Article 18(Restrictions on acts by holding companies) #
(1) The terms used in this Article are defined as follows:
1. The term "joint stock corporation" means a corporation in which two or more investors (any person other than a person prescribed by Presidential Decree, among investors in a relationship as related parties, shall be deemed a single person) who own substantial amounts of equity that entitle them to exercise influence on corporate management, substantially restrict the transfer of equity shares by means of a contract or other equivalent means, thereby making it impracticable to make any changes in equity shares owned by investors;
2. The term "venture holding company" means a holding company meeting the criteria prescribed by Presidential Decree, which has a venture business or a small and medium enterprise prescribed by Presidential Decree as its subsidiary.
(2) No holding company shall perform any of the following acts: <Amended on Jan. 21, 2025>
1. Holding liabilities in excess of twice the total capital (referring to the total assets minus the amount of liabilities, as presented on the statement of financial position; hereinafter the same shall apply); provided, where a holding company holds liabilities in excess of twice its total capital as at the time the company is converted into, or incorporated as, a holding company, it may hold liabilities in excess of twice its total capital for two years from the date it is converted into, or incorporated as, a holding company;
2. Owning less than 50/100 of the total number of shares issued by its subsidiary (it shall be 30/100 where the subsidiary is a listed corporation, a corporation listed on foreign stock exchanges publicly notified by the Fair Trade Commission whose listing requirements, such as the diversification of stock ownership, are equivalent to the listing requirements on the domestic securities market prescribed by Presidential Decree as a securities market under the Financial Investment Services and Capital Markets Act (hereinafter referred to as "overseas listed corporation"), or a joint stock corporation; and it shall be 20/100 in cases of a subsidiary of a venture holding company; hereafter in this Article referred to as the "subsidiary shareholding standards"); provided, this shall not apply to any holding company that falls short of the subsidiary shareholding standards on any of the following grounds:
(a) Where a holding company owns shares of its subsidiary, falling short of the subsidiary shareholding standards, as at the time it is converted into, or incorporated as, a holding company, and it is within two years from the date such company is converted into, or incorporated as, a holding company;
(b) Where a holding company ceases to meet the subsidiary shareholding standards as its subsidiary that was a listed corporation, an overseas listed corporation, or a joint stock corporation ceases to be such corporation, and it is within one year from the date the subsidiary ceases to be such corporation;
(c) Where a company that was a venture holding company ceases to be such holding company and thereby ceases to meet the subsidiary shareholding standards, and it is within one year from the date it ceases to be such holding company;
(d) Where a holding company ceases to meet the subsidiary shareholding standards; as its subsidiary allots shares to the members of the employee stock ownership association pursuant to Article 165-7 of the Financial Investment Services and Capital Markets Act while offering and selling shares, or a claim is filed for converting convertible bonds or bonds with warrant issued by its subsidiary pursuant to Article 513 or 516-2 of the Commercial Act or the preemptive right is exercised; and it is within one year from the date the holding company ceases to meet such standards;
(e) Where a non-subsidiary becomes a subsidiary of a holding company and thereby the holding company falls short of the subsidiary shareholding standards, and it is within one year from the date the non-subsidiary becomes its subsidiary;
(f) Where a holding company ceases to meet the subsidiary shareholding standards in the course of making its subsidiary become a non-subsidiary, and it is within one year from the date it ceases to meet such standards (limited to where the subsidiary becomes a non-subsidiary within the same period);
(g) Where a holding company ceases to meet the subsidiary shareholding standards as its subsidiary has merged with another company, and it is within one year from the date it ceases to meet such standards;
3. Owning shares of a domestic non-affiliate (excluding a company that operates a private investment project in the manner prescribed in subparagraphs 1 through 4 of Article 4 of the Act on Public-Private Partnerships in Infrastructure; hereafter in this subparagraph, the same shall apply) in excess of 5/100 of the total number of shares issued by the domestic company (not applicable to a venture holding company, or a holding company that owns shares of any domestic non-affiliate, the total value of which is less than 15/100 of the total value of the shares of its subsidiaries); or owning shares of a domestic affiliate other than its subsidiary; provided, this shall not apply to either any domestic non-affiliate or any domestic affiliate that owns shares on any of the following grounds:
