Corporate Lawyers South Korea 2026: Directors' Duties, Treasury Shares & Governance Reports

Last reviewed: July 31, 2026

Executive TL;DR, Who Must Act and What to Do Now

South Korea’s 2026 corporate governance reforms, approved by the National Assembly in February 2026 following partial amendments enacted in July 2025, represent the most significant overhaul of the Korean Commercial Code (KCC) in over a decade. Corporate lawyers South Korea‑wide are now advising boards on three interconnected compliance workstreams: an expanded statutory duty of loyalty owed directly to shareholders, a default cancellation mechanism for treasury shares that reshapes capital management and M&A valuations, and the extension of mandatory disclosure requirements South Korea regulators have long sought, in particular, the corporate governance report obligation that now covers every KOSPI‑listed company regardless of asset size.

General counsels, CFOs, company secretaries and independent directors at affected entities should treat the reforms as a board‑level priority and begin implementation immediately.

Five immediate board actions:

• Review and update the company’s conflict‑of‑interest and related‑party transaction policies to reflect the expanded fiduciary duty to shareholders under the amended KCC.
• Audit all treasury share holdings and determine whether existing positions fall within a statutory exception or must be cancelled under the new default rule.
• Appoint a governance report working group (led by the company secretary or GC) to prepare the expanded annual corporate governance report KOSPI 2026 filing requires.
• Brief every director, executive and non‑executive, on the new liability standard, including disclosure and recusal obligations that now carry personal exposure.
• Engage external counsel to conduct a gap analysis of existing board charters, articles of incorporation and internal approval workflows against the 2026 requirements.

Background: The 2024–2026 Reform Timeline

South Korea’s corporate governance reform programme did not emerge overnight. It evolved over a multi‑year legislative process driven by a combination of domestic shareholder activism, high‑profile governance failures at major conglomerates, and international pressure to align with the OECD Recommendation on Principles of Corporate Governance. Understanding the legislative timeline is essential for determining which obligations are already in force and which provisions await subordinate regulation from the Korea Exchange (KRX) or the Financial Services Commission (FSC).

Key Legislative Milestones

The practical effect is that all major statutory obligations are now enacted law, but certain operational details, particularly the governance report template fields and the precise filing window for the first expanded report, remain subject to KRX implementation guidance. Boards should not wait for final subordinate rules before beginning preparation; the statutory obligations are already binding.

Directors’ Duties South Korea 2026: The Expanded Fiduciary Framework

The 2026 amendments mark a watershed for directors’ duties South Korea 2026 by codifying and significantly expanding the fiduciary obligations that directors owe. Where the pre‑amendment KCC imposed a general duty of care and loyalty owed primarily to the company, the revised provisions explicitly extend the duty of loyalty to encompass shareholders’ interests, introduce detailed disclosure and recusal requirements for conflicted transactions, and raise the standard for personal liability. This section explains what changed, where the risks lie, and how boards can protect themselves.

What Changed vs. Previous Law

• Duty of loyalty now explicitly includes shareholders. Under the prior framework, the statutory duty of loyalty under the KCC was interpreted as a duty owed to the company as a legal entity. The 2026 amendments codify a fiduciary duty to shareholders Korea courts had only sporadically recognised through case law, making it an express statutory obligation.
• Expanded disclosure obligations. Directors must now proactively disclose any material personal interest in a transaction before the board and, where prescribed, to shareholders. Failure to disclose is itself a breach, regardless of whether the transaction ultimately harms the company.
• Mandatory recusal from conflicted votes. A director who has a material conflict is required to recuse from the board vote on the matter. Participation in such a vote exposes the director to personal liability even if the resolution is otherwise fair.
• Stricter self‑dealing standards. Related‑party transactions and intra‑group dealings, historically a governance flashpoint in Korean chaebol structures, are now subject to heightened substantive and procedural scrutiny, including independent director approval requirements.
• Business judgment rule guidance. Industry observers expect the courts to apply a more structured business judgment rule analysis when evaluating director decisions, requiring evidence of informed deliberation, good faith and the absence of conflicts. While not a statutory safe harbour in the strict sense, the legislative history suggests that well‑documented decision‑making processes will carry significant weight in liability assessments.

