Korea Curbs Split-Off Listings: The New 3% Rule Explained

Even the largest shareholder with a 35% stake will have their vote counted at just 3% in the decision to list a split-off subsidiary, once the rule changes announced in early July by Korea's Financial Services Commission (FSC) and the Korea Exchange are finalized. A subsidiary created by a split-off — in Korean practice, a division in which a company carves out a business unit into a wholly owned subsidiary — could then be listed only with the effective consent of ordinary shareholders. For minority shareholders, one task remains: actually casting that vote.

The 3% Rule: Cutting the Largest Shareholder's Vote to 3%

The heart of the new standard is a shareholder approval requirement. Under the proposal, listing a subsidiary created through a split-off requires the parent company to obtain explicit shareholder consent, at a general meeting or equivalent. The mechanism borrows the 3% rule long used in Korea's Commercial Act for electing audit committee members: the largest shareholder — with holdings of related parties (spouses, relatives, affiliate companies, and others designated by law) counted together — has voting rights capped at 3%.

Approval means clearing two thresholds at once. A majority of the shares participating must consent, and so must at least a quarter of all voting rights. If the largest shareholder's 35% is cut to 3%, clearing the one-quarter bar means winning over at least another 22 percentage points from ordinary shareholders. If they stay away, the measure fails for want of that quarter.

The rules differ depending on how the subsidiary came into being. Under the proposal:

Origin in a split-off is by itself enough to trigger the heavier procedure, and the board duties were designed to follow the subsidiary even onto foreign exchanges.

So what happens if the vote fails? Under the proposal's structure, shareholder approval is a mandatory condition for listing a split-off subsidiary, so a listing without it cannot proceed in principle. The company is left to strengthen its shareholder-protection package and seek approval again, or rethink the listing altogether. That is why the ordinary shareholders' vote comes close to a veto.

How Minority Shareholders Actually Cast That Vote

A right that goes unused means nothing. The "majority of shares participating" test counts only those who show up, so a minority shareholder's shares count in both the numerator and the denominator only if that shareholder actually votes.

There are three routes. The first is attending the general meeting in person: check the date, venue, and agenda in the notice of meeting or public announcement, bring identification, and vote on site.

The second is electronic voting. When a company adopts e-voting by board resolution, shareholders can log in to an e-voting platform such as the Korea Securities Depository's K-VOTE, verify their identity, and vote item by item. No trip to the meeting hall — the lowest hurdle for minority shareholders scattered across the country.

The third is voting by proxy. If voting directly is difficult, you can grant a proxy — including an electronic one — to have someone vote on your behalf.

The most common failure in practice is missing a deadline. Here is the sequence to watch:

The e-voting cutoff running a day ahead of the meeting is not custom but regulation: Article 13 of the Enforcement Decree of the Commercial Act requires the e-voting period to end by the day before the general meeting. When the notice arrives or the announcement goes up, check the agenda and the e-voting window first — make that the habit.

If You Lose the Vote: Appraisal Rights Remain

Sometimes you vote against and the measure passes anyway. At the division stage, one card is still in hand: the appraisal right — the right to demand that the company buy your shares — which a December 2022 amendment to the Enforcement Decree of the Capital Markets Act extended to shareholders who oppose a split-off.

The structure works like this. When a listed company holds a general meeting for a split-off, a dissenting shareholder notifies the company of their opposition in writing before the meeting; if the measure passes, they can demand a buyout within 20 days of the resolution date, in writing, stating the class and number of shares. In principle, the price is set by agreement between the shareholder and the company. Failing agreement, it is calculated from market prices before the board resolution date — and if either the company or the shareholder objects to that figure too, they can ask a court to set the price.

There is a trap in the eligibility rules. Even with a timely objection notice, the buyout demand covers only shares you can prove you acquired before the board resolution was disclosed (shares bought after disclosure qualify only under narrow exceptions set by decree). Shares bought on the news of the division generally cannot be tendered.

