Hello, I am Attorney Kim Kwang-sik from Cheongchul Law Firm.

As a result of the second amendment to the Commercial Act on September 9, 2025, listed companies with total assets of over 2 trillion won ("large listed companies") can no longer exclude the cumulative voting system through their articles of incorporation. Considering that many large listed companies have prevented the application of the cumulative voting system by including exclusion clauses in their articles, this amendment is significant in that it institutionally guarantees the involvement of minority shareholders in the election of directors. In this article, I will examine the specific changes in the amended Commercial Act and review practical application plans that minority shareholders should consider in the changed legal environment.

[Question]

What should minority shareholders consider under the amended Commercial Act of September 9, 2025?

[Answer]

1.     Main contents of the amended Commercial Act of September 9, 2025

The core of the amended Commercial Act (Law No. 21044) can be summarized as 'mandatory cumulative voting' and 'expanded separate election of audit committee members'.

First, as a result of the amendment to Article 542-7, paragraph 3 of the Commercial Act, the basis for a listed company to exclude cumulative voting through its articles of incorporation has disappeared. The amended law explicitly states that cumulative voting cannot be excluded by articles of incorporation, reinforcing the character of mandatory provisions of the system despite Article 382-2, paragraph 1 of the Commercial Act.

Second, with the amendment of Article 542-12, paragraph 2 of the Commercial Act, the number of audit committee members that must be separately elected from other directors at the shareholders' meeting has been increased from 1 to 2. This means that the number of candidates subject to election, whose voting rights are limited to 3%, has increased.

The amended regulations will be implemented from September 10, 2026, and will apply to the officers elected for the first time thereafter.

2.     Cumulative Voting under Article 382-2 of the Commercial Act

Cumulative voting is a system that grants shareholders a number of votes equal to 'the number of directors to be elected per share' when electing two or more directors. Shareholders can either concentrate this voting power on one specific candidate or distribute it among multiple candidates. Under a simple voting system, a majority shareholder with a majority of shares can elect all directors, whereas the cumulative voting system allows minority shareholders to have the potential to elect directors even without a majority stake by concentrating their votes on specific candidates.

Mathematically speaking, to produce one director, the minimum shareholding (voting right) can be considered secured if it exceeds the total number of shares divided by 'the number of directors to be elected plus one'. Therefore, if cumulative voting is conducted, the threshold of the shareholding ratio that minority shareholders must exceed will structurally decrease as the number of directors to be elected increases.

For the implementation of such a cumulative voting system in listed companies, including large listed companies, shareholders holding more than 1% of the total issued shares (excluding non-voting shares) must request the company in writing or electronically at least 6 weeks prior to the date of the shareholders' meeting.

3.     Ways for Minority Shareholders to Utilize Cumulative Voting

Under this amended Commercial Act, the influence of minority shareholders can be maximized when the 'separate election of audit committee members' and 'cumulative voting' are combined.

A. Application of Cumulative Voting to the Two Directors to be Elected Separately: Under the amended law, the company must separately elect 2 directors who will be audit committee members, and at this time, the voting rights of the largest shareholder and related parties are limited to 3%. When 'the two people to be separately elected' and 'cumulative voting' are combined, it creates a strong synergy effect for minority shareholders. For example, when generally electing 2 directors, the winning vote rate under the cumulative voting system is about 33.4%. However, when cumulative voting is carried out for the two candidates selected for separate election, the voting rights of the controlling shareholder are restricted to 3%, which will reduce the total effective voting number (denominator), resulting in minority shareholders being able to secure at least 1 seat with a relatively low shareholding ratio by surpassing the controlling shareholder in the votes.

B. Leveraging by Expanding the Number of Directors to be Elected: The effectiveness of cumulative voting is proportional to the number of directors to be elected. Thus, from the perspective of minority shareholders, it would be beneficial to structure the agenda to elect as many directors as possible through shareholder proposals. On the other hand, the company is likely to respond with defense strategies such as 'reducing the number of directors' or presenting 'a proposal to determine the number of directors to be elected' as preliminary items before the cumulative voting agenda. In response, minority shareholders need to argue that the introduction of preliminary items infringes upon their right to propose and attempts to nullify the cumulative voting system, and they should also gather opposing voting rights in the case of attempts to amend the articles of incorporation to reduce the number of directors.

4.     Conclusion

The amended Commercial Act strengthens the legal basis for minority shareholders to participate in the composition of the board of directors by mandating cumulative voting in large listed companies and expanding the number of separately elected directors who will serve as audit committee members. Minority shareholders of large listed companies should prepare to meet the 1% shareholding requirement and the shareholder proposal process (request in writing or electronically 6 weeks before the shareholders' meeting) in line with the implementation date in September 2026. In particular, establishing strategies to apply cumulative voting to the two separately elected audit committee members and legal and practical responses to the company’s defensive mechanisms such as reducing the number of directors will be key to ensuring the effectiveness of the system.

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