shareholder meetings with online attendance become compulsory at large companies on Jan. 1, 2027. The package is part of President Lee Jae Myung's effort to end the "Korea discount," the low valuation of Korean stocks relative to global peers.

Here's what you need to know.

What Did the Commercial Act Amendments Change?

Promulgation and effective dates below come from the National Law Information Center, the government's law database; voting dates come from press reports.

The first amendment passed with 220 votes in favor, 29 against and 23 abstentions, the Korea Herald reported. It followed a rare compromise between the ruling Democratic Party and the opposition People Power Party. An earlier version passed on March 13, 2025, but then-acting President Han Duck-soo vetoed it on April 1, 2025.

The July 2025 deal left out two contested ideas: mandatory cumulative voting and a second separately elected audit committee member. The Democratic Party passed both on Aug. 25, 2025, with 180 votes in favor and two abstentions. The People Power Party had staged a 24-hour filibuster and boycotted the vote, the Korea JoongAng Daily reported.

The third amendment, on treasury shares, passed on Feb. 25, 2026, after pro-government parties voted to end another 24-hour filibuster, the JoongAng Daily reported.

Several rules apply only to large listed companies. The Enforcement Decree of the Commercial Act defines them as listed companies with total assets of 2 trillion won ($1.47 billion) or more at the end of the latest fiscal year. The dollar figure is the Korea Herald's July 2025 conversion.

The first amendment also renamed outside directors "independent directors" and raised their required share of a listed company's board from one-quarter to one-third, from July 23, 2026, with a further year to comply.

What Does the Duty of Loyalty to Shareholders Mean?

Article 382-3 of the Commercial Act used to say that directors must perform their duties faithfully for the company. Since July 22, 2025, the duty runs to the company and its shareholders, and directors must protect the interests of all shareholders and treat them fairly.

In the Korea Herald's words, the rule prevents directors "from favoring particular groups, including the founding families of chaebol groups." Chaebol are the family-run conglomerates that dominate Korean business.

The law does not define fair treatment. When Han vetoed the March 2025 version, he argued that this gap put directors at risk of civil and criminal liability, the Korea Herald reported.

Eight business groups, including the Federation of Korean Industries and the Korea Chamber of Commerce and Industry, answered the July 2025 vote with a joint statement. "We agree with the bill's purpose of revitalizing the capital market and establishing a fairer business environment," they said, as translated by the Korea Herald.

But the groups said they were "deeply concerned that the revision did not provide a means of defending against lawsuits." They asked lawmakers to write the business judgment rule, which shields directors who act in good faith, into law. None of the three amendments does that.

How Do Cumulative Voting and the 3% Rule Work?

Both rules weaken a controlling shareholder's grip on board elections at large listed companies: one caps its votes, and the other lets minority shareholders concentrate theirs.

The 3% rule applies when shareholders elect or dismiss members of the audit committee, the board committee that oversees a company's accounts and management. A shareholder cannot vote shares above 3% of the voting stock, and the largest shareholder must add in the shares of related parties, such as relatives and affiliated companies.

Before July 23, 2026, that combined count applied only to audit committee members who were not outside directors. Since then, it has applied to every audit committee member, according to the official reasons for the first amendment.

In practice, an owner family holding 40% of a company can exercise only 3% of those votes in an audit committee election, the Korea Herald explained. Leaders Index, a local market analysis firm, studied 130 affiliates of the 50 largest business groups in August 2025. It estimated that under both rounds of changes, 37.8% of family-aligned shares would lose their votes in audit committee elections.

The second amendment raised the number of audit committee members elected separately from other directors from one to at least two, from Sept. 10, 2026. Those members win their seats in a vote held under the 3% cap, so the change "limits the dominance of major shareholders over board oversight," the Korea Herald wrote.

Under cumulative voting, each share carries as many votes as there are seats up for election, and a shareholder may put all of them on one candidate. The candidates with the most votes win, under Article 382-2.

With three seats open, for example, a holder of 1,000 shares has 3,000 votes to give to a single nominee. The method "enables shareholders to concentrate multiple votes on preferred director candidates, increasing the influence of minority investors," as the Korea Herald put it.

Companies could previously exclude cumulative voting in their articles of incorporation. Since Sept. 10, 2026, large listed companies cannot, starting with the first meeting called to elect directors after that date. At those companies, shareholders with at least 1% of the voting shares can request a cumulative vote, in writing or electronically, at least six weeks before the meeting.

