Director’s Corporate Opportunity in South Korea
Business Opportunity in South Korea
Contents
- 1. What is usurpation of corporate opportunity in South Korea?
- 2. Which opportunities fall under the prohibition?
- 3. Is board approval alone enough to use an opportunity?
- 4. How is the company’s loss calculated and proven?
- 5. Does a benefit from the wrongdoing reduce the damages?
- 6. How does this overlap with non-compete, self-dealing, and duty of care?
- 7. What does this mean for foreign-invested companies in the IFEZ?
- Frequently asked questions
A hard-won client, a distribution right up for renewal, a new line of business the company was preparing. What happens under South Korean law when the very director of that company diverts the opportunity to their own firm?
A director occupies a position that must put the company’s interest first. Yet taking opportunities learned on the job for personal gain is far from rare in practice. In 2011, the Korean Commercial Act introduced Article 397-2 (Prohibition on Usurpation of Corporate Opportunities and Assets) to address the problem head-on, and in 2025 the Supreme Court of Korea made clear that a benefit a director’s unlawful act brings to the company will not reduce the damages owed. This article walks through the requirements, the calculation of loss, and how the rule interacts with the other fiduciary duties under Korean law.
What is usurpation of corporate opportunity in South Korea?
It refers to a director using the company’s business opportunity for themselves or a third party without board approval, which Article 397-2 of the Korean Commercial Act prohibits. The provision concretizes the director’s duty of loyalty and prevents a director from privately capturing economic value that should belong to the company.
Article 397-2(1) provides that a director shall not, without board approval, use for themselves or a third party a business opportunity that may currently or in the future benefit the company. Such approval must be given by at least two-thirds of the directors.
The Supreme Court of Korea has held that a director who becomes aware of an opportunity that may benefit the company must offer it to the company so that the company can use it, and must not use it for themselves or a third party without the company’s approval (Case No. 2016Da16191, October 25, 2018). In other words, the director has an affirmative duty to bring good opportunities to the company.
Which opportunities fall under the prohibition?
Article 397-2(1) lists two categories. Item 1 covers an opportunity learned in the course of performing the director’s duties or by using company information. Item 2 covers an opportunity closely related to a business the company is conducting or will conduct. Falling within either category is enough.
The key is that the opportunity must be one that “may currently or in the future benefit the company.” It must exist realistically and concretely for the company, and, considering the company’s business strategy, operations, financial condition, the nature of the business, the scale of investment, the degree of risk, and expected returns, a reasonable business judgment must show a substantial likelihood the company would pursue it. Where the company already runs the business, a new opportunity closely tied to it is likely to fall under Item 2.
Approval is required even as a controlling shareholder
A director must obtain board approval not only when becoming a director or representative director of a competing company, but also when becoming its controlling shareholder able to participate in its decision-making and management (Case No. 2016Da16191, October 25, 2018). Avoiding a formal title does not escape the rule where the director substantively participates.
Is board approval alone enough to use an opportunity?
A valid approval reached through proper procedure allows use. The Supreme Court of Korea held that if the board, having gathered and analyzed sufficient information and gone through a proper procedure for the company’s benefit, decides to forgo the opportunity or to approve a director’s use of it, then, absent any conspicuous unreasonableness in the decision-making process, the business judgment of the approving directors must be respected, and no breach of the duty of care or loyalty arises (Case No. 2011Da57869, September 12, 2013).
Conversely, where a director uses the opportunity without a valid board approval, a breach is established. The threshold is not low: Article 397-2(1) requires approval by at least two-thirds of the directors, premised on a proper procedure grounded in sufficient information. Nor is the usurpation justified merely because the company later adopts the business as a new venture. The Supreme Court has reaffirmed this framework (Case No. 2015Da70044, September 12, 2017).
How is the company’s loss calculated and proven?
Because the loss from usurpation is hard to prove precisely, Article 397-2(2) provides a powerful presumption: a director who violates paragraph (1) and causes loss to the company, together with any director who approved it, is jointly liable, and the gain obtained by the director or a third party is presumed to be the company’s loss.
The company therefore only needs to prove the amount of the gain obtained by the director or third party; the director bears the burden of showing that the gain does not correspond to the company’s loss. The burden effectively shifts from company to director, which is why practitioners rely on this provision as the primary basis.
Calculating loss as lost profit
Apart from the presumption, loss may also be measured as the profit the company would have earned but for the breach. One lower court held that the loss from a director’s breach of the non-compete and corporate-opportunity duties is the profit the company could have earned absent the breach, i.e., lost profit, and calculated it by multiplying the decline in revenue by the net profit margin (Seoul Central District Court, Case No. 2019Gahap564511, September 25, 2020). The Supreme Court has also recognized that where a director who usurped an opportunity later transferred the business to a third party, the goodwill received includes the value of the opportunity taken from the company, which must be recognized as the company’s loss (Case No. 2016Da16191, October 25, 2018).
Does a benefit from the wrongdoing reduce the damages?
No. The most recent decision on this point is Supreme Court of Korea Case No. 2021Da256696 (June 12, 2025). There, a director served as representative director of two companies and took part in long-running price-fixing, exposing the company to administrative surcharges and criminal fines; shareholders pursued the director’s liability through a derivative suit.
The Court held that because a company must not use crime as a means of doing business, where a director violates statutes intentionally or negligently in conducting the company’s business, even if the violation brings some benefit to the company, treating that benefit as an offsetting gain would sanction the company’s retention of unlawful gains and deny the director’s liability to that extent, thereby encouraging the director’s legal violations and the company’s crime and contradicting the fundamental purpose of the damages system, and so is not permitted (Case No. 2021Da256696, June 12, 2025).
In short, even if a director’s collusion or unlawful act brought the company a short-term gain, that gain cannot be used to reduce the damages. As a recent precedent strengthening directors’ liability for legal violations, it may affect every damages context in which a director breaches statutes, including usurpation of corporate opportunity. The ruling also addressed the related concurrent-directorship claim, holding that where two companies operate in effect as a single business, dividing operations while pursuing a common interest, there is no room for conflict of interest and they are not in a competitive relationship.
How does this overlap with non-compete, self-dealing, and duty of care?
A single act often satisfies the requirements of several provisions at once, so the claims may be pleaded concurrently. Their requirements and effects differ as follows.
| Provision | Core requirement | Effect and notes |
|---|---|---|
| Article 397 (Non-compete) |
Without board approval, transacting in the company’s line of business, or becoming an unlimited partner or director of a same-line company | Right of intervention (treat the transaction as the company’s or claim transfer of gain), plus damages. The intervention right lapses one year after the transaction. |
| Article 397-2 (Corporate opportunity) |
Using a company opportunity for self or a third party without board approval | Joint damages; the director’s or third party’s gain is presumed the loss. Approval requires two-thirds of directors. |
| Article 398 (Self-dealing) |
A director etc. transacting with the company for self or a third party without board approval | Transaction may be void; damages. Approval requires two-thirds of directors, and the terms and process must be fair. |
| Article 399 (Duty of care) |
Intentional or negligent violation of statute or articles, or neglect of duties | Joint damages. A general clause applied concurrently with the above. |
The purpose of the non-compete rule is to prohibit competition where a director might use their position to pursue personal gain at the company’s expense (Case No. 92Da53583, April 9, 1993). The self-dealing rule guards against a director sacrificing the company’s interest for their own or a third party’s; there, “director” means a director at the time of the transaction, and a person who has already left the office is not included (Case No. 88Daka9098, September 13, 1988). And the “neglect of duties” under Article 399 means an act breaching the director’s duty of loyalty and duty of care (Case No. 2008Da7895, July 29, 2010).
