Home | Databases | WorldLII | Search | Feedback Selected Statutes of the Republic of Korea

Act on the improvement of managerial structure and privatization of public enterprises

제20편 재정․경제일반 공기업의경영구조개선및민영화에관한법률

ACT ON THE IMPROVEMENT OF MANAGERIAL STRUCTURE AND PRIVATIZATION OF PUBLIC ENTERPRISES

Act No. 5379, Aug. 28, 1997

Amended by Act No. 5505, Jan. 13, 1998

Act No. 5689, Jan. 26, 1999

Act No. 5690, Jan. 29, 1999

Act No. 6607, Jan. 14, 2002

Act No. 6836, Dec. 30, 2002

Act No. 8050, Oct. 4, 2006

Act No. 8635, Aug. 3, 2007

Act No. 8852, Feb. 29, 2008

Act No. 9401, Jan. 30, 2009

Article 1 (Purpose)

The purpose of this Act is to contribute to the advancement of sound corporate culture and the equilibrated growth of the national economy by introducing an accountable management system, under which professional managers shall take full accountability for management, to public enterprises to improve the efficiency of business management and promoting expedited privatization, while preventing the concentration of economic power in the course of the promotion of privatization.

Article 2 (Enterprises Governed by this Act)

The following corporations (hereinafter referred to as "designated corporation") are governed by this Act: <AmendedbyActNo.5689,Jan.26,1999; Act No. 6607, Jan. 14, 2002>
1. The Korea Tobacco and Ginseng Corporation, converted into a stock
company under the Commercial Act pursuant to the now repealed Korea
Tobacco and Ginseng Corporation Act;
2. The Korea Telecommunications Corporation, converted into a stock company under the Commercial Act pursuant to the now repealed Korea

- 1 -

ACT ON THE IMPROVEMENT OF MANAGERIAL STRUCTURE AND PRIVATIZATION OF PUBLIC ENTERPRISES

Telecommunications Corporation Act;
3. The Korea Gas Corporation established pursuant to the Korea Gas
Corporation Act;
4. The Korea Heavy Industry and Construction Co. Ltd.;
5. The Incheon International Airport Corporation established pursuant to the Incheon International Airport Corporation Act;
6. The Korea Airports Corporation established pursuant to the Korea
Airports Corporation Act.

Article 3 (Relations to other Acts)

(1) This Act shall take precedence over other Acts when it applies to matters concerning the organization and shareholder rights of designated corporations and the sale of their stocks for privatization.
(2) The designated corporations under subparagraphs 1 through 3, 5, and
6 of Article 2 are not deemed government-invested institutions under the
Framework Act on the Management of Government-Invested Institutions.

<Amended by Act No. 5689, Jan. 26, 1999; Act No. 6607, Jan. 14, 2002>

(3) The designated corporations (except the Korea Gas Corporation) are
governed by the provisions applicable to stock companies of the Commercial
Act, except as otherwise provided for by this Act.
(4) The Korea Gas Corporation is governed by he Korea Gas Corporation
Act, except as otherwise provided for in this Act.

Article 4 (President)

(1) The President is appointed by the general meeting of shareholders. (2) The term of office for the President is three years, and the President shall not be removed from office during his/her term of office without any justifiable ground, except as provided for in Article 13 (3).
(3) The President is deemed the representative director for purposes of applying the Commercial Act.

Article 5 (Directors)

(1) Directors are classified into standing and non-standing directors and appointed by the general meeting of shareholders.
(2) The full number of standing directors, including the President, shall
be less than 50/100 of the full number of directors.
(3) The term of office for each director is three years, while the term of office for a non-standing director appointed as a successor to fill a vacancy
for non-standing director is the remaining term of office for the predecessor.

- 2 -

제20편 재정․경제일반 공기업의경영구조개선및민영화에관한법률

(4) A staggered system shall be established and operated to appoint 1/3
of the full number of non-standing directors each year.

Article 6 (Board of Directors)

(1) The President shall, by virtue of his/her authority or upon a request from 1/4 of incumbent directors or more, convene and preside over the board of directors.
(2) If the President is unable to participate in a resolution of the board of directors in accordance with this Act or unable to perform his/her duties as the chairperson of a directors' meeting due to any inevitable reason, the director designated by the articles of incorporation shall act on behalf of the President.