Simply put, minority shareholders can now pool their votes behind one board candidate, while the largest shareholder and its related parties vote no more than 3% in audit committee elections.

What Changed for Treasury Shares?

Treasury shares are shares that a company has bought back and still holds. Since March 6, 2026, a company must cancel newly acquired treasury shares within one year.

A company may keep or sell them only for listed purposes, such as employee pay. It also needs a holding plan, signed by every director and approved by shareholders each year. Shares already held when the law took effect get a six-month grace period and must be canceled within 18 months, the Korea Times reported.

Treasury shares carry no votes or dividends, cannot be pledged and cannot receive new shares in mergers or spin-offs. Listed companies that break the cancellation rule face an administrative fine.

The rule takes away a familiar takeover defense in a market where firms lack tools such as poison pills, the Korea Herald reported. In 2003, SK Corp transferred a 4.5% treasury stake to friendly parties to fend off hedge fund Sovereign Asset Management.

A Korea Capital Market Institute report found that 1,723 of 2,601 listed companies, or 66.2%, held treasury shares as of December 2025, the Korea Times reported. Lotte Corp. held 27.37% of its shares in treasury, SK Inc. 24.8% and HD Hyundai 10.5%.

Hours after the vote on Feb. 25, 2026, KT&G said it would cancel treasury shares worth nearly 2 trillion won ($1.3 billion), or about 9.5% of its shares, the Korea Herald reported.

Samsung Electronics planned to cancel 87 million treasury shares, including preferred stock, valued at around 16 trillion won ($10.2 billion). SK Inc. said it would retire 14.69 million of its 17.98 million treasury shares, the Herald reported on March 22, 2026.

"Through the revision of the Commercial Act, share buybacks are now directly linked to a reduction in outstanding shares, aligning with global standards where such actions enhance intrinsic equity value," said Chung Hae-chang, an analyst at Daishin Securities, in the Korea Herald.

How Did Companies and Business Groups Respond?

Business groups opposed key parts of the package, and many large companies moved to reshape their boards before the rules took effect. Lobby groups argued that mandatory cancellation of treasury shares would weaken companies' ability to fend off management control disputes, the Korea Times reported.

In its filibusters, the People Power Party raised concerns over inefficient corporate governance and companies' competitiveness in August 2025, the Korea JoongAng Daily reported. In February 2026, its lawmakers argued that domestic companies could be exposed to hostile takeover attempts.

President Lee welcomed the treasury share rule on Feb. 26, 2026, saying it would "normalize the country's capital market," as translated by the Korea Times.

At their March 2026 annual meetings, Samsung Electronics and Samsung SDS proposed replacing fixed three-year director terms with terms of "within three years," the Korea Herald reported on March 16, 2026. Others proposed smaller boards: Hyosung Group affiliates from 16 directors to seven to nine, Hanwha Galleria from 13 to seven and LS Electric from nine to five.

Governance advocates argue that flexible terms reduce the number of seats up for election at any one meeting, lowering the odds for minority-backed candidates, the Herald reported. A company that cuts its board cap and nominates exactly that number of candidates leaves no seat for an alternative slate.

Shareholder proposals at annual meetings, excluding ESG items, rose from 134 in 2024 to 151 in 2025 and 218 in 2026, according to Align Partners figures cited by the Asia Business Daily.

Kim Woojin, a professor of business at Seoul National University, said that once the September 2026 rules meet the March 2027 meeting season, "there will be a much higher number of board entry attempts and shareholder proposals from external investors compared to previous years," as translated by the Asia Business Daily.

What Should Minority Shareholders in Korea Watch?

Online meetings. From Jan. 1, 2027, listed companies may let shareholders join a meeting online alongside the physical meeting, unless their articles say otherwise. Listed companies with assets of more than 2 trillion won must do so, the Korea Herald reported; the law leaves the exact list to a presidential decree. Online attendees count as present and must be able to vote in real time.

How your vote travels. In an omnibus account, a pooled account that a foreign broker holds at a Korean brokerage, the broker exercises the voting rights. Under guidelines from the Financial Services Commission (FSC), Korea's financial regulator, it may collect instructions from end investors and split its votes accordingly. Our guide to buying Korean stocks from abroad explains these accounts; ask your broker whether it can pass on a cumulative vote.

Board seats in 2027. Watch how many seats each company puts up for election at its March 2027 meeting and whether shareholders request cumulative votes.

Together, the three amendments shift weight in Korean boardrooms from controlling shareholders toward all shareholders, and the March 2027 meeting season will be the first to test them all.