Proposed amendment: Key features and legal significance. Director’s fiduciary duties under the Commercial Act have traditionally been understood as obligations owed exclusively to the company in South Korea. As a result, there has been ongoing criticism that directors lack sufficient incentive to safeguard the interests of all shareholders, particularly during corporate restructuring processes such as mergers and spin-offs, where the interest of controlling and minority shareholders often come into conflict. This concern has been reflected in several legislative proposals.
Tae Hyun Lee
Partner
Jipyong
Seoul
Tel: +82 2 6200 1788
Email: thlee@jipyong.com
One of the key campaign pledges of Lee Jae Myung, the newly elected President of South Korea, was to protect the rights and interests of minority shareholders through improved corporate governance, which is one of the reasons for the Korea discount, including the introduction of fiduciary duties to shareholders under the Commercial Act.
The most prominent amendment currently under discussion is the proposal submitted to the National Assembly in June 2025, shortly after President Lee’s election. This proposed amendment seeks to expand the scope of directors’ fiduciary duties from “the company” to include both “the company and its shareholders”. The amendment requires directors to consider the protection of shareholders’ interests and their fair treatment when making business decisions. It is scheduled to take effect immediately on promulgation.
This change represents a substantial legal development that may fundamentally reshape corporate governance and board accountability in Korea.
Until now, fiduciary duties under Korean law have been narrowly construed as duties to the company alone. It is difficult to find clear cases in which a director was held liable, either civilly or criminally, for breaching such duties solely on the grounds of having harmed shareholders’ interests (rather than the company’s).
Hyo Jeong Ko
Partner
Jipyong
Seoul
Tel: +82 2 6200 1808
Email: hjko@jipyong.com
This absence of enforceable precedent has limited the practical utility of fiduciary principles in protecting minority shareholders under current law. In practice, key managerial decisions frequently lead to divergent impacts among shareholders. Under the current legal framework, it has been difficult to hold directors liable for such outcomes unless their decision demonstrably harmed the company itself.
To address this gap, the amendment introduces a new standard: whether the directors have fairly considered the interests of all shareholders and ensured procedural fairness and transparency in the decision-making process. Notably, even in cases of conflicting shareholder interests, the emphasis will be on whether directors made a rational and fair decision through legitimate procedures, thus reducing legal uncertainty and improving predictability.
Still, there are concerns about this legislative shift. Extending fiduciary duties to individual shareholders or specific groups could lead to more frequent ex post challenges to directors’ decisions, potentially constraining the discretion of corporate management. In cases where shareholders’ interests diverge, it remains unclear whose interests should take precedence. Despite these concerns, there is a growing consensus on the need for a more robust institutional framework to safeguard shareholder rights. The proposed amendment represents a key milestone in these discussions.
Young Seok Cheon
Partner
Jipyong
Seoul
Tel: +82 2 6200 1888
Email: yscheon@jipyong.com
Governance implications: Practical challenges and board-level responses. Should the amendment be enacted, companies are likely to face a range of practical and institutional challenges with regard to board meetings. Foremost among them is the interpretation and application of the term “shareholders’ interests”, which is neither uniform nor absolute. In the real world, perceptions of shareholder interest vary depending on investment purpose, holding period and the investor’s relationship to the company.
For instance, long-term institutional investors and short-term retail investors may hold opposing views on the same corporate action. It is foreseeable that directors will increasingly need to navigate such diverse expectations, making the establishment of procedural legitimacy essential to support their decisions.
Accordingly, the amendment will necessitate a comprehensive review of board governance practices, with a particular focus on reinforcing procedural integrity. Specifically, companies may need to introduce or strengthen prior review procedures through independent committees for decisions involving highly sensitive matters.
Actively seeking external legal or financial advisory opinions may also become necessary. Transparent documentation of the board’s deliberations and decision-making rationale will also serve as an important safeguard in the event of future disputes.
In cases involving significant impact on shareholder value – such as capital raising, organisational restructuring, or changes in control – it is essential to demonstrate, through documentation, that the board evaluated multiple alternatives and duly considered the diverse positions of shareholders. Such measures go beyond legal compliance and contribute to enhancing the company’s transparency and credibility in the eyes of external stakeholders.
