Korea’s 2025 amendment to Article 382-3 of the Commercial Act added shareholders to the directors’ duty of loyalty, and that change gives a familiar financing choice a new governance edge: when a board issues a bond with warrant (BW) instead of a non-dilutive alternative, it may now face a higher burden to explain why. For a foreign investor pricing the Korea governance discount, this is not a litigation forecast — no court has yet tested it — but a disclosure signal worth tracking.

The mechanism: a BW shifts cost from interest to dilution

A bond with warrant pairs a bond with a warrant to buy new shares at a set price. Investors typically accept a lower coupon than on a plain corporate bond, because the warrant carries option value. That trade has a structural consequence. Under Article 418 of the Commercial Act, shareholders hold a pro-rata right to new shares; a BW warrant, exercised by a bondholder — a non-shareholder under Article 418(2) — triggers a new-share issuance that dilutes existing holders.

The point is not that “cheap financing is paid for by shareholders.” It is narrower and more defensible: the warrant shifts part of the analysis from interest expense to dilution and option pricing. The cost does not disappear; it changes form.

Caveat: this describes the legal mechanism of dilution, not its magnitude. Whether a given BW materially dilutes depends on the strike, the take-up, and the share count — none of which the mechanism alone settles.

Why the alternative matters: the exchangeable bond

The dilution is not unavoidable. An exchangeable bond (EB) raises capital using shares the company already holds. Under Article 469(2)2 of the Commercial Act and Article 22 of its Enforcement Decree, an EB is settled in the issuer’s own treasury stock or other existing securities, which the issuer deposits in advance against the exchange right. Because no new shares are created, an EB funds the company without diluting existing shareholders.

So a firm that already holds treasury stock has, in principle, a non-dilutive route to the same cash. That contrast — BW dilutes, EB does not — is where the company’s interest and the shareholders’ interest can visibly diverge.

Caveat: an EB is not automatically “better” for shareholders. Settling in treasury stock has its own effects on free float and control, and the comparison turns on the specific terms.

The old equilibrium: the business judgment rule

Until now, the board’s exposure on a conflict-free BW was limited. Korean courts apply a business judgment standard: a director’s decision is protected where it was informed, free of conflict, and aimed at a concrete corporate benefit. The published reasoning in Supreme Court case 2019Da280481 (March 2023) held that a justifying corporate benefit must be concrete and realistically attainable, not a vague expectation.

One caveat is essential here. That standard was articulated in a dispute over intra-group share acquisitions and control-defense derivatives — not over a BW issuance. It is authority for how the “concrete benefit” test reads, not for how a court would treat warrant dilution. Used carefully, it tells you the test; it does not tell you the result.

On a conflict-free, public BW, the older law made the board’s position comfortable: interest savings are a concrete benefit, there is no self-dealing, and the business judgment rule does the rest.

What the reform changes — and what stays open

The amendment to Article 382-3 extended the directors’ duty of loyalty from “the company” to “the company and its shareholders.” The reform was enacted in 2025; the consolidated Commercial Act carrying this language is in force from March 2026. On its face, that means a board can no longer rest solely on “the financing was good for the company” — shareholder interest is now part of the duty it must account for.

Here the analysis must stay disciplined. The stronger reading is not that directors are now liable for dilutive BWs. It is that, where a company holding treasury stock chooses a dilutive BW over a non-dilutive EB, the reform may give the board a reason it must be ready to articulate from a shareholder-value perspective. That is a conditional claim, not a duty to issue EBs and not a prediction of liability.

Two limits keep it honest. First, whether shareholder-inclusive duty actually reaches a conflict-free public BW is an open, debated question — as of mid-2026, no published holding has found director liability on these facts. Second, conflicted low-price issuances to controlling shareholders are a separate category that has drawn liability in the past (for example, criminal liability in the Samsung Everland CB matter) — a different fact pattern from the conflict-free public BW at issue here.

The counterargument deserves a flat hearing: if courts fold the new shareholder-inclusive language into the existing “concrete benefit” test — treating corporate benefit and shareholder benefit as one — the practical burden may not rise at all. That is a live possibility, not a settled outcome.

Signals to watch

For a governance-focused investor, the relevant signals are observable without predicting any court:

  • BW-versus-EB disclosures. When a company holding treasury stock issues a BW, the useful question is whether its DART (Korea’s electronic disclosure system) filing explains the choice over a non-dilutive EB.
  • Board reasoning on dilution. Whether boards begin to document a shareholder-value rationale for dilutive financing, rather than a company-level one alone.
  • The first contested case. Whether any post-reform dispute tests shareholder-inclusive duty on a conflict-free public BW — the open question that would convert this from a disclosure signal into law.

For investors pricing the Korea governance discount, BW disclosures are becoming a test of board capital-allocation discipline. The reform did not settle who wins that test. It changed what the board has to be ready to say.