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19 March 2001
On February 28 2001 the National Assembly passed a bill that substantially amends the Securities Exchange Act. The amended act is expected to be promulgated in March and to become effective on April 1 2001, although certain provisions will become effective immediately upon promulgation. Among other things, the amendment aims to strengthen minority shareholders' rights and improve transparency of corporate governance in companies where shares are publicly traded.
The salient points of the amendment concern outside directors, minority shareholders' rights, transactions with largest shareholders, stock options, stock redemption by profits and tender offers.
KOSDAQ (Korean Securities Dealers Automated Quotations) stock exchange-listed companies will have to appoint outside directors like the companies listed on the Korea Stock Exchange (KSE). Large KOSDAQ-listed companies (defined in the Securities Exchange Act as companies listed on KOSDAQ with assets of at least W2 trillion) will have to form audit committees similar to those for large KSE-listed companies (also defined as companies with assets of at least W2 trillion).
Shareholders who own more than 3% of the outstanding voting shares will not be allowed to exercise their voting right over 3% of such outstanding voting shares in appointing outside directors who will become members of the audit committee. Large KSE or KOSDAQ-listed companies will have to include those persons recommended by certain eligible minority shareholders in the list of candidates of outside directors to be presented to the shareholders at the shareholder meeting.
The minimum shareholding percentage of minority shareholders of KSE/KOSDAQ-listed companies required to file an injunction against the company's directors has been reduced to 0.05% of the total issued shares.
The minimum shareholding percentage of minority shareholders of KSE/KOSDAQ-listed companies to require cumulative voting in appointing multiple directors (provided that the articles of incorporation do not prohibit cumulative voting) has been reduced to 1% of the total issued shares.
In order for large KSE/KOSDAQ-listed companies to enter into certain major transactions with their largest shareholder (including specially related persons), the company will have to obtain the board of directors' approval. Also, the transactions must be reported to shareholders at the annual shareholder meeting. Member companies of large conglomerates, regardless of whether the shares are publicly traded, are already subject to similar requirements under the Monopoly Regulation and Fair Trade Law.
In the past, stock options could be granted only at the approval of supermajority shareholders, provided that articles of incorporation of the company permitted the granting of stock options. The amended act allows KSE/KOSDAQ-listed companies to grant stock options at the approval of the board of directors for up to the percentage to be set by the presidential decree to the act within 10% of the total issued shares, if the company's articles of incorporation authorize such granting. The requirement that a person may only exercise his or her stock options for three years from the shareholders' approval of the granting no longer applies.
The amended act allows KSE/KOSDAQ-listed companies to redeem outstanding shares by profits through the board of directors' approval, up to the amount of funds available for dividend declaration under the Commercial Code (subject to certain other limitations). This is upon the condition that the articles of incorporation authorize the redemption by the board of directors' approval. Such redemption authorization must be newly included in the articles of incorporation by a supermajority shareholders' approval. Before this amendment the prevailing opinion was that the articles of incorporation could be amended to authorize the stock redemption by profits only by the unanimous consent of shareholders.
The mandatory tender offer filing with the Financial Supervisory Commission may now be made on the date of giving public notice of the tender offer. Advance filing will no longer be required.
For further information on this topic please contact Hee Chul Kang at Woo, Yun, Kang, Jeong & Han by telephone (+822 528 5200) or by fax (+822 528 5300) or by e-mail (firstname.lastname@example.org).
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