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The Amendments Of The KCA And The MRFTA | Korean Business Legal News | December 11th, 2020

2020. 12. 11.


As I informed earlier, the amendment bills on the KCA and the FTA have been put on notice for proposed enactments, submitted to the National Assembly (the related article: https://www.k-lawconsulting.com/post/the-ministry-of-justice-proposed-partial-amendment-to-the-korean-commercial-code ), and were passed at the National Assembly on December 9, 2020.


I will provide the implications of the amendments of the KCA and FTA for the clients who are a minority shareholder of a Korean company or have invested in a Korean joint venture (the “Korean Company”).


1. Highly Potential M&A deals of the Korean Company


Due to (1) the expanded regulations of the FTA against misuse of corporate resources and (2) the reinforced regulations of the FTA on a holding company’s shareholdings in subsidiaries (both in the first-tier and the second-tier).


- Basically, (1) there are potential needs for transactions to sell affiliate companies or to lower shareholdings in such companies to avoid being subject to the regulations, and (2) companies that are considering the conversion into (or may be forced into) a holding company structure may seek transactions involving a sale of their first-tier or second-tier subsidiaries or an increase in their shareholding in those subsidiaries.


- Therefore, the amendments of the FTA may prompt a change in the shareholding structure of the company you invested in.


2. Increased Risk to Director Liability in the Korean Company


Due to the amendment of the KCA, the introduction of a Multi-Level Derivative Suit.


- If the Korean Company you invested in is a private company or joint venture company with a big public company, a director of such company would be exposed to an increased risk of the Multi-Level Derivative suit by the shareholder of the big company which is the partner of the private joint venture company.


3. Increased Possibility of Minority Shareholder Participation in Corporate Governance and Increased Risk of Disputes related thereto


Due to (1) the relaxed requirements for exercising minority shareholders’ rights and (2) the Separate election of an audit committee member who is also a director.


- With the exercising minority shareholders’ rights and the appointment of the audit committee member who is also a director, the minority shareholders’ voice would be heard.


- Also, there are potential disputes between majority shareholders and minority shareholders.


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If you need any kind of legal advice on Korean legal issues, feel free to let me know.


Thank you.

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