Article 7 (Remuneration for President and Standing Directors)

(1) The board of directors shall establish guidelines for remuneration for the President and standing directors and the payment method thereof through its resolution and report its resolution to the meeting of shareholders.
(2) Guidelines for remuneration under paragraph (1) shall be established to reflect business performance of the relevant designated corporation in determining the remuneration.
(3) Neither President nor standing directors shall participate in the resolution of a directors' meeting under paragraph (1).

Article 8 (Recommendation of Candidates for Directors)

(1) The President shall, when he/she intends to recommend a candidate for standing director, obtain consent from the board of directors. In such cases, no standing director, except the President, may participate in the resolution of a directors' meeting.
(2) Candidates for non-standing directors shall be recommended by shareholders or the council of shareholders, as stipulated by the articles of incorporation.

Article 9 (Qualification Requirements for Non-Standing Directors)

(1) To be qualified as a non-standing director, a person shall have specialized knowledge and experiences in economy, business administration, law, related technology, or other relevant area.
(2) Notwithstanding paragraph (1), any person who has a significant interest in a designated corporation is not qualified as a non-standing

- 3 -

ACT ON THE IMPROVEMENT OF MANAGERIAL STRUCTURE AND PRIVATIZATION OF PUBLIC ENTERPRISES

director of the corporation.
(3) The scope of persons who have a significant interest under paragraph
(2) shall be stipulated by the articles of incorporation.

Article 10 (Non-Standing Directors' Right to Demand Materials)

Any non-standing director may request the President to furnish him/her with materials necessary in his/her performance of duties. In such cases, the President shall comply with such request, unless there is any exceptional circumstance to the contrary.

Article 11 (Committee on Recommendation of President)

(1) Each designated corporation shall have a committee on recommendation of its President (hereinafter referred to as the "Committee") to recommend candidates for President.
(2) The committee shall be comprised of some of non-standing directors, one former or incumbent President prescribed by the articles of incorporation, and some non-governmental committee members commissioned by the board of directors (excluding executives and employees of the designated corporation and public officials). In such cases, the full number of members who participate in the Committee as non-standing members shall be a majority of the full number of the Committee members. (3) The number of non-standing directors who become members of the Committee pursuant to paragraph (2) shall not be more than 1/2 of the full number of non-standing directors.
(4) The Committee chairperson shall be appointed among non-standing directors. In such cases, neither the President nor standing directors may participate in the resolution of the board of directors.
(5) The Committee shall adopt resolutions by an affirmative vote of a majority of incumbent Committee members, excluding the Committee chairperson. In such cases, the Committee chairperson has no right to vote.
(6) Necessary matters concerning the organization and operation of the Committee and other relevant matters shall be prescribed by Presidential Decree, in addition to matters provided for by this Act.

Article 12 (Appointment of President)

(1) The President shall be appointed from among persons who have adequate knowledge about business administration and economy or experience in

- 4 -

제20편 재정․경제일반 공기업의경영구조개선및민영화에관한법률

business administration and who are competent as the Chief Executive
Officer.
(2) Each designated corporation shall give public notice through major
daily newspapers to invite candidates for the President and may conduct inquiries into candidates who are presumed to be competent for President,
or retain a specialized organization to conduct such inquiries vicariously,
in addition to the public notice.
(3) The Committee shall examine the persons who were invited pursuant to paragraph (2) in accordance with the guidelines determined by the board
of directors for the examination of candidates for President.
(4) In selecting candidates for the President, the committee shall negotiate with the persons who will be recommended as candidates for President
about terms and conditions of an agreement in connection with business goals determined by the board of directors and may amend the terms and
conditions determined by the board of directors in the course of negotiations,
if deemed necessary.
(5) The Committee shall submit a draft agreement to the general meeting of shareholders at the same time as it recommends a candidate for President
to the general meeting of shareholders in accordance with the results of the examination under paragraph (3) and the negotiations under paragraph
(4).
(6) No standing director, including President, may participate in a directors' meeting held to determine the guidelines for the examination of candidates
for President pursuant to paragraph (3), and the President may not
participate in a directors' meeting held to determine terms and conditions of an agreement on business goals pursuant to paragraph (4). In such
cases, the Committee chairperson shall take the chair of the directors'
meeting.

