Amendments to Commercial Act: Directors' Duties and Shareholders' Interests

Directors' duty to consider shareholders' interests over the company's is crucial to resolve conflicts and ensure fairness in decision-making.

### Understanding the Amendment to the Commercial Act: A Detailed Analysis
* 🔍  The amendment to the Commercial Act aims to introduce a **duty of loyalty to shareholders**, in addition to the existing **duty of care for the company**.
* 🏛️  In the US, Delaware state law serves as a model, where directors owe fiduciary duties to both the company and its shareholders, with a **duty of loyalty** in cases of **conflicts of interest** among shareholders.
* 🏢  This duty of loyalty is particularly relevant in transactions like mergers, where **conflicts of interest can arise between different groups of shareholders**.
* ⚖️  The principle of "**entire fairness**" applies in such cases, requiring directors to prove the **fairness of both the process and the outcome** to all shareholders.
* 🌍  Similar provisions exist in other countries, such as the UK, Germany, and Japan, where directors also have **fiduciary duties towards shareholders**.
* 🇰🇷  In South Korea, the interpretation of directors' duties has historically been more focused on the company's interests, rather than explicitly considering **shareholders**.
* 🔒  The amendment is seen as a crucial step towards **enhancing shareholder protection** and ensuring **fairness in corporate transactions**.
* 🤔  There are ongoing discussions about the practical implications of the amendment, including concerns about **potential conflicts with existing laws and judicial interpretations**.

### Understanding the Proposed Amendments to the Commercial Act: A Legal Analysis
* 📜  Proposed amendments to the Commercial Act in South Korea are sparking debate over the **duty of directors to serve both the company and shareholders**.
* ⚖️  The discussion centers on conflicts of interest, particularly in cases of **dividend distribution** and **inter-company transactions**.
* 💼  Major shareholders may benefit from **withholding dividends**, while minority shareholders suffer **reduced return on equity**.
* 💰  The U.S. has a **high dividend payout ratio (92%)**, but this may not be **directly applicable to South Korea**.
* 🏛️  The proposed changes aim to **enhance shareholder rights** and address the "**Korea discount**" in stock prices.
* 🔍  Legal experts are debating whether the **duty of loyalty to all shareholders** should be explicitly included in the law.
* 🏢  Inter-company transactions, a common practice in Korean chaebols, are under scrutiny for **potential unfair advantages**.
* 📊  Recent court cases, such as the Mister Pizza ruling, are shaping the interpretation of **unfair support practices** in business transactions.

### The Significance of Shareholder Loyalty in Corporate Mergers
* 🏢  The discussion begins with the importance of **shareholder loyalty** in corporate transactions, focusing on the recent Supreme Court ruling that emphasized the concept of **"advantageousness"** in transactions between related parties.
* 🛡️  The conversation then shifts to the **duty of loyalty to shareholders**, highlighting the **necessity of this principle** in determining fairness in corporate mergers.
* 💼  The text explores the intricacies of mergers as capital transactions, emphasizing that they are fundamentally **transactions between shareholders** rather than companies.
* 🏦  The role of the board of directors in determining merger ratios is discussed, with a focus on the **challenges of proving complete fairness** in these transactions.
* 💰  The "**Monthly Average Law**" is introduced as a key aspect of determining fair market value in mergers, with implications for **listed company mergers**.
* 📊  The conversation delves into the difficulties of **proving fairness in mergers**, especially in cases where **market prices may not accurately reflect company value**.
* ⚖️  The need for legal reform to address the complexities of corporate mergers is emphasized, with a focus on **creating more transparent and fair procedures**.
* 🌐  The discussion concludes with a comparison of corporate merger practices in other countries, highlighting the **need for a more robust legal framework in South Korea**.

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언더스탠딩 : 세상의 모든 지식

Clarifying the Amendments to the Commercial Act

Directors have a duty of loyalty to the shareholders as a whole, not to each individual one, and they must protect the interests of all shareholders fairly.

This duty applies only in cases of conflict of interest among the shareholders, where some benefit at the expense of others.

The obligation of loyalty and care only comes into play in situations of conflicting interests, and it is the responsibility of the company to make decisions that will benefit all shareholders uniformly.

