One of the unique features of corporate governance in Korea is the representative director. In this regard, only the representative director can represent the company and make business decisions unless the relevant laws, the article of incorporation or the board do not permit to do so.
A director is a member of the board of the company and is entitled to review and monitoring of other director’s performance as a director. Also, a director (other than the representative director ) may be entrusted with an executive power pursuant to the articles of incorporation.
A Joint-stock company (Chusik Hoesa) with paid-in-capital of KRW 1 billion or more must have three directors, including the representative director, and one statutory auditor. The statutory auditor is a senior position of the company and cannot be involved with the company’s management.
The statutory auditor’s role is to monitor the company’s financial affairs and the directors’ performance of their duties and to review the proposed annual financial statements. On that basis, a director of a company cannot be appointed as a statutory auditor of the same company. The statutory audit position should not be confused with an external auditor who performs a statutory audit.
Directors’ duties and liabilities
A director of a company owes fiduciary duties to the company in Korea. Accordingly, a director’s duties under the Korean Commercial Code (KCC) include:
· Duty of due care and loyalty
· Confidentiality
· Duty of disclosure
· Duty not to be engaged in business in competition with the company
· Duty not to divert prospective business opportunities
· Self-dealing is only allowed when the board approves the matter.
· Preparation of accounts
Under the Korean Commercial Code (KCC), where a director has acted in violation of any laws and regulations or the article of incorporation of the company; or neglected to perform his or her duties as a director, the said director is liable for the damages to the company as a result of the violation or neglect. Further, if the board resolved the matters concerning the violation or neglect, other directors who approved the matters are jointly and severally liable.
A director is also liable to a third party concerning an intentional breach of his or her duties or gross negligence.
Shareholders’ ordinary resolution
KCC prescribes certain matters must be authorized by an ordinary resolution of the shareholders, adopted by a majority of the votes of the shareholders present representing at least one-fourth of the total number of issued and outstanding shares. Such matters include, but are not limited to:
· Appointing a director (including a representative director if the article of incorporate stipulates ), statutory auditor, or liquidator
· Setting limits for remuneration of directors, statutory auditors, and liquidators
· Authorising a company’s acquisition of its shares
· Approving annual financial statements and declaration of dividends
Shareholders’ special resolution
A special resolution is made by at least two-thirds of shareholders present at the meeting and at least one-third of total issued and outstanding shares. Under KCC, the corporate matters requiring the special resolutions include, but are not limited to:
· Amending the articles of incorporation
· Dismissing a director or statutory auditor
· Issuing shares at a price less than par value
· Capital reduction
· Dissolution and liquidation
· Shareholder’s approval on a merger or spin-off
· Granting share options
Board’s meeting (corporate resolution)
Under KCC, a board of directors can resolve the following matters:
· Disposal of important assets
· Obtaining borrowings of a substantial amount
· Establishing and closing a branch office
· Appointing or dismissing a representative director or executive director
Some important corporate decisions such as corporate mergers, splits, business transfers, or dissolution require both shareholders' meetings and board resolutions. In this regard, the representative director or executive officer of the company deals with the corporate matters that the board has resolved.
Matters to be resolved at a general meeting of shareholders
Despite KCC prescribing the corporate matters that require shareholders' approval, a company may further restrict directors’ powers by specifying more matters to be resolved at a general meeting of shareholders in its article of incorporation.
Shareholders or the authorized proxies exercise their voting rights by attending the general meeting of shareholders. Voting may be done in writing in place of actual attendance, provided that the article of incorporation permits.
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