Article 13 (Agreement with President)

(1) A designated corporation shall, when a draft agreement submitted pursuant to Article 12 (5) is approved at a general meeting of shareholders, enter into the agreement with the President. In such cases, the Committee chairperson shall sign the agreement as the representative of the designated corporation.
(2) The board of directors may evaluate whether an agreement entered

- 5 -

ACT ON THE IMPROVEMENT OF MANAGERIAL STRUCTURE AND PRIVATIZATION OF PUBLIC ENTERPRISES

into with the President pursuant to paragraph (1) has been performed
or may retain a specialized organization to conduct such evaluation. In such cases, neither the President nor standing directors may participate
in a resolution adopted by the board of directors for such purpose.
(3) The board of directors may recommend the general meeting of shareholders to remove the President from his/her office, if it finds as
a result of the evaluation under paragraph (2) that his/her performance is not satisfactory in light of business goals. In such cases, neither the
President nor standing directors may participate in a resolution adopted
by the board of directors for such purpose.

Article 14 (Organization of Council of Shareholders)

(1) Any designated corporation may organize and operate a council of shareholders with some shareholders in cases specified by Presidential Decree as deemed necessary for the efficient operation of general meetings of shareholders.
(2) Necessary matters concerning the qualification of members of a council of shareholders and the operation of the council and other relevant matters shall be stipulated by the articles of incorporation.

Article 15 (Special Exception to Audit by Board of Audit and Inspection of Korea)

No designated corporation shall be subject to any inspection under Article
24 (1) 3 of the Board of Audit and Inspection Act, except where a mishap
has occurred or where there is any specific indication that a mishap has occurred.

Article 16 (Government's Exercise of Shareholders' Rights)

(1) The shareholders' rights of stocks issued by a designated corporation and owned by the Government shall be exercised by the competent Minister, subject to prior consultation with the Minister of Strategy and Finance.

<Amended by Act No. 8852, Feb. 29, 2008>

(2) Necessary matters concerning the consultation under paragraph (1)
shall be prescribed by Presidential Decree.

Article 17 (Exercise of Minority Shareholders' Rights)

Articles 191-13 and 191-14 of the Securities and Exchange Act shall apply mutatis mutandis to the exercise of minority shareholders' rights and shareholders' proposals, even in cases where stocks of a designated corporation have not been listed on the stock market.

- 6 -

제20편 재정․경제일반 공기업의경영구조개선및민영화에관한법률

Article 18 (Limitations on Holdings of Stocks by Same Person)

(1) One shareholder and persons who have a special relationship defined by Presidential Decree with the shareholder (hereinafter referred to as "the same person") are not allowed to hold stocks in excess of the ratio specified by the articles of incorporation within the limit of 15/100 of the total number of outstanding voting stocks of a designated corporation or have defacto control over the corporation. <AmendedbyActNo.5690,Jan.29,

1999>

(2) Where the same person holds stocks in excess of the limit prescribed in paragraph (1) or has defacto control, the same person shall dispose of the excess stocks without delay. In such cases, the extent of excisable voting rights of stocks before disposal of such excess stocks is restricted
to the limit prescribed in paragraph (1).
(3) Cases where the same person holds stocks or has de facto control,
as referred to in paragraphs (1) and (2), mean cases where the same
person holds stocks in his/her own name or any other person's name or exercises voting rights in collusion with someone.

Article 19 (Limitations on Holdings of Stocks by Foreigners)

(1) Limitations may be placed by the articles of incorporation on the acquisition by foreigners or foreign corporations of stocks of a designated corporation in addition to the limits under Article 18 (1).
(2) Article 18 (2) shall apply mutatismutandisto any foreigner or foreign
corporation who holds stocks in excess of limits prescribed by the articles of incorporation pursuant to paragraph (1) or has defactocontrol. <Newly

Inserted by Act No. 5690, Jan. 29, 1999>

Article 20 (Methods of Selling Stocks)