(a) Where a holding company owns shares as prescribed in the main clause of this subparagraph as at the time it is converted into, or incorporated as, a holding company, and it is within two years from the date it is converted into, or incorporated as, a holding company;
(b) Where it is within one year from the date a holding company owns shares as prescribed in the main clause of this subparagraph in the course of making a non-affiliate become its subsidiary (limited to where the non-affiliate becomes its subsidiary within the same period);
(c) Where a holding company makes a domestic affiliate whose shares are not owned by the company become its subsidiary, during which the holding company acquires shares of the domestic affiliate; and it is within one year from the date the holding company acquires such shares (limited to where the affiliate becomes its subsidiary within the same period);
(d) Where it is within one year from the date a subsidiary of a holding company is excluded from its subsidiaries in the course of making the subsidiary become a non-subsidiary;
4. Owning shares of a domestic company that is not a company engaging in financial business or insurance business (including a company meeting the criteria prescribed by Presidential Decree, such as having a close relationship to financial business or insurance business) in cases of a holding company that owns shares of its subsidiary engaging in financial business or insurance business (hereinafter referred to as "financial holding company"); provided, if the holding company owns shares of a domestic company other than a company engaging in financial business or insurance business as at the time of conversion into, or incorporation as, a financial holding company, the holding company may own the shares of the domestic company for two years from the date of conversion into, or incorporation as, a financial holding company;
5. Owning shares of a domestic company engaging in financial business or insurance business in cases of a holding company that is not a financial holding company (hereinafter referred to as "general holding company"); provided, if the holding company owns shares of a domestic company engaging in financial business or insurance business as at the time of conversion into, or incorporation as, a general holding company, the holding company may own the shares of the domestic company for two years from the date of conversion into, or incorporation as, a general holding company.
(3) None of the subsidiaries of a general holding company shall perform any of the following acts:
1. Owning less than 50/100 of the total number of shares issued by its second-tier subsidiary (it shall be 30/100 where the second-tier subsidiary is a listed corporation, an overseas listed corporation, or a joint stock corporation; and it shall be 20/100 in cases of a subsidiary of a venture holding company (limited to a venture holding company that is a subsidiary of a general holding company); hereafter in this Article referred to as the "second-tier subsidiary shareholding standards"); provided, this shall not apply to any subsidiary that falls short of the second-tier subsidiary shareholding standards on any of the following grounds:
(a) Where a company owns shares of a second-tier subsidiary, falling short of the second-tier subsidiary shareholding standards, as at the time it becomes a subsidiary; and it is within two years from the date it becomes a subsidiary;
(b) Where a subsidiary of a general holding company ceases to meet the second-tier subsidiary shareholding standards as its second-tier subsidiary that was a listed corporation, an overseas listed corporation, or a joint stock corporation ceases to be such corporation, and it is within one year from the date the second-tier subsidiary ceases to be such corporation;
(c) Where a subsidiary of a general holding company ceases to be a venture holding company and thereby ceases to meet the second-tier subsidiary shareholding standards, and it is within one year from the date such subsidiary ceases to be a venture holding company;
(d) Where a subsidiary of a general holding company ceases to meet the second-tier subsidiary shareholding standards, as its second-tier subsidiary preferentially allots shares to the employee stock ownership association pursuant to Article 165-7 of the Financial Investment Services and Capital Markets Act while offering and selling shares, or a claim is filed for converting convertible bonds or bonds with warrant issued by its second-tier subsidiary pursuant to Article 513 or 516-2 of the Commercial Act or the preemptive right is exercised; and it is within one year from the date the subsidiary ceases to meet such standards;
(e) Where a company that was not a second-tier subsidiary becomes a second-tier subsidiary and the second-tier subsidiary shareholding standards ceases to be met, and it is within one year from the date the company becomes a second-tier subsidiary;
(f) Where the second-tier subsidiary shareholding standards cease to be met in the course of making a second-tier subsidiary become a non second-tier subsidiary, and it is within 1 year from the date such standards cease to be met (limited to where the second-tier subsidiary becomes a non second-tier subsidiary within the same period);
