Contents
1. Laws
Commercial Act
The Act was enacted on January 20, 1962 and came into effect on January 1, 1963. Divided into five parts, such as General Provisions, Commerical Activities, Companies, Insurance and Maritime Commerce, it is administered by the Ministry of Justice. It has gone through eleven amendments, the latest one on December 29, 2001, to get to its present form.
Securities and Exchange Act
Administered by the Financial Supervisory Commission, the Act was wholly amended on December 22, 1976, and has consequently been amended 24 times, with the latest one occurring on July 29, 2005.
New securities class-action law (January 2005)
On January 1, 2005, Korea's new class-action law came into effect. The law applies to publicly traded companies whose total asset base as of December 31, 2004 was more than Won 2 trillion (US$1.98 billion). For those companies with assets below that amount, the new law takes effect on January 1, 2007. However, the law applies to any publicly traded company that is found guilty of insider trading and manipulating the market.
A class-action suit can be filed against a company listed and traded in the KSE or KOSDAQ for these reasons:
- False disclosure in the company’s prospectuses, or its quarterly, semi-annual or annual reports;
- Insider trading & market manipulation;
- Negligent external audit.
In order to discourage frivolous class-action suits, lead plaintiffs or plaintiff attorneys who have been in three class-action suits over a three-year period are in principle barred from another class-action suit unless the court determines otherwise.
A primer from the Financial Supervisory Service answers basic questions about the law.
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2. Accounting Standards
Statements of Korea Accounting Standards
The Korea Accounting Institute has been the institution responsible for the standard-setting, revision and interpretation of Korea Accounting Standards (KASs) since July 2000. In turn, the Korea Accounting Standards Board (KASB) is the standards-setting body of the KAI, which issues new Statements of Korea Accounting Standards (SKASs) or revises existing Korea Accounting Standards (KASs).
As of January 2006, non-Korean listed companies on the Korea Exchange are allowed to use either International Financial Reporting Standards (IFRSs) or US Generally Accepted Accounting Principles (GAAP) rather than Korea Accounting Standards for financial reporting.
IASPlus: www.iasplus.com
IAS Plus, a website run by Deloitte, provides the latest news on accounting standards in Korea.
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3. Official Codes and Guidelines
First Korea Corporate Governance Code, 1999
In September 1999, Korea released its first "Code of Best Practice for Corporate Governance". The product of a mixed group of academics, businessmen and securities officials, the Code states that its aim is to "maximize corporate value by enhancing the transparency and efficiency of corporations for the future". It draws heavily on global standards of corporate governance, but also tries to take into account the "special managerial circumstances that Korean corporations face" (eg, in their labour and social relations).
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