In Korea, the most prevalent form of company is the stock company (jusik hoesa). Other recognised types include general partnership companies (hapmyeong hoesa), limited partnership companies (hapja hoesa), limited companies (yuhan hoesa), and limited liability companies (yuhan chaegim hoesa). These entities differ primarily in member liability (limited or unlimited), decision-making structures, and share transfer restrictions.

In a stock company, shareholders have limited liability up to their capital contributions. It operates with a board-centric governance system, ensuring separation between ownership and management. Shares are freely transferable without requiring other shareholders’ consent.

By contrast, all members of a general partnership company bear unlimited liability for the company’s debts and may participate in management. Equity transfers require unanimous member consent, and membership changes are strictly limited.

A limited partnership company includes general partners with unlimited liability and limited partners whose liability is capped. A general partner’s interest transfer requires consent from both general and limited partners, while a limited partner needs only the general partners’ consent.

A limited company grants limited liability to investors, and directors may be appointed regardless of membership. Like a stock company, it separates ownership and management but does not require a board of directors, making decision-making simpler. Unless restricted by the articles of incorporation, members are generally free to transfer their equity.

A limited liability company consists solely of limited liability members, whose liability is capped at their capital contributions. Its internal structure is determined by the articles of incorporation, and equity transfers require other members’ consent.

Unless otherwise specified, the following discussion is based on the most common corporate form, the stock company.

Korea has recently seen significant legislative amendments and regulatory adjustments relating to corporate governance.

First, amendments to the Commercial Act have been implemented to strengthen corporate governance. Under the amended rules, listed companies whose total assets exceed KRW 2 trillion must appoint at least one audit committee member separately from the rest of the board; when selecting this director, the largest shareholder’s voting rights, including shares held by special related persons, are capped at 3% of the total share capital. This measure aims to improve management oversight and accountability.

Second, the role of outside directors has become increasingly significant. Listed companies with total assets of KRW 2 trillion or more must maintain an audit committee comprising at least two-thirds outside directors, and the Korea Exchange further stresses the need for such committees to operate autonomously, free from interference by management or controlling shareholders.

Lastly, disclosure obligations have been strengthened and environmental, social, and governance (ESG) considerations are gaining prominence. More companies are now required to publish corporate governance reports, and mandatory ESG disclosure is expected to be introduced in phases.

In a stock company, directors appointed at the general meeting of shareholders make up the board of directors, and the board selects a representative director. The representative director holds the authority to represent the company in day-to-day operations, while the board of directors makes decisions on key management matters. Directors oversee each other’s execution of duties, and the auditor (or audit committee) supervises both the board and the representative director. Decisions that reshape the company’s structure—such as mergers or spinoffs—or affect shareholder rights—such as revisions to the articles of incorporation—require a resolution at the general meeting of shareholders.

In a general partnership company, all members engage directly in management, whereas in a limited partnership company, only the general partners are responsible for management, with limited partners acting purely as investors. In a limited liability company, the articles of incorporation may designate either members or non-members as managers. A limited company entrusts management and representation to directors elected at a general meeting of members, irrespective of membership status.

In a stock company, the representative director takes on typical managerial decisions—such as signing contracts or acting for the company in legal proceedings—while the board approves significant business affairs, such as disposing of substantial assets or raising large amounts of capital. The general meeting of shareholders has authority over matters such as the election and removal of directors and auditors, as well as the issuance of new shares.

Shareholder resolutions customarily require a physical meeting, at which attending shareholders vote on proposed agendas. However, if permitted by the articles of incorporation, shareholders may exercise their voting rights in writing by submitting a proxy, or by electronic voting if approved by the board. For companies with total capital of less than KRW 1 billion, if all shareholders unanimously agree, a general meeting of shareholders may be omitted, and the meeting minutes may be recorded in writing in lieu of holding a physical meeting.

Korean corporate governance is grounded primarily in the Commercial Act, the Financial Investment Services and Capital Markets Act (the ‘Capital Markets Act’), and in companies’ own articles of incorporation and internal regulations.

The Commercial Act serves as the main legal framework, specifying the functions and duties of core governance bodies such as the board of directors, representative director, auditor, and shareholders’ meeting. The Capital Markets Act primarily regulates listed companies, setting requirements related to disclosure and other governance provisions that aim to promote transparency.