(1) Stocks held by the Government, any government-invested institution, or the Korea Development Bank established pursuant to the Korea Development Bank Act (hereinafter referred to as the "Government, etc.") may be sold by entrusting a financial institution, an investment trader or broker, or any similar institution specified by Presidential Decree with the sale of stocks or retaining such institution as an agent for the sale of stocks. <Amended by Act No. 8635, Aug. 3, 2007>
(2) In selling stocks held by the Government, etc., the Minister of Strategy and Finance may place limitations on the qualifications of persons who

- 7 -

ACT ON THE IMPROVEMENT OF MANAGERIAL STRUCTURE AND PRIVATIZATION OF PUBLIC ENTERPRISES

are eligible for purchasing such stocks and the number of stocks allowed
for purchasing, if he/she concludes that it is necessary for the mitigation of an impact on the stock market, the wide distribution of stocks, or the
improvement of competitiveness in international markets of the designated corporation involved. <AmendedbyActNo.5690,Jan.29,1999;ActNo.8852,Feb.

29, 2008>

(3) The Government, etc. may sell stocks of a designated corporation preferentially to the employee stock ownership association of the corporation
within the extent not exceeding the limit under Article 18 (1) upon the
demand from members of the employee stock ownership association. (4) Article 191-7 (3) of the Securities and Exchange Act shall not apply

mutatismutandis to the allocation of stocks to members of an employee

stock onwership association and the disposal of stocks when such stocks
are sold pursuant to paragraph (3).
(5) Expenses required for a sale of stocks held by the Government, etc.
pursuant to paragraph (1) may be disbursed out of proceeds from the sale, notwithstanding the National Finance Act and the Management of the
National Funds Act. <AmendedbyActNo.6836,Dec.30,2002;ActNo.8050,Oct.

4, 2006>

Article 21 (Exclusion from Application)

(1) If any designated corporation under subparagraph 1 through 3 of Article
2 satisfies the following requirements, the corporation shall no longer be governed by this Act on and after the date of the first general meeting
of shareholders held after satisfying the requirements:
1. The ratio of voting stocks held by the Government, etc. does not exceed the limit prescribed in Article 18 (1);
2. The ratio of voting stocks held by the same person, who is not the
Government, etc. is greater than the ratio of such stocks held by the
Government, etc.
(2) Any person who acquires stocks of the Korea Heavy Industry and
Constructions Company, Ltd. through a public tender of sale of stocks held by the Government, etc. is not governed by Articles 18 and 19, while
one and the same person and the following persons shall no longer be governed by this Act on and after the date of the first general meeting
of shareholders held after the ratio of voting stocks held by the same person
and the persons falling under each of the following subparagraphs reaches

- 8 -

제20편 재정․경제일반 공기업의경영구조개선및민영화에관한법률

or exceeds 51/100 of the total number of outstanding voting stocks:
1. Persons who intend to jointly participate in capital or management under an agreement;
2. Persons who have a special relationship defined by Presidential Decree pursuant to Article 18 (1) with those under subparagraph 1.
(3) Article 18 shall not apply to contributions in kind by the Government
to the Korea Development Bank, the Export-Import Bank of Korea, or the Industrial Bank of Korea pursuant to the State Property Act. <Amended

by Act No. 9401, Jan. 30, 2009>

[This Article Newly Inserted by Act No. 5690, Jan. 29, 1999]

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on October 1, 1997.

Article 2 Deleted. <by Act No. 5690, Jan. 29, 1999>

Article 3 (Recommendation of First Non-Standing Directors)

(1) The competent Ministry for each designated corporation shall form an adhoc committee for the recommendation of non-standing directors to have the committee select persons recommendable for first non-standing directors (hereinafter referred to as "selectees as non-standing directors"). (2) Members of the adhoccommittee for the recommendation of non-standing directors under paragraph (1) shall be comprised of the representative of shareholders, non-governmental members who have specialized
knowledge about the area relating to the relevant designated corporation, and public officials from competent central administrative agencies.
(3) Necessary matters concerning the organization and operation of an

adhoccommittee for the recommendation of non-standing directors shall

be prescribed by Presidential Decree.
(4) An adhoccommittee for the recommendation of non-standing directors
shall recommend selectees as non-standing directors to the general meeting
of shareholders as candidates for non-standing directors.
(5) An adhoccommittee for the recommendation of non-standing directors
shall, when it recommends selectees as non-standing directors as candidates
for non-standing directors pursuant to Article 5 (3), divide the full number of non-standing directors into three equal parts and recommend

- 9 -

ACT ON THE IMPROVEMENT OF MANAGERIAL STRUCTURE AND PRIVATIZATION OF PUBLIC ENTERPRISES

non-standing directors for the terms of one year, two years, and three
years, respectively. In such cases, if it is impossible to divide the full number of non-standing directors into three equal parts, more directors
for the longer term shall be recommended than those for the shorter term.

