This article was published on Aug. 4, 2025, at 4:42 p.m. on the ChosunBiz MoneyMove site.
On the 4th, the second amendment to the Commercial Act was presented at the National Assembly's plenary session. The processing has been postponed to the next session. This amendment includes the expansion of the separate election of audit committee members, the mandatory implementation of cumulative voting, the compulsory retirement of treasury shares, and the introduction of advisory shareholder proposals.
The investment banking (IB) industry and the legal sector believe that this amendment could be a 'fatal blow' to chaebols. Some advisory lawyers noted, "It has become nearly impossible for major shareholders to defend their management rights," and they predict a surge in hostile M&A attempts by activist funds and minority shareholders.
A particularly noteworthy clause for corporations is the 'expansion of the separate election of audit committee members.' While other items are relatively clear in concept, this clause is criticized for its complexity and interpretive leeway. If this amendment is implemented, major shareholders and related parties can exercise voting rights only up to a total of 3% when electing 'independent director audit committee members.' The issue is that even among relatives tied as related parties under the Commercial Act, interests can diverge, leading to inevitable confusion in applying the so-called '3% rule' in management disputes.
◇ When electing outside directors as auditors, the voting rights of major shareholders' families are limited to 'a total of 3%.'
The core of the separate election of audit committee members is the so-called '3% rule.' The 3% rule is a system that limits the combined voting rights of major shareholders and related parties to 3% of the total issued shares when appointing audit committee members. It was introduced after the 1997 Asian Financial Crisis, but following the appointment of directors (exercising voting rights based on equity), the limitation of applying the 3% rule in selecting audit committee members made it possible for major shareholders to choose audit committee members at their discretion.
In 2020, during the Moon Jae-in administration, a revision of the Commercial Act was enforced to mandate the 'separate election' of one audit committee member. The intent was to select one of the audit committee members as an 'audit committee director' right from the stage of being elected as a director. The 3% rule will be applied from the first stage.
However, at that time, the business community requested that 'when selecting independent director audit committee members, major shareholders and related parties should be allowed to exercise 3% voting rights individually per shareholder,' and this request was accepted in the legislation. The argument for the business community was based on the premise that independent directors are 'ensured independence.'
Therefore, until now, when selecting 'independent director audit committee members,' the owner family, including grandfather, father, son, and daughter, could each exercise 3% voting rights and sum them up. If there were four major shareholders and related parties, they could exercise a total of 12% voting rights to select the independent director audit committee members.
The essence of this amendment to the Commercial Act is to make even such management rights defense impossible. In other words, when selecting 'independent director audit committee members,' the grandfather, father, son, and daughter will only be able to exercise 'a total of 3%' of voting rights combined. Even if dozens of relatives of a major shareholder own their equities in small portions, they can collectively exercise only 3% of voting rights to elect independent director audit committee members.
◇ 'Relatives in a management dispute must exercise voting rights proportionally within the 3% limit.'
The revised Commercial Act is expected to be a very powerful weapon from the perspective of activist funds and minority shareholders. Since ordinary shareholders can exercise 3% voting rights each, minority shareholders who hold their equities separately can unite to nominate 'independent director audit committee members' to the board.
Even if minority shareholders are tied together by a 'co-ownership of equity' relationship, they can each exercise 3% voting rights. This 3% rule applies to 'related parties under the Commercial Act.' In other words, it only applies to major shareholders and their relatives.
The scope of related parties under the Commercial Act is specifically outlined in Article 34, Paragraph 4 of the Enforcement Decree of the Commercial Act. A spouse and blood relatives within six generations, as well as in-laws within four generations, are all considered related parties. This includes not only siblings but also nephews, cousins, uncles, and aunts, as well as partners in de facto relationships.
In contrast, two corporations that have formed a friendly shareholder relationship through issuance of convertible bonds (EB) do not qualify as related parties under the Commercial Act. They are regarded as 'special related parties under the Capital Market Act.' Therefore, the voting rights of these companies are not aggregated by the 3% rule.
Here, ambiguous issues also arise. In cases like the Kolmar Group siblings, Hyosung Group brothers, or the brothers from Hankook Tire, where there is a management dispute among relatives or they are effectively estranged, how should the 3% rule be applied?
A capital market specialist noted, "While the Capital Market Act allows for 'requests for exclusion of special related parties,' there are no exceptions under the Commercial Act as long as they are tied as related parties," adding, "It is appropriate to exercise voting rights up to 3% even for relatives in dispute."
Legal experts believe that when relatives in a management dispute support different candidates for independent directors and audit committee members, they must divide their votes according to their equity within the 3% limit. For instance, if the older brother's equity rate is 30% and the younger brother's equity rate is 20%, the older brother could exercise voting rights up to 1.8%, while the younger brother could exercise up to 1.2% when selecting the audit committee member.