Korea’s Corporate Governance 3% Statutory Auditor and Audit Committee Rule

Korea’s recent amendment to the Commercial Act of Korea signals a shift toward stronger shareholder rights. The “3% rule” – a cap on the voting rights of major shareholders when appointing audit committee members and statutory auditors serves as a critical change in Korean corporate governance.

Understanding this change of rule requires a basic grasp of how Korea’s corporate governance is structured, specifically, the difference between statutory auditors and audit committees under the Korean Commercial Act.

Smaller companies may appoint a single statutory auditor, while larger or listed companies are required to, or may opt to, establish an audit committee composed of directors. Under Article 415-2(1) of the Korean Commercial Act, companies that establish an audit committee cannot simultaneously appoint a separate statutory auditor.

The 3% Rule for Statutory Auditors and Audit Committees in Korea

What are statutory auditors and audit committees in Korea? 

The primary roles of statutory auditors and audit committees include oversight of directors’ performance, audit of financial statements, and monitoring legal and internal compliance. Because of their function, the law attempts to prevent domination by large shareholders during their appointment.

The 3% Rule for Appointing Statutory Auditors

Under Article 409(2) of the Korean Commercial Act, shareholders who hold more than 3% of total issued shares are restricted from exercising voting rights exceeding that 3% threshold when appointing statutory auditors. This allows minority shareholders more influence in auditor appointments.

The 3% Rule for Audit Committees

Things get more complex with audit committees. Article 415-2(2) mandates that at least two-thirds of audit committee members must be outside directors (사외이사). Furthermore, for large listed companies (with total assets exceeding KRW 2 trillion), one audit committee member must be elected separately.

The 2020 amendment to the Korean Commercial Act introduced Article 542-12(4), which limits the voting rights of shareholders holding more than 3% when electing or removing audit committee members in large listed companies. This was intended to reduce excessive influence by controlling shareholders.

For the largest shareholder, additional rules were applied depending on whether the candidate was an inside or outside director:

– For Inside Directors: The 3% cap applies by aggregating the shares of the largest shareholder and his or her related parties (e.g., spouse, direct relatives).

– For Outside Directors: Each related party is allowed to vote independently up to 3% of shares held. No aggregation applies.

The 2025 revisions now ensure the 3% cap applies uniformly to both inside and outside directors serving on audit committees.

Comparison: 3% Rule

The revised Korean Commercial Act brings substance to Korea’s audit committees, which have long been criticized as symbolic rather than effective oversight bodies. The amendments also expand directors’ fiduciary duties from the company alone to both the company and its shareholders. Additionally, electronic shareholder meetings will now be mandatory, marking a shift toward digital accessibility and increased procedural transparency.

Major Korean business organizations, including the Federation of Korean Industries and the Korea Chamber of Commerce and Industry, have expressed concerns that these reforms could pave the way for activist investors and undermine long-term corporate competitiveness. Nevertheless, the changes reflect broader global trends prioritizing shareholder engagement and the modernization of corporate governance frameworks. From a legal perspective, the enhanced 3% Rule reflects Korea’s growing commitment to genuine checks on corporate power. In the long term, aligning with international standards of governance and equal shareholder protection will strengthen corporate resilience, not undermine it.

IPG Legal

IPG Legal regularly advises Korean and foreign clients on shareholder rights, board structuring, and compliance with the Korean Commercial Act. Please feel free to contact our team of Korean and international lawyers for case-specific guidance. 

By So Young YOON, Korean Attorney-at-Law 
Yoon was educated in Singapore, China, and Korea, and is fluent in both English and Korean.

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