Detailed Criteria Announced for Restricting Dual Listings: Procedural Duties of Parent Company Boards and Special Listing Review Criteria for Subsidiaries

This newsletter outlines the new regulatory framework, the scope of regulated dual listings, the procedural obligations imposed on parent company boards, the special listing review criteria applicable to subsidiary listings, and the key practical considerations for companies contemplating a dual listing.

Shift in the Regulatory Framework

• Follow-up to the Capital Market Reform Initiative: The proposed amendments constitute a follow-up measure to the Capital Market Reform Initiative announced on 18 March 2026. Following the public consultation period ending on 14 July 2026, the amendments are expected to become effective upon approval by the Securities and Futures Commission and the FSC. Once effective, they will apply to companies submitting applications for preliminary listing review on or after the effective date.
• The Two-Tier Regulatory Framework: The proposed regime regulates dual listings through two complementary mechanisms: i) Procedural obligations imposed on the board of the parent company; and ii) Special listing review criteria applied during the subsidiary’s listing review in addition to the general listing requirements. The accompanying Guidelines provide detailed interpretative standards, illustrative review cases, and practical examples, and are expected to be updated on a semi-annual basis to reflect evolving market practice.
• Alignment with the Amended Korean Commercial Act: The proposed amendments implement, within Korea’s listing and disclosure framework, the recently expanded fiduciary duties of directors under the amended Korean Commercial Act, which expressly recognize duties owed to shareholders. Accordingly, the listing of a subsidiary is no longer viewed merely as a matter for the subsidiary’s own board of directors. Instead, it is treated as an exceptional transaction that may proceed only after the parent company has implemented appropriate procedures to safeguard the interests of its shareholders.

Scope of Dual Listings Subject to Regulation

• General Principle: The proposed framework applies where a listed company (the “Parent Company”) seeks to list an unlisted company (the “Subsidiary”) that it effectively controls or that constitutes part of the same economic enterprise, regardless of whether the relationship resulted from a spin-off, acquisition, incorporation, or any other corporate restructuring.
• Companies Covered: The rules generally apply to: (i) subsidiaries included in the Parent Company’s consolidated financial statements under the External Audit Act; (ii) affiliated companies within a vertical control structure under the Monopoly Regulation and Fair Trade Act, including companies in which the Parent Company directly owns at least 20% of the shares or where intermediate affiliates hold more than 50% ownership; and (iii) companies that fell within either of the above categories within one year prior to the proposed listing, preventing circumvention of the regulations through restructuring. Where multiple listed companies exist within a vertically integrated corporate group, each listed company may be treated as a Parent Company for purposes of the new framework.
• Transactions Included: The proposed regulations apply broadly to: i) initial public offerings (IPOs); ii) reverse listings; iii) SPAC mergers; and iv) overseas listings of subsidiaries. Equivalent amendments will also be introduced to the KOSDAQ Market Listing Regulations.
• Transactions Excluded: The proposed rules do not apply to: i) listings of companies newly established through a pure share spin-off; ii) listings of a parent company after its subsidiary has already become listed; iii) domestic listings of subsidiaries whose parent companies are listed solely on overseas exchanges; or iv) listings on the KONEX Market.