Director Risk Map

The expanded duties create heightened risk in three operational areas that corporate advisory teams should prioritise:

• Intra‑group transactions. Conglomerate structures where goods, services or financing flow between affiliates controlled by the same ultimate shareholder now face mandatory independent director review. Legacy transfer‑pricing arrangements may need to be re‑approved under the new standard.
• Executive compensation and share‑based incentive plans. Where directors benefit from share‑option grants or bonus allocations, the expanded loyalty duty means the board must document that the scheme serves shareholders’ interests, not merely management retention goals.
• Defensive measures during takeover approaches. Directors who deploy treasury shares, poison pills or other defensive actions now carry a higher burden of proving their conduct serves shareholder welfare rather than management entrenchment. This intersects directly with the new takeover rules Korea 2026 framework discussed below.

Practical Mitigation Measures

Boards should implement several concrete steps to minimise personal exposure under the expanded fiduciary duty to shareholders Korea law now mandates:

• Enhanced board minutes. Every material decision should be supported by documented analysis demonstrating the board’s information base, alternatives considered and rationale. Minutes should record who disclosed what, who recused, and the vote count.
• Independent director committee. Establish a standing or ad hoc committee of independent directors to review and approve related‑party transactions. The committee should have its own external counsel.
• D&O insurance review. Existing directors’ and officers’ liability policies should be reviewed to confirm that claims arising from the expanded duty of loyalty are covered and that policy limits remain adequate.
• Annual compliance training. All directors, including non‑executive and newly appointed members, should receive briefings on the 2026 duties, disclosure triggers and recusal procedures at least annually.

Treasury Shares Cancellation Korea: Default Rule, Mechanics and M&A Impact

The 2026 amendments introduce a default cancellation rule for treasury shares that fundamentally changes how Korean companies manage, hold and deploy their own equity. Under the prior regime, a company could acquire and hold treasury shares almost indefinitely, using them for strategic purposes such as employee compensation plans, exchange offers in M&A or defensive mechanisms against hostile takeovers. The new default rule reverses this presumption: treasury shares must now be cancelled within a prescribed period unless a statutory exception applies.

How the Default Cancellation Rule Operates

• Automatic cancellation presumption. Treasury shares acquired by a company are subject to cancellation as the default statutory position. The company must take affirmative steps, and secure appropriate approvals, to retain shares for a permitted purpose.
• Permitted exceptions. Shares may be retained where they are allocated to an approved employee stock ownership plan (ESOP), earmarked for a pending merger or share exchange that has received board (and, where required, shareholder) approval, or held for other purposes specifically authorised by the amended KCC or subordinate regulations.
• Accounting implications. Cancellation reduces issued share capital, which in turn affects capital adequacy ratios, distributable reserves and per‑share financial metrics. CFOs must coordinate with auditors to model the impact on financial statements and ensure compliance with minimum capital requirements.
• Shareholder approval requirements. Where cancellation involves a formal capital reduction, the company must follow the KCC’s capital reduction procedures, including shareholder approval by special resolution and creditor protection notices.

Step‑by‑Step Capital Restructuring Flow

For companies planning M&A transactions or capital restructuring, the treasury shares cancellation Korea framework requires a revised pre‑deal checklist:

1. Treasury share audit: Identify all treasury share positions, acquisition dates, carrying values and the original purpose of acquisition.
2. Exception analysis: Determine which holdings qualify for a statutory exception and which must be cancelled under the default rule.
3. Board resolution: Pass a board resolution either authorising cancellation or invoking a permitted exception with supporting documentation.
4. Shareholder approval (if required): Where cancellation triggers a capital reduction, convene a general meeting and follow creditor notification procedures.
5. Accounting entries: Record the cancellation or reclassification in the financial statements, adjust EPS and capital ratios, and brief credit rating agencies if applicable.
6. Regulatory filings: File the required notices with the KRX and, for financial institutions, the FSC/FSS.

M&A Implications

The default cancellation rule has significant consequences for deal‑making. Bidders conducting due diligence on a target must now verify whether treasury share positions will survive closing or be cancelled, affecting the fully diluted share count and, consequently, the offer price per share. Sellers and their corporate lawyers South Korea counsel should prepare a treasury share status certificate as part of the data room. For deals involving a mandatory tender offer Korea rules prescribe, the treatment of treasury shares directly affects the calculation of the offeror’s resulting shareholding percentage and whether the mandatory tender threshold is triggered.

