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The 3% rule has emerged as a central issue in Korea's dual listing regulations. Here's what it means when a controlling shareholder with 40% stake may only exercise 3% of votes on a given resolution.

[Table of Contents]

1. What Is the Dual Listing 3% Rule?

2. Why Was It Introduced?

3. Three Types of Shareholder Approval: Compared

4. How the 3% Rule Works in Practice

5. Implications for Companies and Shareholders

What Is the Dual Listing 3% Rule?

The 3% rule limits a controlling shareholder's voting rights to 3% on certain resolutions related to dual listing approval. It borrows from an existing Commercial Act provision that caps controlling shareholders' votes at 3% when electing auditors.

Why Was It Introduced?

Korea's exchange is moving toward prohibiting new dual listings unless specific conditions — most importantly, approval from general (non-controlling) shareholders of the parent company — are met. The 3% rule is designed to ensure that general shareholders' voices are meaningfully heard.

Three Types of Shareholder Approval: Compared

• Special resolution: Familiar process, but if the controlling shareholder holds a large stake, it may pass without meaningful general shareholder input.

• Majority-of-Minority (MOM) vote: Excludes controlling shareholders entirely, offering strong protection, but low participation can make quorum hard to achieve.

• 3% rule: A compromise — doesn't fully exclude controlling shareholders, but meaningfully limits their influence.

How the 3% Rule Works in Practice

All shares held by the controlling shareholder and their related parties are aggregated. If the total exceeds 3%, voting rights on the excess are blocked. So even with 40% combined ownership, only 3% can be voted on the relevant resolution — the remaining 37% is effectively silenced.

Implications for Companies and Shareholders

Companies with dominant controlling shareholders will face significantly stronger constraints under this rule. Firms planning subsidiary listings should closely monitor the finalization of these guidelines.

For questions about dual listings, shareholder meetings, or corporate governance law, consult the corporate attorneys at Cheongchul Law Firm.

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This post is for informational purposes only and does not constitute legal advice. Please consult a qualified attorney for your specific situation.