Korea’s New Rulebook: Directors Now Owe a Duty to Shareholders, Not Just the Company

Directors’ fiduciary duty in South Korea has just been rewritten. For decades, board members owed their loyalty to “the company” — a tidy, abstract concept that, in practice, often meant the controlling family at the top of the chaebol. From 22 July 2025, that changed. Korean directors now owe a duty of loyalty directly to shareholders too. So if you sit on a board, advise one, or manage Korean entities from afar, the playing field has shifted under your feet. Curious what this actually means in the boardroom? Let me explain.

So, how did things work before?

Under the old version of Article 382-3 of the Commercial Act, directors were required to “perform their duties in good faith for the interest of the company.” Sounds noble. The trouble was the word “company.” Korean courts read it narrowly — as the legal entity, full stop. Shareholders, especially the minority kind, weren’t part of the equation. As a result, the Court has sided with the board if their decisions were made for the “company’s interests,” often to favor a few controlling shareholders, even at the expense of minority shareholders.

You can see why critics called this the “Korea discount” engine. Foreign investors looked at chaebol boards and saw a structural tilt towards controlling families. Mergers happened at funny ratios. Spin-offs left minority holders on the wrong side of the deal. And legal accountability was practically impossible to pin on directors, because no one had clearly broken the law.

What’s new, and why does it matter now?

On 22 July 2025, President Lee Jae-myung’s administration promulgated a sweeping amendment to the Korean Commercial Code (KCC). The Korean government promulgated a significant revision of the Commercial Code, introducing a package of reforms designed to strengthen shareholder rights — especially those of minority shareholders — and to enhance transparency and accountability in corporate governance.

Here’s the heart of it. Article 382-3 has been amended so that directors’ duty of loyalty, previously owed only to the company under the code, is expanded to expressly include shareholders. Additionally, directors are now explicitly required to protect the interests of the shareholders in general and treat all shareholders fairly and equally in performing their duties.

Read that twice. It’s a small change in wording, but a seismic one in effect. Directors are now legally required to consider whether a decision treats all shareholders fairly — controlling, minority, foreign, institutional — not just whether it benefits the entity itself.

This provision took effect immediately on promulgation. No grace period. No phased rollout. As of 22 July 2025, every director in a Korean joint-stock company has been operating under the new duty.

A bigger package than just one article

The fiduciary duty rewrite is the headline, but it’s not alone. Four other reforms accompany it under the same legislative package:

• Independent directors take centre stage. Under amended Article 542-8, the term “outside director” is replaced with “independent director.” For listed companies, listed companies are now required to ensure that at least one-third of their board is composed of independent directors, up from the prior one-fourth requirement. This kicks in on 22 July 2026, with an additional year of grace to comply for companies that fall short. The rename is more than cosmetic — it signals the legislature’s intent that these directors must actually operate independently of management and controlling shareholders.
• The aggregated 3% rule expands. Under amended Article 542-12, the cap that limits a controlling shareholder’s combined voting rights (with related parties) to 3 percent will now apply to all audit committee elections — including independent directors. From 23 July 2026, this 3% aggregate voting cap in large listed companies will apply to all cases of election or removal of audit committee members, regardless of whether they are outside directors. The aim? Make it harder for controlling shareholders to stack the audit committee.
• Electronic shareholder meetings become reality. Under Article 368-4, shareholders may exercise voting rights by electronic means; additionally, the new Article 542-14 authorises hybrid (parallel virtual and physical) meetings by board resolution. And for the biggest players — listed companies with assets over KRW 2 trillion — hybrid meetings become mandatory. From 1 January 2027, certain listed companies, as may separately be classified by a Presidential Decree based on factors such as asset size, will be required to hold virtual general meetings of shareholders.

Why is this such a big deal?

You know what? It comes down to one word: chaebol. Korean corporate life has long been shaped by family-controlled conglomerates where minority shareholders had limited recourse when their interests clashed with the founding family’s plans. It specifies that directors must act in the interests of “all shareholders,” rather than favoring specific individuals, which could include founding families of chaebol groups that exert significant control over South Korea’s economy.

For multinational compliance teams, this matters even if you don’t run a Korean subsidiary. If your group has joint ventures, investments, or M&A activity touching Korea, the legal risk profile of directors sitting on Korean boards has changed. So has the calculus on transactions that move value between affiliates — those are now squarely in the spotlight.

There’s a flipside too. There remains ambiguous language in the amended clause, and significant uncertainty as to its scope and practical application. There are currently no precedents or interpretive authorities clarifying how this new duty to shareholders will be reconciled with other provisions of the Commercial Act, the Capital Markets Act, or other corporate governance rules. Translation: even Korean lawyers are watching the courts to see exactly where the new lines fall.

What should companies actually do?

Here’s the practical part. If you have Korean entities — or board exposure to Korean companies — you’ll want a structured response. Some steps to consider:

• Revisit board decision-making protocols. Every material decision should now leave a record showing directors considered shareholder impact, not just the company’s. Minutes matter more than ever.
• Reassess board composition for listed entities. The one-third independent director threshold under Article 542-8 lands on 22 July 2026. If your Korean board is below the line, planning starts now, not in spring 2026.
• Review audit committee elections. Large public companies (assets ≥ KRW 2 trillion) should map the impact of the expanded aggregated 3% rule on their next audit committee vote.
• Audit your M&A and restructuring playbook. Mergers, spin-offs, treasury share dealings, and intra-group transfers will face heightened scrutiny. Fairness opinions, independent committees, and clear documentation of shareholder considerations should be standard practice.
• Prepare IT infrastructure for hybrid AGMs. Companies above the KRW 2 trillion threshold have until 1 January 2027 to be ready for mandatory hybrid shareholder meetings under Articles 542-14 and 542-15. Voting platforms, identity verification, real-time Q&A — none of this happens overnight.
• Strengthen shareholder communication. With directors now formally accountable to shareholders, investor relations and disclosure quality become a frontline governance issue, not a marketing function.

A small aside, but a meaningful one: this isn’t just about Korea. Across Asia, governance reforms are pulling in the same direction. Korea’s move places it closer to Japan’s stewardship code thinking and global expectations around board independence. Multinationals operating in the region are increasingly dealing with a single, raised bar.

A few open questions

Honestly, not everything is settled. The courts will need years to flesh out exactly when directors cross the line. The precise scope and interpretation of the new provision remain unsettled and will likely be clarified through future court decisions. And there’s a real concern that activist investors and shareholder lawsuits will spike before any clear guardrails emerge. Boards in Korea are bracing for a busier docket.

So, while the legal text is fixed, the operational reality is still finding its shape. The companies that adapt early — refreshing governance frameworks, training directors on the new duty, upgrading meeting infrastructure — will be the ones least caught out when the case law lands.

What’s next?

Managing board and shareholder compliance in South Korea requires detailed planning and full legal awareness. For more insights into governance processes in other jurisdictions, explore our article, Merger Notification in Australia: New 2026 Regime.

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