Corporate Governance Report KOSPI 2026: Who Must File, Expanded Scope and Deadlines

One of the most operationally demanding elements of the 2026 reforms is the extension of mandatory governance reporting to all KOSPI‑listed companies. Previously, only companies above certain asset thresholds were required to publish a detailed corporate governance report. The 2026 amendments eliminate this asset‑size exemption, meaning mid‑cap and smaller KOSPI‑listed entities must now produce the same standard of governance disclosure as their large‑cap peers.

What the Expanded Report Must Cover

The corporate governance report KOSPI 2026 obligations require disclosure across several core areas:

• Board composition and independence. Number of directors, independence status, tenure, committee memberships, attendance records and the criteria used to assess independence.
• Related‑party transaction policies. A description of the company’s policies and procedures for identifying, approving and monitoring transactions with related parties, including the role of independent directors.
• Risk management framework. An overview of the company’s risk governance structure, including board‑level risk oversight, internal audit function and any material risks identified during the reporting period.
• Directors’ remuneration. Aggregate and, for specified roles, individual remuneration data, including base salary, performance‑linked components, share‑based compensation and severance arrangements.
• Treasury share activity. A summary of treasury share acquisitions, disposals and cancellations during the period, together with the current treasury share position and the purposes for which shares are held.
• Shareholder rights and engagement. Policies on shareholder communication, voting procedures, dividend policy and any shareholder engagement activities conducted during the year.

Reporting Obligations by Entity Type

How to Prepare: Data Owners, Documents and Sign‑Off

Companies filing a governance report for the first time face a significant data‑gathering exercise. Industry observers expect that the most common compliance failure in the first reporting cycle will be incomplete or inconsistent data, rather than outright refusal to file. The following preparation steps are recommended:

• Appoint a project owner. The company secretary or GC should lead a cross‑functional working group drawing on legal, finance, HR (for remuneration data) and internal audit.
• Map data sources to disclosure fields. For each required disclosure item, identify the internal system or register that holds the relevant data and the person responsible for its accuracy.
• Draft early and circulate for review. Prepare a first draft at least 60 days before the anticipated filing deadline, allowing time for board review, independent director sign‑off and external counsel review.
• Board approval resolution. The final report should be formally approved by the board, with the resolution recorded in the minutes. The chair and at least one independent director should sign off on the submitted version.

Takeover Rules Korea 2026 and Mandatory Tender Offers: M&A and Control Implications

While the 2026 governance package did not fundamentally rewrite the mandatory tender offer Korea framework, the expanded directors’ duties and the treasury share default cancellation rule have significant indirect effects on takeover dynamics. Target boards, bidders and their corporate lawyers South Korea advisers must recalibrate their M&A playbooks accordingly.

Key Impacts on Takeover Transactions

• Director conduct during an offer. The expanded duty of loyalty to shareholders means that target company directors face heightened scrutiny when responding to, or resisting, a takeover approach. Any defensive action must be demonstrably in shareholders’ interests, not management self‑preservation.
• Treasury share deployment restricted. Using treasury shares as a defensive mechanism (for example, placing them with a friendly party to dilute the bidder’s stake) is now constrained by the default cancellation rule. Boards that seek to retain treasury shares for defensive purposes will need to demonstrate that the holding falls within a statutory exception.
• Valuation and share‑count adjustments. Both bidders and targets must account for the effect of mandatory treasury share cancellation on the fully diluted share count, which directly affects the price per share in a tender offer and the calculation of whether the mandatory tender threshold has been crossed.
• Enhanced disclosure in offer documents. The broader mandatory disclosure requirements South Korea’s reforms impose mean that target board circulars must now include more detailed governance information, potentially extending the preparation timeline.

Practical Checklist for Target Boards During a Control Approach

1. Convene an independent director committee immediately upon receiving an approach, before any substantive engagement with the bidder.
2. Engage independent financial and legal advisers to the committee (separate from the company’s standing advisers where any conflict exists).
3. Document all board deliberations in detail, including each director’s disclosed interests and any recusals.
4. Obtain an up‑to‑date treasury share status certificate and model the impact of any pending cancellations on the offer arithmetic.
5. Prepare the expanded governance disclosures required for the board’s response circular within the regulatory timetable.

Practical Compliance Playbook: Step‑by‑Step Board Checklist and Sample Resolutions

Translating the 2026 reforms into operational compliance requires a structured approach. This section provides the practical tools that boards, GCs and CFOs need to implement each workstream. Companies should treat this as a living compliance playbook, updated as KRX and FSC/FSS issue further guidance throughout 2026.