Understanding Fiduciary Duty and Conflict of Interest

Fiduciary duty involves taking better care of entrusted work or money than one's own, especially for company directors representing shareholders.

Conflict of interest arises in internal company transactions, such as mergers, where the interests of shareholders may differ.

In such cases, proving fairness and value for money is challenging, and it's generally better to avoid transactions that could create a conflict of interest.

The Complexities of LG Chem's Battery Division Restructuring

The restructuring results in the controlling shareholder maintaining control while general shareholders lose their influence, causing a lack of full value reception for the battery division.

The division's physical split and relisting also lead to unequal distribution of shares, impacting shareholders.

The conflict of interest and the holding company discount phenomenon further exacerbate the challenges, creating a difficult situation for the shareholders.

The Principle of Business Judgment in Corporate Decision-Making

Making the best decision based on available information is acceptable, even if the outcome is unfavorable, according to the principle of business judgment.

In cases where the duty of loyalty conflicts with this principle, the burden of proof shifts to the directors to prove the fairness of their decision.

Establishing a completely independent committee and excluding individuals related to controlling shareholders can allow for exceptions based on management judgment.

The Dominance of Delaware Law in Corporate Legislation

Delaware law is predominant in the US due to the high number of cases and its extensive corporate laws adoption, especially in terms of corporate governance and shareholder fairness.

The UK Companies Act of 2014 was mentioned but the discussion clarified that the Irish Companies Act is more relevant, emphasizing the duty of loyalty towards shareholders.

In Germany, the Stock Corporation Act establishes a duty of loyalty, particularly focusing on the protection of minority shareholders, which contrasts with the weak institutional protection for minority shareholders in the speaker's country.

The Need for Amendments to the Commercial Act

There are numerous loopholes in the current Commercial Act, leading to a lack of principles and declarations regarding the duty of loyalty to shareholders.

The act of directors working for the company and not for the shareholders has created a conflict of interest, which goes against the natural obligation to maximize the interests of the shareholders, as seen in Japanese law.

The discrepancies in interpreting the law regarding mergers have led to calls for amendments to the Commercial Act to address the need for a clearer framework in considering the interests of shareholders.

The Importance of Dividends and Shareholder Equality

The unequal treatment of shareholders and the impact on minority shareholders is a significant concern in dividend decisions.

The distribution of dividends is crucial for increasing stock prices and providing better outcomes for general shareholders.

The fundamental conflict of interest between controlling and minority shareholders needs to be addressed to resolve the undervaluation of stock prices.

The concept of proportional benefit and equality among shareholders is a key principle in shareholder protection laws.

There is a debate about the application of proportional benefits and the treatment of minority shareholders in the distribution of profits and losses.

Differentiated dividend distribution is a concern, as it raises potential side effects and has led to an increasing number of lawsuits, especially in cases involving fiduciary duties and the duty of loyalty among shareholders.

The Impact of Major Shareholder Transactions on Minority Shareholders

Major shareholders are being restricted from making decisions that only benefit themselves, due to the introduction of a mandatory public tender offer system in South Korea.

The 100% tender offer rule would allow for more freely conducted Leveraged Buyouts (LBOs) and eliminate lawsuits, leading to a greater alignment of interests among shareholders.

The lack of discussion and scrutiny around transactions and mergers between affiliated companies has raised concerns about fairness and the loyalty obligation to all shareholders.

The Complex Discussion on Merging with Another Company

The discussion on merging with another company did not take place in the board or shareholders' meeting, leading to a need for further examination.

The proposed amendment to the Commercial Act regarding the duties of directors is a key point of debate, focusing on whether they should only serve the company or also work for the shareholders.

The speaker emphasizes the importance of understanding the duty of loyalty to all shareholders, citing examples from advanced countries.

The History and Regulation of Inter-Company Transactions

Inter-company transactions have been a significant issue in South Korea for the past 30 years, mainly due to the influence of controlling shareholders in publicly listed companies.

The common practice of appointing directors based on the interests of controlling shareholders has led to conflicts of interest and unfair transactions.

In response to these issues, the government has implemented laws such as the Fair Trade Act and amendments to the Corporate Tax Act to regulate and prohibit unfair transaction practices, aiming to restrict the occurrence of such transactions.