(g) Where it is within one year from the date the second-tier subsidiary shareholding standards ceases to be met as a second-tier subsidiary merges with another company;
2. Owning shares of a domestic affiliate that is not a second-tier subsidiary; provided, this shall not apply to any subsidiary of a general holding company that owns shares of a domestic affiliate on any of the following grounds:
(a) Where a subsidiary owns shares of a domestic affiliate as at the time it becomes a subsidiary, and it is within two years from the date it becomes a subsidiary;
(b) Where it is within one year, while making a non-affiliate become a second-tier subsidiary, from the date the non-affiliate becomes an affiliate (limited to where the company becomes a second-tier subsidiary within the same period);
(c) Where a subsidiary makes a domestic affiliate whose shares are not owned by the subsidiary become a second-tier subsidiary, during which the subsidiary acquires shares of the domestic affiliate; and it is within one year from the date the subsidiary acquires such shares (limited to where the domestic affiliate becomes a second-tier subsidiary within the same period);
(d) Where it is within one year from the date a second-tier subsidiary is excluded from second-tier subsidiaries (limited to where the second-tier subsidiary ceases to be an affiliate within the same period), in the course of making the second-tier subsidiary become a non-second-tier subsidiary;
(e) Where a second-tier subsidiary acquires shares of another subsidiary due to its merger with such subsidiary, and it is within one year from the date the second-tier subsidiary acquires such shares;
(f) Where a subsidiary that holds its own shares acquires shares of another domestic affiliate due to corporate division, and it is within one year from the date the subsidiary acquires such shares;
3. Controlling a company engaging in financial business or insurance business as a second-tier subsidiary; provided, where a company controls another company engaging in financial business or insurance business as a second-tier subsidiary as at the time it becomes a subsidiary of a general holding company, it may control the second-tier subsidiary for two years from the date it becomes a subsidiary.
(4) None of the second-tier subsidiaries of a general holding company shall own shares of a domestic affiliate; provided, this shall not apply in any of the following cases:
1. Where a company owns shares of a domestic affiliate as at the time such company becomes a second-tier subsidiary, and it is within two years from the date the company becomes a second-tier subsidiary;
2. Where a domestic non-affiliate whose shares are owned by a third-tier subsidiary becomes an affiliate, and it is within one year from the date such company becomes an affiliate;
3. Where it is within one year from the date a second-tier subsidiary that owns its own shares acquires shares of another domestic affiliate due to corporate division;
4. Where a second-tier subsidiary owns the total number of shares issued by a domestic affiliate (excluding a company engaging in financial business or insurance business);
5. Where a second-tier subsidiary is a venture holding company, and such second-tier subsidiary owns at least 50/100 of the total number of shares issued by a domestic affiliate (excluding a company engaging in financial business or insurance business).
(5) No company whose shares are owned by a second-tier subsidiary pursuant to paragraph (4) 4 or 5 (hereinafter referred to as "third-tier subsidiary") shall own shares of a domestic affiliate; provided, this shall not apply in any of the following cases:
1. Where a company owns shares of a domestic affiliate as at the time such company becomes a third-tier subsidiary, and it is within two years from the date the company becomes a third-tier subsidiary;
2. Where a domestic non-affiliate whose shares are owned by a third-tier subsidiary becomes an affiliate, and it is within one year from the date such company becomes an affiliate;
3. Where a company that was a venture holding company, which is a second-tier subsidiary of a general holding company, ceases to meet the standards under paragraph (1) 2 and thereby ceases to meet the shareholding standards under paragraph (4) 5, and it is within one year from the date such company ceases to meet the standards.
(6) For the purpose of the proviso of paragraph (2) 1, subparagraphs 2 (a) and 3 (a) of paragraph (2), the provisos of subparagraphs 4 and 5 of paragraph (2), paragraph (3) 1 (a) and 2 (a), the proviso of subparagraph 3 of paragraph (3), and paragraphs (4) 1 and (5) 1; the grace period provided in each applicable provision may be extended by two years with the approval of the Fair Trade Commission, where it is impracticable to reduce the amount of debt or acquire or dispose of shares due to changes in economic conditions such as stock price fluctuations, a contract prohibiting the disposal of shares, substantial business loss, or other grounds.
(7) A holding company shall submit to the Fair Trade Commission a report on the details of its business, such as the current status of shareholdings of the holding company, and its subsidiaries, second-tier subsidiaries, and third-tier subsidiaries (hereinafter referred to as "holding company, etc.") and their financial standings, as prescribed by Presidential Decree.