Corporate Law in South Korea
Introduction
South Korean corporate law is governed by the Commercial Act (상법, Act No. 1000, 1962) , which underwent comprehensive reform in 2011–2012. The Act regulates corporate formation, governance, shareholder rights, mergers and acquisitions, and dissolution. It applies to five types of companies: partnership (hapmyeong hoesa), limited partnership (hapja hoesa), limited liability company (yuhan chaekim hoesa), stock company (jusik hoesa), and limited company (yuhan hoesa). The stock company (jusik hoesa) is by far the most common form for business enterprises.
Types of Companies
Stock Company (Jusik Hoesa)
The stock company is the default corporate form for medium and large enterprises. Key features include:
- Capital divided into shares
- Shareholders have limited liability
- Three-tier governance: shareholders’ meeting, board of directors, statutory auditors (or audit committee)
- Minimum capital of KRW 100 million (waived for certain small companies)
Limited Liability Company (Yuhan Chaekim Hoesa)
Introduced in the 2011 reform, this form resembles the German GmbH. It offers flexibility in governance without a board of directors requirement, popular for startups and joint ventures.
Corporate Governance
Board of Directors
The board manages corporate affairs, with at least three directors required for stock companies (Article 383). The 2011 reform introduced:
- Outside directors required for listed companies (at least one-quarter of the board, minimum three)
- Audit committee as alternative to statutory auditor
- Election by cumulative voting (Article 382-2, may be excluded by articles of incorporation)
Shareholder Rights
Shareholders enjoy:
- Dividend rights (proportional to shareholding)
- Preemptive rights on new share issuances
- Voting rights (one share, one vote)
- Derivative suit (Article 403): Any shareholder may bring an action on behalf of the company against directors for breach of duty
- Appraisal rights in mergers and certain major transactions
Statutory Auditor (Gamsa)
The statutory auditor (or audit committee for larger companies) monitors director compliance and financial reporting. For listed companies with assets over KRW 2 trillion, an audit committee is mandatory (Article 415-2).
Chaebol Regulation
Korean corporate law incorporates special regulation of large business groups (chaebol) through the Monopoly Regulation and Fair Trade Act (MRFTA) and the Commercial Act. Restrictions include:
- Limits on circular cross-shareholding within business groups
- Restrictions on affiliate transactions
- Enhanced disclosure obligations for large business groups
Directors’ Duties
Directors owe duties of loyalty (Article 382-3) and care (Article 382-2). The duty of loyalty is codified separately from the duty of care, reflecting German corporate law influence. Directors are liable for damages caused by intentional misconduct or negligence. Business judgment rule protection is limited compared to US law, though courts apply a deferential standard in practice.
Conclusion
South Korean corporate law balances shareholder protection with management flexibility. The Commercial Act’s 2011–2012 reforms modernized the framework, while continuing challenges include improving minority shareholder protections, addressing chaebol governance, and aligning with global ESG standards.