The Ambiguity of Significantly Advantageous Transactions Law

The law prohibiting significantly advantageous transactions was established in 1996 to prevent favoritism, but its ambiguity makes it difficult to enforce.

The Fair Trade Commission imposed enormous fines on major conglomerates for unfair support actions, leading to a debate on the interpretation of the law.

The revision of the Commission's guidelines in 2011 tried to define what is considered substantially advantageous, but the ambiguity still remains, triggering a discussion on the concentration of volume and toll transactions.

The Complexities of Toll Transactions and Unfair Support Practices

Toll transactions, though seen as embarrassing, play a crucial role in connecting business partners and facilitating goods transport.

The Mister Pizza case of 2022 became a significant example of unfair support practices, particularly in terms of bulk transactions.

The case raised important questions about the advantageous nature of large volume transactions and ultimately led to a guilty verdict based on the significant transaction volume.

The Supreme Court's Unconventional Logic on Business Transactions

The Supreme Court's ruling disregarded the significance of quantity in business transactions, focusing instead on the initial amount secured.

The court's logic implies that any transaction providing a significant profit is considered markedly favorable, raising questions about breach of trust.

The discussion highlights a shift from trading conditions to the interests of shareholders in business transactions.

The Impact of Different Corporate Structures on Shareholder Profits

A 20-30% stakeholding company can conduct transactions through a private company or a 100% subsidiary, affecting where the profits go and ultimately, who benefits from the dividends.

The choice between a private company and a subsidiary can significantly impact the distribution of corporate value and dividends based on the shareholding ratio.

The discussion also involves the implications for corporate tax manipulation and the misguided nature of inter-company transactions over the past 30 years, as well as the distinction between ordinary profit transactions and capital transactions, with a focus on the legal significance of mergers as a transaction between shareholders.

The Complex Nature of Mergers and Shareholder Rights

Mergers can significantly impact shareholders' property rights, leading to intense arguments and complex decision-making.

The determination of merger ratios is crucial and can result in a decrease in ownership percentage for shareholders.

Directors' duty to serve the company becomes complicated during mergers, with the law providing little guidance, leading to potential conflicts of interest.

The fiduciary duties of directors are especially crucial in representing the interests of shareholders during mergers, as the determination of the merger ratio is essential for the process to proceed.

Managing Conflict of Interest in Corporate Mergers

Everland shareholders with shares in Samsung C&T must prove the fairness of procedures and actual conditions for the merger.

The suggestion is to have board members with conflicts of interest step aside, form an independent committee, and exclude major shareholders from the voting process.

The exclusion of major shareholders, such as Lee Jae-yong, is crucial to ensure fairness and avoid undue influence in the decision-making process.

The Impact of Loyalty to Shareholders on Merger Ratios

Loyalty to shareholders is crucial in determining the fairness of merger ratios.

The Capital Markets Act requires the use of a one-month average method for determining merger ratios, with no exceptions, while allowing some leeway for stock buybacks.

Court rulings on stock buybacks may not apply to all shareholders, and there is a deadline for exercising the right to request the purchase of shares.

The Significance of the DN Automotive and Donghwa Tire Merger

A significant merger is underway between DN Automotive and Donghwa Tire, with DN Automotive holding a 12.

The merger is causing dissatisfaction among Donghwa Tire shareholders due to perceived undervaluation and potential unfairness.

The high likelihood of the merger being approved, driven by the majority stake held by related parties, raises concerns about the fairness of the process for general shareholders.

Additionally, the differences in merger approval processes and compensation plans between the U.

and the relevant country further complicate the situation.

The Impact of Commercial Law on Mergers and Shareholder Loyalty

Stock trading problems persist due to the ease of mergers, requiring a more stringent commercial law.

The duty of loyalty has been extended to shareholders to ensure complete fairness, with a need for independent directors and exclusion of interested parties from voting.

Different countries handle mergers through their own laws, with the UK directly reviewing and assessing the fairness of mergers.

The Supreme Court's ruling on the volume of transactions and the interpretation of the law regarding major shareholders has sparked logical and emotional debate, highlighting the need for strict interpretation and discussions about judicial activism in correcting legal gaps.