Amendments to the Commercial Act

The Commercial Act (상법/商法) has been amended to reflect the business reality which witnesses drastic changes of corporate environment.

Key words
business entity, classes of shares, executive officer, cash-out mergers, air transport

Why is the Act so often revised?
It's because the Commercial Act has to:
 * Meet the quickly changing business environment like such new business activities as lease, factoring, franchise and electronic payment gateway.
 * Promote fair play of businesses and improvement of corporate governance.
 * Incorporate the practical provisions with respect to publicly listed corporations right after the repeal of the Securities Transactions Act.
 * Regulate the developing industries like shipping and air transportation.
 * Historically, satisfy the requirements of the IMF Standby Credit programme.

Noteworthy Corporation Issues
You can find some explanatory notes on the recent amendments to the Commercial Act, which are provided by a Korean law firm, Shin & Kim, at its cyber-Library, with respect to the following issues, among others:


 * Introduction of new Business Entities and other legal issues in detail>
 * Adoption of Electronic Securities Registration System in detail
 * Issuance of various Classes of Shares in detail
 * Introduction of Executive Officer System in detail
 * Prohibition of the usurpation of Corporate Opportunities in detail
 * Mitigation and exemption of Directors’ liabilities in detail
 * Developments of Capital Increase in detail
 * Capital Reduction Procedure in detail
 * Increased flexibility in types of Merger Consideration and introduction of Cash-out Merger in detail
 * Adoption of the Squeeze-out right of a controlling shareholder in detail
 * Enhancement of Audit Committee requirements and statutory audit system in detail

Recent Amendments to the Act
Main points of the recent amendments to the Commercial Act in 2009 through 2011 are as follows:

Amendment in January 2009
Effective as from February 4, 2009
 * In preparation of the entry into force of the Financial Investment Services and Capital Markets Act, the following special provisions on the corporate governance of listed companies provided in the Securities and Exchange Act shall be transferred to the Commercial Act:

- Stock options (Article 542-3)

- Notice of Shareholders’ meeting (Article 542-4)

- Minority shareholders’ rights (Article 542-6)

- Special rule on cumulative voting (Article 542-7)

- Outside directors (Article 542-8)

- Restriction on the transactions with interested party (Articles 542-9 & 624-2)

- Standing Auditor and Audit Committee (Articles 542-10, 11)

- Composition of Audit Committee (Article 542-12)

Amendment in May 2009
Effective as from May 29, 2010
 * This amendment was purported to facilitate the incorporation of a small-sized company by omitting the initial paid-in capital requirement and notarization of the articles of incorporation, and streamlining the procedures to convene the Shareholders’ Meeting.

- In case of incorporation of small-sized company with the paid-in capital less than one billion won, only by promoters, the notarization of the articles of incorporation shall be omitted (Article 292).

- The bank’s certificate of Stock-subscription amount may be replaced by the bank’s certificate of outstanding deposit balance (Article 318).

- The procedure to convene the Shareholders’ meeting of the small-sized company may be streamlined and shortened. The resolution of Shareholders’ meeting may be conducted on paper (Article 363).

- Electronic voting at Shareholders’ meeting may be adopted (Article 368-4).

- Election of Auditor of the small-sized company may be exempted (Article 409(4)-(6)).

Amendment in May 2010
Effective as from November 15, 2010
 * See the [[Media:CommercialAct_kr_201011.pdf|Korean version]] of Commercial Act. Its updated English translation is available at KLRI Korean Statutes in English.

- Such new commercial activities as lease, franchise, factoring have got detailed provisions. Also payment and settlement services have become a new commercial activity prescribed in the Commercial Act (Articles 168-2 through 168-12).

- It is noteworthy that the offer between the parties in remote places shall be effective at the time of its receipt by deleting Article 52. Accordingly there is no difference, regardless of the period of acceptance, between the Commercial Act and the Civil Act in the principle of receipt of expressed intention.

- A merchant is entitled to claim to a non-merchant counterparty the incurred interest at the mandatory rate of 6% p.a. 1% p over the Civil Act-imposed rate (Article 55).

- When a contractual obligation is performed at the branch, it should be at the branch of the obligee, same as the Civil Act based on the principle that the debtor should come to the creditor to perform obligation (Article 56).

- A broker may intervene to take the result of transactions of not only goods but also securities (Article 107).

- If a consignment sheet has been issued, the carriage contract is presumed to be executed and the goods are also presumed to be properly delivered. Even in case of the failed presumption, the carrier shall be responsible to a third party with good faith as described in the sheet (Article 131).

- The strict liability invoked against the businesses serving a number of incoming customers has been reduced to ordinary negligence liability like other businesses (Articles 151 through 154).

Amendment in June 2010
Effective as from June 11, 2012

- Article 468 (Right to Preferential Payment of Employee)
 * A person who has claim to the return of money as a guarantee for fidelity of an employee or any other claim arising out of the relations of employment between a company and its employees shall be entitled to preferential paymen from the company's whole proerty: Provided, however, that such right shall not be satisfied prior to the pledge, mortgage or security interest subject to the Act on Security Interests in Movable Properties, Receivables, etc. (동산·채권 등의 담보에 관한 법률).

Amendment in May 2011
Effective as from November 24, 2011

- In view of the growth of Korean air transportation industry, a new chapter of air transport has been established in the Commercial Act (Articles 896-935).

The new chapter is expected to secure the stabilized contractual relationship and ensure the right and interest of customers and consignors.

Amendment in April 2011
Effective as from April 15, 2012

- In line with the global trend and the needs from business community, new types of businesses like partnership, limited liability company (LLC) have been introduced (Articles 86-2 through 86-9 and 287-2 through 287-45).

- In oder to facilitate the incorporation, no-par stocks may be issued and the minimum capital requirement has been abolished (Articles 291, 329 and 546).

- A company is allowed to acquire its own shares with its retained earnings as of the previous fiscal year-end on an equal and unbiased basis to all shareholders (Articles 341, 341-2, 341-3, 342).

- A variety of stocks, with or without voting rights, may be issued to promote necessary fund raising (Articles 344, 345, 346, 344-2, 344-3).

- Electronic filing of stocks and debentures will be permitted in view of the dematerialization trend {Articles 356-2, 420-4, 474(2), 478(2), 488}.

- A controlling shareholder with more than 95 percent of ownership may purchase the remaining stocks held by minority shareholders at fair price in spite of their intention (Articles 360-24 through 360-26).

- The alleged misappropriation of corporate opportunity by a director shall be prohibited (Article 397-2).

- The scope of self-dealing by directors, which is subject to the approval of the board of directors, shall be expanded to cover dealings with specifically related persons or companies (Article 398).

- The Compensation for the damages incurred by a director shall be limited to six times of his yearly remuneration (three times in case of an outside director) but for willful intent or gross negligence {Article 400(2)}

- Listed companies may designate executive officers (Articles 408-2 through 408-9).

- Accounting provisions shall be conformed to the generally accepted accounting principles (Articles 446-2, 447, 447-4. The existing Articles 452, 453-2, 454 through 457-2 shall be deleted).

- The current legal reserves, dividend policy and debentures shall be improved {Articles 460, 461-2, 462(2), 462-4; 469, 481 through 485, 480-2, 480-3}.

- The standing compliance officer shall be hired by listed companies in terms of asset size (Article 542-13).

- Some regulations on the limited company, including the total number of shareholders, transfer of ownership, transformation to stock company, etc., shall be abolished (Article 556, 571 and 607. Article 545 deleted).