The point of the right is exit. For a shareholder unwilling to ride out the share price after the division, it offers a way out at a price benchmarked before the board's resolution. Collectively, it is also a bargaining chip: the more demands pile up, the more buyout cash the company must pay, so the sheer volume of demands can pressure a company into rethinking the division itself.

Five Board Duties — Penalties Up to 1 Billion Won

Separate from shareholder approval, the proposal imposes five duties on the parent's board: assessing the impact of the subsidiary's listing on the parent's shareholders, preparing shareholder-protection measures, communicating with shareholders or confirming their consent, resolving for or against the listing and notifying the subsidiary, and disclosing the whole process. If shareholder consent was not explicitly confirmed through a general meeting or equivalent, the reasons must be disclosed as well.

The proposal also guards against box-ticking. The duties are designed to pass through an independent special committee of the board, which reviews and resolves on each step in advance. Violations would draw penalties of up to 1 billion won and a one-day trading halt. Disclosure violations count as unfaithful disclosure (an exchange sanction for failing to meet disclosure obligations), and enough accumulated penalty points can trigger a delisting eligibility review (the exchange's substantive review of whether a listing should be maintained).

For investors, the five duties double as a source of information. The board's disclosed impact assessment and protection plan are documents never before required at the subsidiary-listing stage. Since the company itself must assess how the listing affects the value of your shares, the vote comes with one more piece of reading material than before.

Six Years of the "Split-and-List" Fight

A split-off by itself is a neutral restructuring tool, but listing the carved-out subsidiary separately changes the picture. Unlike a pro-rata spin-off — where shareholders receive shares of the new company in proportion to their stakes — a split-off sends every share of the new company to the parent, demoting parent shareholders from direct owners of a prized business to indirect ones. When LG Chem decided in the second half of 2020 to split off its battery business (now LG Energy Solution), the issue became a national controversy, and cases like Kakao Pay cemented the label "split-and-list."

The regime was first patched in 2022. A September amendment to the Korea Exchange listing rules made parent companies subject to review of whether they had faithfully carried out shareholder-protection efforts when a split-off subsidiary applied for preliminary listing review within five years of the division (the five-year limit was deleted in a July 2025 amendment, so the review now applies regardless of timing), and in December, the amended Enforcement Decree of the Capital Markets Act gave dissenting shareholders appraisal rights. But the listing-stage standard remained an abstract phrase: "faithful implementation of shareholder-protection efforts."

Part of why the gap survived nearly six years of controversy is that it was never clear which regulator owned the problem. Divisions belong to the Commercial Act and the Capital Markets Act, but whether a listing goes ahead belongs to exchange review — so under that abstract standard, the listing stage was effectively left to the exchange's qualitative discretion. That this overhaul comes as an amendment to exchange listing rules, not legislation, shows exactly where the gap sat.

What Comes Next, and Three Things to Do Now

On July 6, the FSC and the Korea Exchange announced detailed standards that ban duplicate listings — listing a subsidiary while its parent is already listed — as a rule, permitting them only in exceptional cases. The package combines amendments to the exchange's listing and disclosure regulations and their enforcement rules with a newly drafted guideline. The proposals were open for public comment through July 14 and are set to take effect after resolutions by the Securities and Futures Commission and the FSC. The effective date and transition rules will be fixed when the final rules are published, so shareholders of companies with split-off listing plans have reason to watch for that notice.

If you hold parent-company shares, three things are worth doing now. First, check whether any of your holdings has a split-off history or an unlisted crown-jewel subsidiary. Second, subscribe to those companies' disclosures so you don't miss the board's impact assessment, protection plan, or the meeting notice. Third, test your e-voting setup — identity verification included — before you need it.

For the market as a whole, with a subsidiary listing's fate now hanging on persuading ordinary shareholders, some expect measures designed to win consent — bigger dividends, compensation packages for parent shareholders — to start appearing. Nearly six years after the split-and-list fight began, the weight of the vote is shifting toward ordinary shareholders for the first time.