South Korea proposes amendments to better protect minority shareholders

December 6th, 2024

South Korea's financial regulator has pushed for a revision of the law to improve transparency and fairness in corporate mergers, aiming to better protect minority shareholders.

The Financial Services Commission (FSC) has proposed amendments to the Capital Markets Act, requiring all company’s boards of directors to better safeguard shareholder rights during mergers and acquisitions, split offs, share swaps and asset transfers.

The proposals include the removal of current valuation standards for mergers between affiliated companies. Instead, the FSC will require the use of fair value assessments that consider stock prices, asset values and earning values.

This shift aims to ensure that valuations accurately represent the companies’ market value, which better protects the interests of general shareholders.

The FSC also plans to require that all mergers be evaluated and disclosed by external evaluation agencies. This measure is intended to provide an independent and objective valuation of the merger, further protecting shareholder interests.

Under the proposals, listed companies will be required to disclose their opinions on the purpose, expected outcomes and validity of valuations in mergers and other significant transactions. This is designed to enhance transparency and enable shareholders to make informed decisions.

Another proposal is also to allocate up to 20% of public offering shares to general shareholders of the parent company when a subsidiary is listed after a physical division to ensure that general shareholders benefit from the listing rather than institutional investors.

The move comes as the government has been pushing listed companies to voluntarily improve shareholder return and hold company boards more accountable to stockholders, as analysts frequently cite weak corporate governance as a key factor contributing to the local equity market’s underperformance compared to global indexes.

The FSC plans to develop guidelines on shareholder protection efforts in collaboration with related ministries. These guidelines will outline how to implement the proposed changes and ensure companies comply with the new standards.

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