Five Key Duties of the Parent Company’s Board and the Special Committee

• Five Core Obligations of the Parent Company’s Board: The parent company’s board must perform the following duties (new Article 78-2 of the Listing Regulations): (i) a shareholder impact assessment (a comprehensive assessment of, among other things, share-price discount, changes in equity value, expected dividend income, and changes in the subsidiary’s corporate value); (ii) formulation of shareholder-protection measures (a feasible plan with specified timing and conditions of implementation—such as cash dividends, retirement of treasury shares, in-kind distribution of the subsidiary’s shares, a corporate value-enhancement (“value-up”) plan, and an undertaking not to carry out further divisions or listings); (iii) shareholder engagement or confirmation of shareholder consent; (iv) a final resolution for or against, and notice to the subsidiary; and (v) stage-by-stage disclosure. These duties apply equally where the subsidiary is to be listed on an overseas exchange.
• Independent Special Committee: To ensure the fairness and integrity of the decision-making process, the proposed amendments require the establishment of an independent Special Committee within the Parent Company’s board. The committee must review and approve key matters before they are submitted to the full board. It must consist of at least three members, comprising directors and/or qualified external experts meeting the statutory requirements under the Korean Commercial Act. The committee must either: i) be chaired by an Independent Director (the new statutory designation replacing “outside director” under the amended Korean Commercial Act, effective 23 July 2026); or ii) consist of at least two-thirds Independent Directors and external experts. In addition, the committee must be able to retain independent professional advisers at the company’s expense whenever necessary.
• Implementation Process and Sanctions: The proposed framework contemplates the following sequence: 1) Board approval of the shareholder impact assessment and shareholder protection measures, followed by public disclosure; 2) Shareholder engagement or confirmation of shareholder approval; 3) Final board resolution, notification to the subsidiary, and disclosure of the results; and 4) Submission of the application for preliminary listing review. Failure to comply with the shareholder protection obligations before listing a subsidiary—including an overseas listing—may result in: i) contractual penalties of up to KRW 1 billion under the listing agreement; ii) suspension of trading in the Parent Company’s shares for one trading day; and iii) additional sanctions, including monetary penalties and demerit points, for violations of the disclosure requirements.

Special Listing Review Criteria for Subsidiary Listings

• Business and Management Independence: At the subsidiary listing-review stage, the special review criteria apply in addition to the general listing requirements, and a failure to satisfy any one of them may result in the listing not being approved. Business independence is reviewed on the basis of the similarity, autonomy, and degree of dependence of the subsidiary’s business relative to the Parent. In particular, where 50% or more of the subsidiary’s sales or purchases arise from the Parent, the subsidiary is presumed to lack independence—although an exception is allowed where, for example, the vertical integration is shown to be unavoidable. Management independence is assessed comprehensively, taking into account matters such as concurrent officeholding, whether an autonomous management organization has been established, and whether major management matters are in substance deliberated and resolved by the subsidiary’s own internal decision-making bodies.
• Investor Protection and Shareholder Approval: The investor-protection requirement calls for the parent board’s performance of its five duties, a final resolution in favor, and shareholder-protection efforts commensurate with the need to protect general shareholders. The Guideline recommends shareholder consent as, in principle, the most direct means of demonstrating this, and applies—as the standard for recognition—a “3% rule” analogous to that governing the appointment of audit committee members under the Commercial Act. That is, voting rights in excess of 3% are restricted (for the largest shareholder, the holdings of specially related persons are aggregated), and approval requires a majority of the voting rights present together with at least one-quarter of the total issued shares; even where electronic voting is conducted, the one-quarter requirement is not waived, and shares exceeding 3% are excluded from the calculation of the total issued shares (applying, by analogy, the legal principle of Supreme Court Decision No. 2016Da222996). A Majority-of-Minority (MoM) approach—which would require the consent of a majority of general shareholders—was not adopted, given the potential for it to conflict with the principle of shareholder equality.
• Different Standards Depending on the Type of Subsidiary: (i) For a subsidiary established through a physical division, shareholder consent is mandatory; absent such consent, the investor-protection requirement is deemed unmet. (ii) For other, ordinary subsidiaries, obtaining shareholder consent gives rise to a presumption that the protection efforts have been carried out; absent consent, the matter is reviewed strictly and on an individual basis, taking into account factors such as the necessity of and alternatives to the fundraising, the characteristics of the industry, how the parent-subsidiary relationship arose, and the degree of equity dilution. (iii) For a low-materiality subsidiary—one whose sales, operating profit, and assets are each less than 10% of the Parent’s—shareholder consent is waived where the board has performed its five duties and passed a resolution in favor; the waiver does not apply, however, where the subsidiary is recognized as material (for example, where its expected corporate value exceeds 10% of the Parent’s), and shareholder consent remains required where the subsidiary, even if of low materiality, was established through a physical division.

Practical Implications and Key Takeaways

This newsletter has been prepared on the basis of the currently published proposed amendments to the Korea Exchange(KRX) Regulations and the draft Dual Listing Guideline; its content may change in the course of the public consultationand the financial authorities’ resolution process.