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Amendments to the Commercial Code

Sun-Hee Kim

The government recently promulgated the Amendment to the Commercial Code which will come into effect on April 15 2012. Some key aspects of the Amendment are:

Mandatory squeeze-out

A controlling shareholder with 95% or more of the total issued and outstanding shares may request all other shareholders to sell their remaining shares in the company to the controlling shareholder at a price agreed by the shareholders, or if there is no agreement, at a fair value determined by the court (Article 360-24). Conversely, minority shareholders have the right to request that the shareholder who has achieved or exceeded the 95% threshold buy all their shares in the company in a reverse compulsory sale (Article 360-25).

Stricter controls on directors

Directors will now be prohibited from appropriating the company's business opportunities for personal benefit, unless it is approved by more than two-thirds of the board. Any director who has caused a loss to the company in breach of this provision will be required to compensate the company (Article 397-2).

In addition, restrictions on self-dealing transactions will now apply not only to directors but also to major shareholders and certain relatives of such directors and major shareholders, as well as companies controlled by such persons. These self-dealing transactions will require board approvals with a supermajority of two-thirds or more (under the current law, only a majority approval is required) and must occur on an arm's length basis (Article 398).

New types of business entity

The amended law introduces more flexible forms of enterprises, such as limited partnerships (similar to US LPs), which consist of general and limited partners. The amendment also introduces limited liability companies (modelled after US LLCs). It is expected that these entities will be used extensively for venture businesses and private equity funds.

Mandatory appointment of legal compliance officer

Listed companies of a certain size will be required to hire compliance officers to review legal issues and advise the board. It will be necessary under the new provision for listed companies to create legal governance rules and hire at least one lawyer (or a legal professional with experience of five years or more) to monitor the company's legal compliance (Article 542-13).

Sun-Hee Kim and Steven Lee

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