What Legal Remedies Are Available to Minority Shareholders in a Korean Company?

Short Answer

Minority shareholders in a Korean company are not necessarily powerless simply because another shareholder controls the majority of the voting rights.

Under the Korean Commercial Act, minority shareholders may, depending on their shareholding percentage and the circumstances, have rights to:

• Inspect certain accounting books and documents
• Request an extraordinary shareholders’ meeting
• Make shareholder proposals
• Request a court-appointed inspector
• Seek to stop certain unlawful acts by directors
• Bring a derivative action against directors
• Seek removal of a director in serious cases

Minority shareholders may also have additional protections under a shareholders’ agreement, including information rights, veto rights, board nomination rights, anti-dilution protections, and exit rights.

This article focuses primarily on a non-listed Korean stock company (주식회사). Different rules may apply to listed companies.

What Problems Commonly Lead to Minority Shareholder Disputes in Korea?

Minority shareholder disputes often arise when a controlling shareholder manages the company while the minority investor has limited access to information or decision-making.

Common issues include:

• Refusal to provide financial or corporate information
• Improper related-party transactions
• Misuse of company funds or assets
• Issuance of new shares that dilutes the minority shareholder
• Exclusion from management or the board
• Disputes over dividends
• Unauthorized disposal of significant company assets
• Breach of a shareholders’ agreement

An important first question is whether the misconduct caused loss to the company itself or a separate and direct loss to the shareholder, as different remedies may apply.

Can a Minority Shareholder Inspect the Company’s Accounting Books?

Yes, if the statutory requirements are satisfied.

For a non-listed Korean stock company, a shareholder holding at least 3% of the issued shares may generally request inspection or copying of the company’s accounting books and documents.

The request must be made in writing and state the reasons for the inspection. This remedy can be particularly useful where a shareholder suspects improper payments, related-party transactions, misuse of corporate funds, or other financial irregularities.

Can a Minority Shareholder Call a Shareholders’ Meeting?

Yes.

A shareholder or group of shareholders holding at least 3% of the issued shares may generally request that the board convene an extraordinary shareholders’ meeting.

If the board fails to take the necessary steps, the shareholders may seek court approval to convene the meeting themselves.

This can be useful where management refuses to place matters such as the election or removal of directors before the shareholders.

Can a Minority Shareholder Make a Shareholder Proposal?

Yes.

For a non-listed stock company, shareholders holding at least 3% of the issued shares, excluding non-voting shares, may generally submit proposals for a shareholders’ meeting, subject to statutory timing and procedural requirements.

Listed companies are subject to separate rules, which may provide lower ownership thresholds together with minimum holding-period requirements.

Can a Minority Shareholder Ask a Korean Court to Investigate the Company?

In serious cases, yes.

Shareholders holding at least 3% of the issued shares may petition the court to appoint an inspector where there are reasonable grounds to suspect misconduct or a material violation of law or the articles of incorporation.

The inspector may investigate the company’s business and financial condition. This can be particularly useful where management controls the company’s information and the minority shareholder cannot independently determine what has occurred.

Can a Minority Shareholder Stop an Unlawful Act by a Director?

Potentially, yes.

A shareholder holding at least 1% of the issued shares may, under certain circumstances, seek to stop a director from carrying out an act that violates law or the articles of incorporation and threatens irreparable harm to the company.

Timing is important. Where an improper transfer of assets or other unlawful transaction is imminent, seeking relief before the transaction is completed may be substantially more effective than attempting to reverse it afterward.

Can a Minority Shareholder Sue a Director?

Yes, through a shareholder derivative action if the statutory requirements are satisfied.

Where a director causes loss to the company through a breach of duty, the claim generally belongs to the company, rather than the individual shareholder.

A shareholder holding at least 1% of the issued shares may generally demand that the company bring an action against the responsible director. If the company does not bring the action within 30 days, the shareholder may generally bring a derivative action on behalf of the company.

Can a Minority Shareholder Seek Removal of a Director?

Yes, in certain serious circumstances.

If a director has engaged in misconduct or a material violation of law or the articles of incorporation, shareholders may first seek the director’s removal at a shareholders’ meeting.

If the proposal is rejected, shareholders holding at least 3% of the issued shares may, subject to the statutory requirements, seek removal through the Korean courts.

Importantly, the action generally must be filed within one month after the shareholders’ resolution rejecting the removal.

What If the Majority Shareholder Violates a Shareholders’ Agreement?

Foreign investors should distinguish between statutory rights under Korean corporate law and contractual rights under a shareholders’ agreement.

A shareholders’ agreement may provide additional protections such as:

• Board nomination and information rights
• Reserved matters requiring minority consent
• Preemptive and anti-dilution rights
• Restrictions on share transfers
• Tag-along or drag-along rights
• Put or call options
• Deadlock and exit mechanisms

Importantly, a breach of a shareholders’ agreement does not necessarily mean that the related corporate action is automatically invalid under Korean corporate law.

The shareholder should therefore consider both the contractual remedies under the shareholders’ agreement and any separate remedies available under Korean corporate law.

Does the Minority Shareholder’s Ownership Percentage Matter?

Yes. It can be critical.

For a typical non-listed Korean stock company, several important minority shareholder rights are generally subject to either a 3% or 1% ownership threshold.

However, the applicable threshold depends on the particular remedy, and different rules apply to listed companies.

The shareholder’s exact ownership percentage, the company’s articles of incorporation, and any shareholders’ agreement should therefore be reviewed before taking action.

What Should a Foreign Minority Shareholder Do First?

When a dispute begins, a foreign shareholder should first preserve and review:

• The share purchase or investment agreement
• The shareholders’ agreement
• The company’s articles of incorporation
• Shareholder and board resolutions
• Financial and accounting information
• Communications with the majority shareholder
• Documents relating to the disputed transactions

The next step is to determine which remedies are available under Korean law, which additional rights arise under the shareholders’ agreement, and whether urgent court action is necessary.

This is particularly important where the dispute involves an imminent share issuance, asset transfer, change in management, or other transaction that may be difficult to reverse once completed.

Conclusion

Minority shareholders in Korean companies may have meaningful legal remedies even when another shareholder controls the company.

Depending on the circumstances, these may include accounting inspection rights, shareholder meeting rights, court-appointed investigations, injunctions, derivative actions, director removal proceedings, and contractual remedies under a shareholders’ agreement.

For foreign investors, the key is to review both Korean corporate law and the investment documents. Where a dispute involves misuse of company assets, dilution, related-party transactions, exclusion from management, or breach of a shareholders’ agreement, early legal review can be important before disputed transactions are completed or statutory deadlines expire.