In addition, companies should revisit the coverage of their directors and officers’ (D&O) liability insurance and consider amending indemnification provisions in the articles of incorporation to reflect the evolving legal standards of fiduciary duty. Strengthening internal controls and ethical governance frameworks may also help reinforce the integrity and credibility of board decisions.
Impacts on shareholder protection and investment environment. Many concerns have been raised that the amendment may increase the legal complexity of domestic M&A transactions, potentially hindering timely and effective corporate decision making. However, from the perspective of foreign investors, the introduction of a statutory framework that explicitly safeguards the interests of minority shareholders may strengthen the credibility of minority investment structures.
In particular, in transactions where investors do not acquire control rights, the presence of legal guarantees for fair treatment can function as a meaningful institutional safeguard. Accordingly, while the amendment may impose additional compliance burdens in certain domestic transactions, it could also improve Korea’s attractiveness as an investment destination, especially minority foreign investments without control rights.
The explicit codification of directors’ fiduciary duties to shareholders also carries significant implications for investor protection. To date, shareholder rights have relied primarily on non-binding mechanisms such as stewardship codes and corporate governance best practice guidelines. If enacted, the amendment would provide shareholders with a firmer legal foundation, enhancing their ability to assert their interests in practice.
In particular, the amendment may legitimise broader and more active shareholder engagement in the composition of the board and in decisions that materially affect corporate direction. This could strengthen the efficacy of existing mechanisms such as shareholder proposals, cumulative voting, and the rights to appoint and dismiss directors.
These mechanisms, previously viewed mainly as instruments of management oversight, may gradually evolve into a structured platform for co-operation between shareholders and the board, oriented toward sustainable long-term value creation.
As environmental, social and governance (ESG) factors become increasingly central to investment attractiveness, the proposed amendment may also serve as a timely opportunity to advance governance quality standards. Enhanced protections for minority shareholders and heightened board accountability align with international expectations and reflect the growing emphasis that global investors place on transparent and equitable governance structures.
In this context, companies should develop and disclose well-defined governance improvement plans, incorporating them into ESG reports and investor relations (IR) material to bolster confidence among both domestic and international investors.
Such plans should be complemented by procedural enhancements, including more transparent shareholder meetings, clear and accessible explanations of major corporate decisions, and timely, accurate and comprehensive public disclosures.
Conclusion: Rebalancing fiduciary duties and accountability. The proposed amendment represents a potential inflection point in Korean corporate governance by explicitly expanding directors’ fiduciary duties to include shareholders. This change could fundamentally reshape board operations and redefine the standards of managerial accountability.
In particular, mergers, transfers of control, spin-offs and comprehensive share exchanges often involve conflicts of interest between controlling and minority shareholders, highlighting the need for effective protective measures for minority shareholders. The amendment could serve as a legal mechanism to encourage management to make decisions that take into account the interests of all shareholders.
Under the proposed framework, directors will be expected to consider not only the interests of the company as a legal entity, but also the legitimate and often diverse expectations of its shareholders. At the same time, investors must move beyond a short-term orientation and contribute to a culture of responsible engagement that supports sustainable, long-term value creation.
Admittedly, the ambiguity surrounding the definition of “shareholders’ interests” and the potential for conflicting interests among shareholders present genuine challenges. Yet, these are not inherent flaws in the amendment, but rather natural complexities that arise when legal institutions are adapted to reflect the dynamics of modern corporate life.
Ultimately, the goal of the amendment is to establish a transparent and equitable governance structure that promotes the long-term interests of both companies and shareholders. Achieving this balance will require constructive dialogue between management and investors, a shared understanding of procedural fairness, and continued institutional refinement.
If this framework of balanced accountability proves effective in practice, the amendment has the potential to serve not only as a legal reform, but as a meaningful step towards reinforcing trust in South Korea’s capital markets.
JIPYONG
26F, Grand Central A, 14 Sejong-daero,
Jung-gu, Seoul 04527, Korea
Tel: +82 2 6200 1600
Email: master@jipyong.com
www.jipyong.com