Rights of “Non-Registered” