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Article 14-1
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(Establishment of Internal Control Systems)
Public companies, securities exchanges, securities firms, and enterprises set forth in Article 18 shall establish financial and operational internal control systems.
The Competent Authority may prescribe rules governing internal control systems of companies or enterprises under the preceding paragraph.
A company or enterprise under paragraph 1 shall file an Internal Control System Statement with the Competent Authority within three months of the close of each fiscal year, unless approval otherwise has been granted by the Competent Authority.
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Article 14-2
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(Appointment and Qualifications of Independent Directors)
A company that has issued stock in accordance with this Act may appoint independent directors in accordance with its articles of incorporation. The Competent Authority, however, shall as necessary in view of the company's scale, shareholder structure, type of operations, and other essential factors, require it to appoint independent directors, not less than two in number and not less than one-fifth of the total number of directors.
Independent directors shall possess professional knowledge and there shall be restrictions on their shareholdings and the positions they may concurrently hold. They shall maintain independence within the scope of their directorial duties, and may not have any direct or indirect interest in the company. Regulations governing the professional qualifications, restrictions on shareholdings and concurrent positions held, assessment of independence, method of nomination, and other matters for compliance with respect to independent directors shall be prescribed by the Competent Authority.
The company may not impede, refuse, or evade the actions of the independent directors in the performance of their duties. As the independent directors deem necessary to the performance of their duties, they may request the board of directors to appoint relevant personnel, or may at their own discretion hire professionals to provide assistance. The related expenses will be borne by the company.
Given any of the following circumstances, a person may not act as an independent director, or if already acting in such capacity, shall be dismissed:
- Any circumstance set out in a subparagraph of Article 30 of the Company Act.
- The director is a government agency, juristic person, or representative thereof, and was elected in accordance with Article 27 of the Company Act.
- The person fails to meet the qualifications for independent director set forth in paragraph 2.
Transfer of an independent director's shareholdings is not subject to the provisions of the latter part of paragraph 1 or of paragraph 3, Article 197, of the Company Act.
When an independent director is dismissed for any reason, resulting in a number of directors lower than that required under paragraph 1 or the company's articles of incorporation, a by-election for independent director shall be held at the next following shareholders meeting. When all independent directors have been dismissed, the company shall convene a special shareholders meeting to hold a by-election within 60 days from the date on which the situation arose.
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Article 14-3
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(Matters Required to Be Submitted for Approval by Resolution of the Board of Directors)
When a company has selected independent directors as set forth in paragraph 1 of the preceding article, then the following matters shall be submitted to the board of directors for approval by resolution unless approval has been obtained from the Competent Authority; when an independent director has a dissenting opinion or qualified opinion, it shall be noted in the minutes of the directors meeting:
- Adoption or amendment of an internal control system pursuant to Article 14-1.
- Adoption or amendment, pursuant to Article 36-1, of handling procedures for financial or operational actions of material significance, such as acquisition or disposal of assets, derivatives trading, extension of monetary loans to others, or endorsements or guarantees for others.
- A matter bearing on the personal interest of a director or supervisor.
- A material asset or derivatives transaction.
- A material monetary loan, endorsement, or provision of guarantee.
- The offering, issuance, or private placement of any equity-type securities.
- The hiring or dismissal of an attesting CPA, or the compensation given thereto.
- The appointment or discharge of a financial, accounting, or internal auditing officer.
- Any other material matter so required by the Competent Authority.
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Article 14-4
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(Appointment of Audit Committee or Supervisors)
A company that has issued stock in accordance with this Act shall establish either an audit committee or a supervisor. However, a company that falls within the conditions set by the Competent Authority based on company scale, type of operations, or other essential considerations shall establish an audit committee in lieu of a supervisor.
The audit committee shall be composed of the entire number of independent directors. It shall not be fewer than three persons in number, one of whom shall be convener, and at least one of whom shall have accounting or financial expertise.
For a company that has established an audit committee, the provisions regarding supervisors in this Act, the Company Act, and other laws and regulations shall apply mutatis mutandis to the audit committee.
The following provisions of the Company Act shall apply mutatis mutandis with regard to independent directors who are members of the audit committee: Article 200; Article 216, paragraphs 1, 3, and 4; Article 218, paragraphs 1 and 2; Article 218-1; Article 218-2, paragraph 2; Articles 224 - 226; and Article 245, paragraph 2. The provisions of Article 214, Article 215, and the proviso of Article 227 of the Company Act shall apply mutatis mutandis with regard to litigation brought against independent directors.
Regulations governing the exercise by the audit committee and its independent director members of the powers set out in the preceding two paragraphs, and the operation procedures, matters to be recorded in the meeting minutes, and other matters related thereto, shall be prescribed by the Competent Authority.
A resolution of the audit committee shall have the concurrence of one-half or more of all members.
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Article 14-5
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(Company Matters Requiring Consent of the Audit Committee)
For a company that has issued stock in accordance with this Act and established an audit committee, the provisions of Article 14-3 shall not apply to the following matters, which shall be subject to the consent of one-half or more of all audit committee members and be submitted to the board of directors for a resolution:
- Adoption or amendment of an internal control system pursuant to Article 14-1.
- Assessment of the effectiveness of the internal control system.
- Adoption or amendment, pursuant to Article 36-1, of handling procedures for financial or operational actions of material significance, such as acquisition or disposal of assets, derivatives trading, extension of monetary loans to others, or endorsements or guarantees for others.
- A matter bearing on the personal interest of a director.
- A material asset or derivatives transaction.
- A material monetary loan, endorsement, or provision of guarantee.
- The offering, issuance, or private placement of any equity-type securities.
- The hiring or dismissal of an attesting CPA, or the compensation given thereto.
- The appointment or discharge of a financial, accounting, or internal auditing officer.
- Annual financial reports and second quarter financial reports that must be audited and attested by a CPA, which are signed or sealed by the chairperson, managerial officer, and accounting officer.
- Any other material matter so required by the company or the Competent Authority.
With the exception of subparagraph 10, any matter under a subparagraph of the preceding paragraph that has not been approved with the consent of one-half or more of all audit committee members may be undertaken upon the consent of two-thirds or more of all directors, without regard to the restrictions of the preceding paragraph, and the resolution of the audit committee shall be recorded in the minutes of the directors meeting.
If for good cause it is impossible to hold a meeting of the audit committee, the matters in the subparagraphs of paragraph 1 shall be adopted with the consent of two-thirds or more of all directors. However, the matters in paragraph 1, subparagraph 10 shall still require the opinion of the independent directors indicating their consent.
A company that has established an audit committee is not subject to the provisions of Article 36-1 requiring that its financial reports be recognized by a supervisor.
"All audit committee members" and "all directors" as used in paragraph 1 to paragraph 3 and the preceding article shall mean the actual number of persons currently holding those positions.
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Article 36-1
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(Regulations Governing Major Financial or Operational Actions of Companies)
The Competent Authority shall prescribe rules governing the applicable scope, work procedures, required public announcements, required filings, and other matters for compliance for major financial or operational actions of public companies such as acquisition or disposal of assets, engaging in derivatives trading, extension of monetary loans to others, endorsements or guarantees for others, and disclosure of financial projections.
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