I. Introduction The cry of the American Revolutionaries, taken up by outraged citizenry since, "no taxation without representation" might well be said to find its equivalent in the context of corporate affairs as "no participation without representation." Historically, however, the participation by shareholders in a corporation's affairs, i.e. the injection of a financial interest by the traditional method of purchasing shares, has not always been matched by a corresponding recognition of their rights to a voice in that company. In many respects, the principle does have its rationale, where one considers that in the case of a shareholder holding a very small stake in a particular corporation, equal participation with majority shareholders might paralyze the management of the company. However, in many countries, shareholder concerns as to the limitation upon, or absence of, realistic powers commensurate with their corporate shareholdings have persisted, and in this matter Korea is no exception. Indeed, the onset of the currency crisis which began in Korea in late 1997, leading to the "IMF bailout," which was followed by the election of a new president, produced not only increased foreign participation in Korean corporations, but an increased focus on the rights of shareholders, particularly minority shareholders. This has been very much an issue, in the past two years in particular, among Korean investors also. This article briefly summarizes the current rules pertaining to the key rights of minority shareholders under relevant laws such as the Korean Commercial Code ("KCC") and the Korean Securities Transaction Act ("KSTA"), both of which were amended recently. Since the KSTA is a "special law" in relation to the KCC, the rules under the former law prevail over those under the latter, in the event of any conflict between them. II. Right of Proposal Under the KCC, any shareholder holding 3 percent or more of the total issued and outstanding shares carrying voting rights may propose in writing certain agenda for a general shareholders' meeting at least six weeks prior to the date of such meeting. In such case, the board of directors must adopt such proposed agenda for the general shareholders' meeting, unless such agenda contradicts applicable law or the articles of incorporation. If requested by the proposing shareholder, the board of directors must give such shareholder an opportunity to present and explain its proposed agenda. Under the KSTA, this right is triggered by 0.5 percent or more of the total issued and outstanding shares carrying voting rights for more than six months, in the case of a listed corporation with a paid-in capital of one hundred billion won or more. In the case of a listed corporation with a paid-in capital of less than one hundred billion won, this right is triggered on possession of 1 percent or more of the total issued and outstanding shares carrying voting rights which must have been held for more than six months. III. Right to Convoke a General Shareholders' Meeting Under the KCC, any shareholder which holds 3 percent or more of the total issued and outstanding shares may demand that the board of directors convoke a general shareholders' meeting by submitting a written statement of the proposed agenda and the reason for meeting. If the board of directors fails to convoke a meeting, then such shareholder may in its own name and authority convoke a meeting upon the approval of the competent court. Under the KSTA, on the other hand, this right is triggered by holding 1.5 percent or more of the total issued and outstanding shares carrying voting rights for more than six months, in the case of a listed corporation with a paid-in capital of one hundred billion won or more. In the case of a listed corporation with a paid-in capital of less than one hundred billion won, this right is triggered on possession of 3 percent or more of the total issued and outstanding shares carrying voting rights which must have been held for more than six months. IV. Right to Demand Removal of Director and Statutory Auditor Under the KCC, any shareholder holding 3 percent or more of the total issued and outstanding shares may propose that a director or statutory auditor who has committed material misconduct or a material violation of applicable law or the articles of incorporation be dismissed at a general shareholders' meeting. If such dismissal is not resolved at the meeting, such shareholder may apply for the dismissal of the pertinent director or statutory auditor with the competent court. Under the KSTA, this right is triggered by holding 0.25 percent or more of the total issued and outstanding shares for more than six months, in the case of a listed corporation with a paid-in capital of one hundred billion won or more. This right is triggered on possession of 0.5 percent or more of the total issued and outstanding shares which must have been held for more than six months, in the case of a listed corporation with a paid-in capital of less than one hundred billion won. V. Right of Injunction Under the KCC, any shareholder holding 1 percent or more of the total issued and outstanding shares may demand that a director cease and/or desist from an act which is or - if taken - would be, in violation of applicable law or the articles of incorporation and which poses the potential threat of irreparable damage to the corporation. Under the KSTA, this right is triggered by holding 0.25 percent or more of the total issued and outstanding shares for more than six months, in the case of a listed corporation with a paid-in capital of one hundred billion won or more. This right is triggered on possession of 0.5 percent or more of the total issued and outstanding shares which must have been held for more than six months, in the case of a listed corporation with a paid-in capital of less than a hundred billion won. VI. Right to File Derivative Suits Under the KCC, a director or statutory auditor who has violated
the applicable law or the articles of incorporation or has neglected
his or her duty shall be liable in damages to the corporation. Any
shareholder holding 1 percent or more of the total issued and outstanding
shares may demand in writing that the corporation institute a law
suit to claim damages against such director or statutory auditor.
If the corporation fails to institute the law suit within
30 days, such shareholder may file the lawsuit on behalf of the
corporation. If irreparable damage to the corporation is threatened,
such shareholder may file such lawsuit without waiting for 30 days. VII. Right to Inspect Books and Records of Account Under the KCC, any shareholder holding 3 percent or more of the
total issued and outstanding shares may demand that certain books
and records of account be inspected. The corporation may not refuse
unless the corporation proves that such demand is groundless.
VIII. Right to Apply for Appointment of Inspector to Investigate Company Affairs and Status of Property Under the KCC, if a material violation of applicable law or the
articles of incorporation is suspected in connection with the management
of the corporation, any shareholder holding 3 percent or more
of the total issued and outstanding shares may apply for the appointment
of an inspector to investigate the company's affairs and status
of property. Such application must be made with the competent court.
IX. KOSDAQ-Registered Corporations With respect to the right of proposal, KOSDAQ-registered corporations are treated as listed corporations under the KSTA. With respect to the above minority shareholders' rights other than the right of proposal, corporations whose shares are registered with KOSDAQ are currently treated in the same manner as unlisted corporations under the KCC. However, from January 1st 2000 they will be treated in the same manner as listed corporations under the KSTA. X. Concluding Remarks As mentioned earlier, the whole concept of shareholder representation demands a careful balance. A balance between, on the one hand, unreasonably restricting the powers of shareholders who by virtue of their financial stake in the company are in principle entitled to seek a "say" in its affairs, and on the other hand, granting them, such sweeping powers as to end up paralyzing the operations of the corporation. The rules set forth in the KCC and the KSTA seek to achieve such balance. The tension between these two will of course continue to persist. However, the recent changes to the law represent a considerable advancement of minority shareholders' rights in Korea, and will help to bring Korea substantially in line with similar rules prevailing in many industrialized countries. Dong Woo Seo |