In practice, Korean lower courts have recognized non-compete and corporate-opportunity violations together and imposed liability under Article 399 where a director separately ran a competing business (Suwon District Court, Case No. 2019Na57084, August 20, 2020; Seoul Central District Court, Case No. 2019Gahap564511, September 25, 2020). Because damages are not double-counted, the effective strategy is to make Article 397-2, with its damages presumption, the primary basis and plead the rest in the alternative. Note that the proviso to Article 400(2) does not permit limiting a director’s liability by the articles of incorporation where the director caused the loss intentionally or by gross negligence, or in cases falling under Articles 397, 397-2, and 398.
What does this mean for foreign-invested companies in the IFEZ?
Foreign-invested companies operating in the Incheon Free Economic Zone (IFEZ) — spanning the Songdo International Business District, Cheongna International City, and Yeongjong International City — should treat these rules as a core governance issue. A director or executive who sits on the boards of both a Korean subsidiary and an affiliate, or who holds a controlling stake in a related entity, can trigger Article 397-2 without any formal title.
Two practical points stand out. First, board approval for using a corporate opportunity must clear a real threshold: a two-thirds vote grounded in sufficient information and a proper process, documented in the minutes. Second, after the 2025 Supreme Court ruling, a director cannot argue that a short-term benefit to the company from a statutory violation should shrink the damages. For inbound investors, building a compliant approval process and clear conflict-of-interest controls is far cheaper than litigating a derivative suit later.
Frequently asked questions
Q. Can a business the company has exited or not yet entered still count as its corporate opportunity under South Korean law?
A. Yes. Article 397-2 protects opportunities that may benefit the company now or in the future. It covers opportunities learned in the course of a director’s duties or by using company information (Item 1), and opportunities closely related to a business the company conducts or will conduct (Item 2). The opportunity must be real and concrete, and a reasonable business judgment must show a substantial likelihood the company would pursue it.
Q. Does a director need board approval when involved in another company only as a controlling shareholder?
A. Yes. The Supreme Court of Korea held (Case No. 2016Da16191, October 25, 2018) that a director must obtain approval from their own company’s board not only when becoming a director or representative director of a competing company, but also when becoming its controlling shareholder able to participate in its decision-making and management.
Q. If a director’s gain exceeds the company’s loss, must the director still repay all of it?
A. Article 397-2(2) presumes the gain obtained by the director or a third party to be the company’s loss. The company only needs to prove the amount of that gain; the director bears the burden of rebutting the presumption. The final award may still be adjusted through the court’s discretionary limitation of liability.
Q. If a director’s unlawful act actually benefited the company, is that benefit deducted from the damages?
A. No. The Supreme Court of Korea held (Case No. 2021Da256696, June 12, 2025) that where a director violates statutes intentionally or negligently, any benefit to the company from that violation cannot be treated as an offsetting gain, because it would encourage the director’s legal violations and the company’s crime and contradict the purpose of the damages system.
Q. Can a non-compete violation and usurpation of corporate opportunity be claimed together?
A. Yes. Korean lower courts frequently recognize both a violation of the non-compete duty (Article 397) and usurpation of corporate opportunity (Article 397-2), together with liability under Article 399. Because damages are not double-counted, practitioners typically rely on Article 397-2, which carries the damages presumption, as the primary basis and plead the others in the alternative.
Q. How much is a director’s liability usually limited to under South Korean law?
A. Korean courts may limit the award considering the nature of the business, the circumstances and manner of the breach, the director’s contribution, and any gain, in light of fair allocation of loss; the ratio is within the fact-finding court’s discretion. Reported cases have limited liability to 50% (Seoul Central District Court, Case No. 2019Gahap564511), 60% (Supreme Court Cases No. 2016Da16191 and 2021Da256696), and 75% (Suwon District Court, Case No. 2019Na57084).
Director-liability disputes involving corporate opportunity, non-compete, and self-dealing turn on issue-by-issue proof strategy and the method of calculating loss. If you are preparing such a dispute or a shareholder derivative suit in South Korea, contact Atlas Legal at +82-32-864-8300.
