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A revision of the Commercial Act, which includes expanding the scope of directors' duty of loyalty to shareholders, has passed the National Assembly, raising concerns in the small and medium-sized enterprise sector. Academia and others assert that it is a measure for the advancement of capital markets and evaluate that its impact on small and medium-sized enterprises will not be significant.

According to a report from ChosunBiz on the 5th, the Federation of Middle Market Enterprises of Korea and the Korea Federation of Small and Medium Enterprises have expressed concerns that the revision could threaten the management rights of founders or controlling shareholders, hindering management activities.

On the 3rd, the Commercial Act revision passed with 220 votes in favor out of 272 members present in the National Assembly. The main points include expanding the scope of directors' duty of loyalty from 'the company' to 'shareholders' and changing the title of outside directors to 'independent directors.'

As a result of this revision, there is a legal obligation to consider the protection of the interests of minority shareholders, and independent directors, who have no conflicts of interest with the management, now have means to monitor and check corporate management.

The '3% rule' limits the combined voting rights of shareholders to 3% when electing outside directors who serve as audit committee members in large listed companies with assets exceeding 2 trillion won, and the introduction of electronic shareholder meetings was also included. Currently, the '3% rule' is only applied when electing inside directors as audit committee members, but it has been expanded.

While the small and medium-sized enterprise sector agrees with the purpose, there is now a concern that shareholders can hold legal responsibility over management decisions. One person surnamed Kim from a small enterprise noted, "If there is a failure in business operations, issues such as shareholders filing lawsuits could arise," and asserted, "It is necessary to define principles of business judgment in commercial law to protect against legal risks."

On the 3rd, the plenary session held at the National Assembly in Yeouido, Seoul, passes the partial revision bill of the Commercial Act (alternative)./Courtesy of News1

They are also keeping a close watch on the '3% rule.' The 3% rule applies to companies with assets of 2 trillion won or more, so it does not directly relate to small and medium-sized enterprises. However, if large companies are preoccupied with their management rights or governance restructuring due to the 3% rule, small and medium-sized enterprises are bound to suffer.

Choo Moon-gap, head of the Economic Policy Division at KBIZ, explained, "About four out of ten small and medium-sized enterprises are in a cooperative relationship with large companies, and if the 3% rule causes difficulties in large corporate management activities, the cooperating small and medium-sized enterprises will inevitably be impacted."

There are also voices in academia suggesting that the impact on small and medium-sized enterprises will be limited. The intention of the revision is to curb the abuses of majority shareholders and protect the rights of ordinary shareholders, and it is argued that small enterprises, where control rights and ownership are aligned, will face minimal burdens.

Lee Joon-seo, a professor at Dongguk University, stated, "There will certainly not be no impact, but including the 3% rule, some aspects are not likely to extend to small and medium-sized ones." He added, "Since unlisted companies are not affected by the Commercial Act revision and the intent is to resolve the discrepancies in control and ownership within large corporate groups, the impact on listed small and medium-sized enterprises is expected to be limited."

Securities firms such as Hana Bank and Mirae Asset stated, "We have established a legal foundation to enhance corporate transparency and fairness, and strengthen the protection of shareholder rights," evaluating it as "the opening signal for resolving the Korea discount."

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