A company’s articles of incorporation and internal rules also influence governance by laying out operational practices and decision-making procedures, including the authority vested in the board and the representative director.

Besides this, the Korea Institute of Corporate Governance and Sustainability (KCGS) has issued corporate governance best practice guidelines, advising on enhancing corporate transparency and efficiency.

A stock company is fundamentally governed by its shareholders, who exercise their rights through the general meeting of shareholders, as well as by a board of directors and an auditor (or audit committee). In practice, boards often establish specialized committees to assist in decision-making, oversee board actions, and enhance corporate governance through increased transparency and efficiency.

Directors are appointed by an ordinary resolution at the shareholders’ meeting, requiring approval from more than half of the votes cast by attending shareholders and at least one-quarter of the total issued shares. Dismissal, however, requires a special resolution—supported by at least two-thirds of the votes cast and at least one-third of the total issued shares. When the articles of incorporation or internal rules stipulate specific appointment or removal procedures, those must be followed.

Director candidates are typically nominated by the board, but shareholders also have the right to make nominations via shareholder proposals. Although, in practice, controlling shareholders frequently determine the appointment of directors, a company may adopt a cumulative voting system in its articles of incorporation to protect minority shareholders. Under cumulative voting, when directors are being elected, one share carries as many votes as the number of directors to be elected.

While there are no special qualifications for directors in general, outside directors must meet more stringent independence requirements. For example, they must not be involved in the company’s ordinary business operations and must not be the largest shareholder, a director, an auditor or an executive officer of the company (or their spouse or direct lineal ascendants or descendants). For listed companies, additional special provisions apply to outside director qualifications, and the required proportion of outside directors increases with the company’s asset size to further strengthen independence.

Besides independence, diversity is gaining traction as an important principle in board composition. For instance, a listed company whose total capital is KRW 2 trillion or more must not have a board composed entirely of directors of the same gender. Additionally, the Korea Exchange recommends that listed companies comprise their boards with qualified individuals with expertise in a variety of fields and encourages diversity in gender, age, and professional background.

The standard term of office for a director is three years, and reappointment is possible through a resolution of the general meeting of shareholders. However, for outside directors of listed companies, the maximum tenure at the same company is six years, or nine years in total, including terms served at affiliated companies.

While the representative director is generally responsible for formulating and executing management strategies, the final strategic decisions must undergo discussion and approval by the board of directors. In particular, significant corporate strategies, such as mergers, large-scale investments, and entry into new business sectors, require mandatory board approval.

To aid strategic decision-making, the board may engage external advisers (for example, legal or financial professionals) or set up specialised committees, including ESG, remuneration or executive nomination committees, to conduct more in-depth discussions.

If a director’s remuneration is not specified in the articles of incorporation, it must be approved by the general meeting of shareholders. Generally, the general meeting of shareholders approves either the total or maximum aggregate amount of directors’ remuneration, while the board of directors determines individual remuneration for each director.

There are no statutory limits on directors’ remuneration. However, listed companies must disclose executive remuneration exceeding KRW 500 million per director, enabling shareholders to monitor directors’ compensation.

Under the Civil Act and the Commercial Act, directors owe the company a fiduciary duty of due care and a duty of loyalty. The fiduciary duty of due care obliges directors to comply with applicable laws and to act in the company’s best interests. The duty of loyalty requires directors to prioritise the company’s interests over their own whenever a conflict arises. The Commercial Act expressly states that this duty is owed ‘to the company,’ and Korean case law has not extended these duties directly to shareholders. That said, legislative proposals aimed at expanding directors’ fiduciary duties to cover both the company and shareholders have recently been under active discussion.

If a director causes damage to the company or a third party through intentional or negligent breach of these duties, the director may be held liable for damages.

Directors may obtain Directors & Officers (D&O) Liability Insurance, which covers liability for damages incurred by third parties due to wrongful acts committed in the course of performing their duties. However, such ‘wrongful acts’ do not include intentional illegal acts, criminal conduct, or acts of personal gain by executives.

While D&O Liability Insurance is commonly obtained for directors of listed companies, it is less frequently used for directors of non-listed companies.

Members of the board of directors are subject to oversight by both directors and auditors.

