Problems and Improvement Measures of the Large Business Group Designation System

The Large Business Group Designation System, implemented in 1987, was introduced to curb the concentration of economic power among a small number of conglomerates and to prevent the controlling families from engaging in self-dealing. Since its implementation, Korea’s economy and corporate environment have undergone significant changes, raising the need to reassess the system’s effectiveness and appropriateness.

In particular, as corporate ownership structures have become increasingly complex—accompanied by the dispersion of family shareholdings and the diversification of nationality—the criteria for designating the same person (controlling shareholder) have become progressively ambiguous. Excessive regulation may suppress normal corporate growth and undermine managerial autonomy. In this respect, the current system requires adjustment in line with changing economic realities. Reform in a rational direction that balances fair competition with market autonomy is urgently needed.

The current Large Business Group Designation System can be analyzed as having four major problems.
First, there are inherent limitations in designating the same person as a natural person. The current practice of designating an individual (so-called “controlling owner”) risks entrenching a pre-modern, single-person control structure and imposes excessive legal and administrative responsibility on individuals regardless of their actual level of control.

Second, there is an issue of excessive scope and lack of realism in defining related persons of the same person. The current scope is misaligned with the realities of nuclear families and dispersed ownership structures. Increasingly, relatives such as sixth-degree blood relatives and fourth-degree in-laws—who have no substantive influence or economic interest—are subject to regulation.

Third, there are problems concerning the ambiguity and excessive application of shareholding and control criteria. Recognizing control solely based on the shareholdings of related persons, or attributing shares held by family members involved in management disputes to the intent of the same person, results in overregulation. Legal presumptions unrelated to actual control may infringe upon fundamental corporate rights.

Fourth, there is the issue of excessive data submission obligations and criminal penalties. The current framework compels the same person to collect and submit extensive information on relatives and affiliates, with the possibility of criminal punishment for omissions. This lacks proportionality and realism. In particular, imposing criminal liability in situations where the same person cannot realistically obtain or control such information lacks legal justification.

Based on this analysis, the study proposes the following reform measures in line with contemporary conditions:

shifting from a natural-person-centered structure to a corporate-centered unified designation based on a core company,

narrowing the scope of related persons to spouses and lineal family members only,

recognizing affiliates only where actual control is substantiated, with explicit rebuttal procedures, and

simplifying data submission obligations and reducing sanctions to administrative fines rather than criminal penalties.

< Table of Contents >

I. Introduction: The Need to Reform the Large Business Group Designation System Maintained for Over 40 Years

II. Analysis of the Current Status of the Large Business Group Designation System

1. Background and Objectives of Introduction

2. Current Status of Large Business Group Designation

III. Legal Framework and Problems of the Large Business Group Designation System

1. Legal Analysis of the Corporate Group Designation System

2. Issues and Controversies Surrounding the Designation of the Same Person as a Natural Person

3. Problems Concerning the Scope of Related Persons and Control

4. Issues Related to Shareholding Ratios and Control Criteria of Related Persons

5. Appropriateness of Data Collection and Submission Obligations Imposed on the Same Person and Criminal Penalties for Omission or Non-Submission

IV. Reform Measures for the Large Business Group Designation System

1. Abolition of the Natural-Person-Based Same Person Designation and Unification Centered on a “Core Company”

2. Recalibration and Reduction of the Scope of Related Persons: Limitation to Spouses and Lineal Family Members

3. Recognition of Affiliates Only Where Control by the Same Person Is Substantiated

4. Improvement of Data Submission Obligations and Criminal Penalty Provisions (Mitigation to Administrative Fines)

V. Conclusion: Seeking Reform Directions for the Large Business Group Designation System in Line with Contemporary Changes

References

Korean version: https://www.cfe.org/20250714_27886