Commercial Act of South Korea
Introduction
The Commercial Act (상법, Act No. 1000) was enacted on January 20, 1962, and took effect on January 1, 1963. It governs commercial transactions, companies, insurance, maritime commerce, and aviation. The Act underwent comprehensive reform between 2011 and 2012 — the most significant revision since its enactment — modernizing corporate governance, introducing new company forms, and enhancing shareholder protections. The Act draws from German, Japanese, and, increasingly, Anglo-American corporate law.
Structure
The Commercial Act is organized into six parts:
Part I: General Commercial Provisions (Articles 1–168)
General principles of commercial law:
- Commercial activities: Definition of commercial acts (absolute, commercial-by-nature, and accessory)
- Merchants: Definition, duties, and trade name protection
- Commercial registration and books
- Commercial agents and brokers
- Commercial usages and practices
Part II: Commercial Transactions (Articles 169–379)
Sales, current account, anonymous partnership, brokerage, forwarding, transportation, public deposit, and letters of credit.
Part III: Companies (Articles 169–646)
The most substantial part, governing:
Types of Companies (Articles 169–179)
- Partnership company (합명회사) : Unlimited liability partners
- Limited partnership company (합자회사) : Both general and limited partners
- Limited liability company (유한책임회사) : Introduced in 2011, GmbH-type entity
- Stock company (주식회사) : The predominant corporate form
- Limited company (유한회사) : Closely held company
Stock Company Provisions (Articles 288–542)
- Incorporation: Promoters, articles of incorporation, capital requirements
- Shares: Types, issuance, transfer restrictions
- Shareholders’ meetings: Powers, convocation, quorum, voting
- Board of directors: Composition, powers, duties, outside directors
- Audit system: Statutory auditors, audit committees
- Dividends: Calculation, payment, restrictions
Corporate Governance Reforms (2011–2012)
- Outside directors: Mandatory for listed companies (at least one-quarter of board, minimum three)
- Audit committees: Required for companies with assets over KRW 2 trillion
- Cumulative voting: Available unless excluded by articles of incorporation
- Electronic voting: Permitted for shareholder meetings
- Stock options: Expanded availability
- Director duties: Codified duty of loyalty (Article 382-3)
Part IV: Insurance (Articles 638–739)
General insurance law, property insurance, life insurance, marine insurance, and liability insurance. Governs insurer obligations, policy terms, and claims procedures.
Part V: Maritime Commerce (Articles 740–931)
Ships, shipowners, carriage of goods by sea, collisions, salvage, general average, and marine insurance. Comprehensively revised in 2007 to align with international conventions.
Part VI: Aviation (Articles 932–1000)
Aircraft, air carriers, air transport contracts, and aviation liability. Added in 2011 to modernize aviation regulation.
Key Features
Shareholder Protection
- Derivative suits: Any shareholder may sue directors for breach of duty (Article 403)
- Appraisal rights: Dissenting shareholders may demand share repurchase in mergers and certain major transactions
- Minority rights: Shareholders with 1% of shares (0.5% for listed companies) may bring derivative suits
- Inspection rights: Shareholders may request appointment of an inspector
Director Liability
Directors owe duties of:
- Loyalty (충실의무) : Codified in Article 382-3, requiring directors to act in the company’s best interests
- Care (선관주의의무) : Standards of reasonable care and diligence
Conclusion
The Commercial Act provides a comprehensive legal framework for Korean commercial activity, with particular focus on corporate governance and company regulation. The 2011–2012 reforms modernized the Act significantly, introducing new company forms, enhancing shareholder protections, and strengthening director accountability. The Act continues to evolve, with ongoing amendments addressing ESG disclosure, digitalization, and corporate restructuring.