Directors have an obligation to monitor one another’s activities in order to prevent unlawful conduct. If a director fails to exercise sufficient oversight when there is reason to suspect misconduct, that director may bear liability to the company for damages arising from negligent supervision. Case law further holds that in large enterprises, even if directors are assigned to specific areas of expertise, they must still establish and operate an adequate internal control system to fulfil their oversight obligation.

Auditors also examine the performance of directors and report any breach of law or the articles of incorporation to the board. Evaluation methods differ by company, but more recently, factors such as compliance with laws and regulations are being incorporated into formal performance reviews for individual directors.

The board generally communicates with shareholders through three primary channels: general meetings of shareholders, public disclosures, and individual communications.

An annual general meeting of shareholders must be held each year, with extraordinary general meeting of shareholders convened either as needed or at shareholders’ request. The board provides information on key company matters in regular or ad hoc disclosures. Shareholders may also convey their opinions directly, for instance by writing to the board.

It is worth noting that in South Korea, many companies have a concentrated ownership structure, where a specific shareholder holds a significant portion of shares, rather than shares being widely dispersed among multiple shareholders. In such cases, the controlling shareholder may exert substantial influence over the board’s decisions through informal channels, beyond simply exercising voting rights as a shareholder.

Dual-class or multi-class share structures are permitted. These can include shares with differing dividend rights, varying rights to residual assets, voting rights, and rights of redemption or conversion. Various classes of listed shares exist in the market, and their issuance is common practice.

Listed companies must issue annual, half-year, and quarterly reports (covering the first and third quarters). These contain details on the company’s operations, governance systems (e.g. the board), affiliated firms, shareholders, executives, employees, and transactions with controlling shareholders or related executives. They must also include the company’s financial statements and, if it has subsidiaries, consolidated financial statements.

Shareholders have the right to call a general meeting of shareholders and to propose agenda items for the meeting.

Under the Commercial Act, in a non-listed company, shareholders holding no less than 3% of the total number of issued and outstanding shares may request the board to convene an extraordinary general meeting by submitting a written (or electronic) request stating the purpose of the meeting and the reasons for calling the meeting. For listed companies, shareholders who have continuously held equivalent to no less than 1.5% of the total issued and outstanding shares for a period of at least six months may also request the convening of an extraordinary general meeting of shareholders.

Upon receipt of such a request, the board of directors must promptly resolve to convene the general meeting of shareholders. If the board fails to take the necessary steps to convene the meeting, the requesting shareholder may seek court approval to convene the meeting independently. Unless the request clearly fails to meet the statutory requirements or constitutes an abuse of rights, the court will generally grant approval for the meeting to be convened.

Separately, if a general meeting of shareholders has already been scheduled, a shareholder holding no less than 3% of the total issued shares, excluding non-voting shares, may propose certain matters to be included on the meeting agenda by making a written (or electronic) submission to the board of directors at least six weeks prior to the scheduled meeting date.

Investors (shareholders) may take both preventive and remedial actions against directors and other corporate officers.

As a preventive measure, if a director violates laws or the articles of incorporation and such conduct is likely to cause irreparable harm to the company, an investor (shareholder) may request an injunction to cease the unlawful act or apply for a provisional suspension of the director’s duties to prevent damage from occurring.

As a remedial measure, an investor (shareholder) may file a derivative suit against a director or auditor on behalf of the company or directly claim damages against the director. A derivative suit is a lawsuit initiated by an investor in their capacity as a plaintiff to protect the company’s interests.

Furthermore, if a company’s director or auditor intentionally or through gross negligence breaches statutory or fiduciary duties—such as the duty of care or duty of loyalty—and such breach results in direct financial loss to the investor, the investor may claim damages against the director.

Shareholder activism has been gaining momentum in South Korea, with increasing demands for corporate governance reforms, enhancements to shareholder return policies (such as dividend increases), restructuring of board composition, and share buybacks and cancellations.

Since the adoption of the Korean Stewardship Code in 2016, institutional investors and asset managers have increasingly incorporated it into their governance frameworks, leading to heightened awareness of transparent voting policies and active shareholder engagement. Additionally, the expansion of electronic voting systems has created a more favourable environment for minority shareholders to exercise their voting rights. Furthermore, the Korean government has been continuously strengthening relevant laws and regulations to enhance the investment structure and management transparency of large corporations and to protect shareholder rights at the company level. As a result, shareholder activism in South Korea has been growing even more robust.