Master Board Compliance Checklist

1. Governance policy audit. Review and amend the company’s articles of incorporation, board charter and committee terms of reference to reflect the expanded directors’ duties, including the statutory duty of loyalty to shareholders.
2. Related‑party transaction policy. Adopt or update a formal policy requiring independent director pre‑approval, disclosure protocols and annual board review of all related‑party dealings.
3. Treasury share register review. Conduct a comprehensive audit of all treasury share holdings and classify each position as subject to default cancellation or falling within a permitted exception.
4. Governance report data collection. Launch the data‑gathering process for the first expanded governance report, assigning data owners for each disclosure field.
5. D&O insurance renewal. Review policy coverage, exclusions and limits in light of the expanded personal liability exposure.
6. Board training programme. Schedule director briefings covering the new duties, disclosure triggers, recusal procedures and governance report requirements.
7. Minute‑taking protocol. Update the company secretary’s minute‑taking guidelines to capture the information now required to demonstrate compliance with the business judgment standard.
8. Filing calendar. Establish a compliance calendar with all KRX filing deadlines, shareholder meeting dates and regulatory notice periods.

Recommended Board Resolutions

The following sample resolution language may be adapted for use by boards implementing the 2026 reforms. Each resolution should be reviewed by external counsel before adoption.

• Resolution 1, Treasury share cancellation/retention. “RESOLVED that the Board, having reviewed the company’s treasury share register and the requirements of the amended Korean Commercial Code, hereby authorises the cancellation of [number] treasury shares held as at [date], being shares for which no statutory exception to the default cancellation rule applies; and further resolves that [number] shares shall be retained for the purpose of [state permitted purpose], with supporting documentation annexed to these minutes.”
• Resolution 2, Governance report sign‑off. “RESOLVED that the Board approves the Corporate Governance Report for the fiscal year ended [date], confirms that the disclosures therein are accurate and complete to the best of the Board’s knowledge, and authorises the Chair and [name of independent director] to execute and submit the report to the Korea Exchange within the prescribed filing period.”
• Resolution 3, Independent committee for related‑party transactions. “RESOLVED that the Board establishes an Independent Transaction Review Committee comprising [names of independent directors], with authority to review, approve or reject any related‑party transaction exceeding [threshold], and to engage external advisers at the company’s expense as the Committee considers necessary.”

Internal Controls and Audit Triggers, Who Signs What

Penalties and Remedies for Non‑Compliance

Directors who breach the expanded fiduciary duties face personal civil liability to the company and, under the amended provisions, potentially to shareholders who suffer loss. In addition, failure to file or materially misstate the corporate governance report may result in KRX sanctions, including public censure, trading halt or, in serious cases, delisting review. Financial institutions face additional supervisory penalties under the Act on Corporate Governance of Financial Companies, administered by the FSC and FSS. The likely practical effect of these overlapping enforcement regimes will be that compliance failures attract both market‑based sanctions and regulatory enforcement action simultaneously.

Next Steps and Further Reading

The 2026 corporate governance reforms demand prompt, structured action from every KOSPI‑listed board and its advisory team. Whether the priority is implementing the expanded directors’ duties, auditing treasury share positions or preparing a first governance report, the compliance workstreams are interconnected, and the statutory clock is running. To find corporate lawyers in South Korea with the specialist corporate advisory expertise these reforms require, consult the Global Law Experts directory for qualified practitioners.

For deeper guidance on individual compliance workstreams, refer to the following resources: the KOSPI governance report checklist for a step‑by‑step filing walkthrough, the treasury shares guide for detailed accounting and shareholder mechanics, and the directors’ duties practical guide for additional sample resolutions and risk‑mitigation strategies.

Sources

1. Korea Legislation Research Institute (KLRI), eLaw: Korean Commercial Code and Amendment Texts
2. National Assembly of the Republic of Korea, Legislative Records
3. Korea Exchange (KRX), Listing Rules and Corporate Governance Report Guidance
4. Financial Services Commission (FSC), Regulatory Announcements and Guidance
5. Financial Supervisory Service (FSS), Supervisory Guidance
6. Act on Corporate Governance of Financial Companies (KLRI eLaw)
7. OECD, Recommendation on Principles of Corporate Governance
8. Oxford University Comparative Law Forum, Directors’ Duties and Liabilities in Korea