Qualifications of Director Under the Korean Commercial Code(KCC), except for an outside director, there are no limitations in terms of qualifications for a director.
Role and Authority of Director While the day-to-day operations are managed by a representative director, the Board of directors (if applicable) should resolve all “important matters concerning the management of the company”. Under the KCC, generally, a director of a company has the following authority:
To audit the other directors, including the representative director;
To request that the management provide information relating to the company;
To access financial books or other important documents of the company; and
To bring a lawsuit in accordance with the KCC.
3. Duties of Director Under the KCC, the directors of a Korean company have various duties towards the company, which include, among others, the followings:
Duty of Care: The KCC describes the relationship between a director and the company as a “mandate,” which is equivalent to a delegation under the Korean Civil Code. Accordingly, directors are deemed to be fiduciaries and are considered to owe a duty of due care to their company, the applicable standard of care being that of a good manager. It is generally understood that directors are required to act with care on the basis of their actual knowledge and such knowledge as they should have gained by reasonable care and skill.
Duty of Loyalty: The directors of a company must perform their duties faithfully for the benefit of the company in accordance with applicable laws and regulations and the Articles of Incorporation (“AOI”). In that regard, the Korean Supreme Court has held that such duty requires directors to act in the best interest of the company as opposed to the shareholder(s) of the company.
Duty of Confidentiality: The directors of a company have an obligation not to disclose any confidential information regarding the company’s business during and after their term of service with the company.
Duty Not to Compete with the Company: No director may, without the approval of the Board, be involved in a transaction falling under the scope of the business of the company for (i) his/her own account or (ii) the account of a third party where the interest of the company and the director may conflict (e.g., usurping a corporate opportunity from the company). Duty as to Transactions between Director and Company (Self Dealing): Under the KCC, an approval of more than two-thirds of all directors (excluding the interested director) is required for transactions between a director and the company for the account of such director or a third party that may harm the interest of the company (e.g., selfdealing).
Duty Not to Usurp Corporate Opportunity: Under the KCC, a director is restricted from utilizing or causing third parties to utilize business opportunities by taking advantage of information that he/she has obtained during his/her employment or a business opportunity that is closely connected to business of the company, unless approved by more than two-thirds of the members of the Board (excluding the interested director)
4. Liabilities of Director A breach of the above discussed duties by a director may subject such director to civil and/or criminal liability, as discussed further below.
Liability to Compensate for Damages Incurred By the Company : Under the KCC, if the directors of a company act in contravention of the requirements of laws, government regulations or the AOI, or if they neglect to perform their duties, they will be jointly and severally liable for damages incurred by the company as a result thereof.
Liability towards Third Parties: In order to protect third parties, the KCC provide that a director of a company will be liable to a third party for any damages suffered by the third party as a result of the director’s breach of his/her fiduciary duties to the company if such breach results from wrongful intent or gross negligence.
Criminal Liability: As discussed above, under the KCC, the directors of a Korean company owe a duty of care towards the company, pursuant to which the directors must perform their duties in good faith and in the best interests of the company in accordance with applicable laws and the company’s AOI.
In this regard, a director could be exposed to certain criminal liabilities (as well as civil liabilities) in case of a breach of his/her duties which may constitute a breach of trust under the Korean Criminal Code. Please note that, for a director to be found criminally liable, it must be shown that he/she (i) acted with “intent” and (ii) either benefited himself or herself or caused a third party (e.g., shareholders) to benefit, resulting in damages or “threatened damages” to the company. When a director is found criminally liable, then such director may be subject to imprisonment of up to 10 years and/or criminal fine of up to KRW 30 million.
*This article is extracted from Invest KOREA Magazine, February 2022.
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