A company is required to hold an annual general meeting of shareholders each year.

The annual general meeting of shareholders primarily addresses key agenda items, including the approval of the balance sheet, income statement, and other financial and operational reports reflecting the company’s financial position and business performance for the preceding fiscal year.

Furthermore, the board of directors may convene an extraordinary general meeting of shareholders to resolve matters such as the dismissal or appointment of directors or auditors, granting of stock options, transfer of business, capital reduction, or stock split arise.

KCGS is a leading proxy advisory entity in South Korea. KCGS supports the formulation and revision of the Korean Stewardship Code and provides comprehensive proxy voting advisory services to facilitate institutional investors’ exercise of voting rights. These services range from establishing proxy voting guidelines to conducting detailed analyses of specific agenda items for individual companies. Notable recent cases where KCGS has provided voting recommendations include an opinion on director appointments in a corporate control dispute involving a major Korean pharmaceutical company and a favourable opinion on a merger between a listed conglomerate and an unlisted company.

Under the Commercial Act, creditors have the right to raise objections to certain corporate decisions. For instance, if a company resolves to proceed with a merger, its creditors may object to the merger, in which case the company must repay the creditor.

Employees, business partners, and consumers typically communicate their interests to the company through stakeholder engagement channels established by the company. These channels may include online and offline customer service centres, partnership or community roundtables, labour-management councils, and labour unions.

Governments engage in corporate governance oversight by enhancing legal and regulatory frameworks to improve management transparency and financial reporting reliability. To ensure compliance with legal and regulatory requirements, listed companies of a certain size are required to adopt compliance control standards and appoint compliance officers.

Furthermore, internal control regulations for financial institutions have been continuously refined. Most recently, a new regulatory framework has been introduced that requires financial institution CEOs to prepare a ‘Responsibilities Map’, which allocates internal control responsibilities to each executive.

In recent years, there has been a growing consensus that corporate value and market trust can be enhanced by considering the interests of all stakeholders, rather than focusing solely on shareholder interests.  For example, many corporations have announced commitments to carbon neutrality and are implementing strategies to address the climate crisis. Companies are also working to foster employee-friendly corporate cultures, enhance product safety and quality standards to provide consumers with high-quality goods and services, and ensure fair and ethical treatment of business partners.

In the Environmental (E) domain, corporations are primarily focused on strategies to reduce carbon emissions. To this end, companies are measuring and voluntarily disclosing their carbon emissions and implementing initiatives such as developing low-carbon production processes, modifying products, and transitioning to alternative energy sources to achieve emission reductions.

In the Social (S) domain, businesses are particularly committed to improving labor conditions, with a strong emphasis on enhancing industrial safety standards. A major driver of this effort has been the Serious Accidents Punishment Act, which came into effect in 2022. This law imposes duties on business executives to prevent hazardous and dangerous conditions, and in cases where a serious industrial accident occurs due to non-compliance with these obligations, executives may face legal liability.

In the Governance (G) domain, key issues include compliance management, internal controls, protection of minority shareholder rights, and succession planning within conglomerates.

Approximately 240 institutional investors, including pension funds, asset management companies, investment advisory firms, and securities firms, have adopted the Korea Stewardship Code, which was established by KCGS on December 16, 2016.

Meanwhile, market participants should take note of the new insider trading pre-disclosure requirement, which has been incorporated into the Capital Markets Act. This provision mandates that insiders, such as major shareholders of a listed company, must publicly disclose details of large-scale share transactions at least 30 days in advance if such transactions meet either of the following thresholds: (1) 1% or more of the total issued shares, or (2) KRW 5 billion (approximately USD 3.7 million) or more in cumulative transactions over six months. The pre-disclosure requirement aims to enhance market transparency and protect the interests of general investors.

There is a growing consensus that pursuing only short-term profitability may undermine a company’s long-term growth potential and hinder the development of capital markets.

In South Korea, following the IMF financial crisis, controlling shareholders who acquired securities firms came under criticism for maximizing their investment returns through high dividend payouts and capital reductions. Key concerns included the exposure of employees to restructuring, diminished long-term corporate profitability, and issues of managerial moral hazard, all of which fuelled debate.

Against this backdrop, there has been increasing support for the view that corporate management should consider not only shareholder value maximization but also the interests of other stakeholders and long-term investors.