Article 4 (Appointment of First President)

(1) An adhoc committee for the recommendation of the President shall
be organized for the recommendation of candidates for the President who
shall be first appointed by the general meeting of shareholders after this
Act enters into force.
(2) Articles 11 and 12 shall apply mutatismutandisto the organization
and operation of an adhoccommittee for the recommendation of the President
under paragraph (1) and the appointment of the first President. In such cases, the term "non-standing directors" shall be construed as "selectees
as non-standing directors," and the term "board of directors" as "meeting of selectees as non-standing directors."

Article 5 (Special Cases concerning Existing Executives of Designated

Corporations)

(1) The term of office for the chairperson of each designated corporation at the time when this Act enters into force is deemed to expire simultaneously when this Act enters into force.
(2) The President, directors, and auditors of each designated corporation
at the time when this Act enters into force are deemed the President, directors, and auditors under this Act, but the term of office for each of
them ends when the President, directors, and auditors are newly appointed
by a general meeting of shareholders under this Act.

Articles 6 and 7 Deleted. <by Act No. 5690, Jan. 29, 1999>

ADDENDA <Act No. 5505, Jan. 13, 1998>

(1) (Enforcement Date) This Act shall enter into force on April 1, 1998: Provided, That ... <Omitted> ... the amended provisions of Article 6 (3) of the Addenda to the Act on the Improvement of Managerial Structure and Privatization of Public Enterprises (Act No. 5379) shall enter into force on the date of its promulgation.
(2) through (5) Omitted.

- 10 -

제20편 재정․경제일반 공기업의경영구조개선및민영화에관한법률

ADDENDA <Act No. 5689, Jan. 26, 1999>

Article 1 (Enforcement Date)

This Act shall enter into force on February 1, 1999. (Proviso Omitted.)

Articles 2 through 10 Omitted.

ADDENDA <Act No. 5690, Jan. 29, 1999>

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation.

Article 2 (Special Cases concerning Limitations on Holdings of Stocks) (1) Article 18 (2) shall not apply to any person who holds stocks of a designated corporation in excess of the limit prescribed in the amended provisions of paragraph (1) of the aforesaid Article at the time when this Act enters into force.

(2) No person specified in paragraph (1) shall acquire stocks of a designated corporation additionally after this Act enters into force in excess of the ratio of stocks held by him/her at the time when this Act enters into force.

ADDENDA <Act No. 6607, Jan. 14, 2002>

Article 1 (Enforcement Date)

This Act shall enter into force on March 2, 2002. (Proviso Omitted.)

Articles 2 through 9 Omitted.

ADDENDA <Act No. 6836, Dec. 30, 2002>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 2003.

Articles 2 through 7 Omitted.

ADDENDA <Act No. 8050, Oct. 4, 2006>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 2007. (Proviso Omitted.)

Articles 2 through 12 Omitted.

ADDENDA <Act No. 8635, Aug. 3, 2007>

Article 1 (Enforcement Date)

- 11 -

ACT ON THE IMPROVEMENT OF MANAGERIAL STRUCTURE AND PRIVATIZATION OF PUBLIC ENTERPRISES

This Act shall enter into force one year and six months after the date
of its promulgation. (Proviso Omitted.)

Articles 2 through 44 Omitted.

ADDENDA <Act No. 8852, Feb. 29, 2008>

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation. (Proviso
Omitted.)

Articles 2 through 7 Omitted.

ADDENDA <Act No. 9401, Jan. 30, 2009>

Article 1 (Enforcement Date)

This Act shall enter into force six months after the date of its promulgation. (Proviso Omitted.)

Articles 2 through 11 Omitted.

- 12 -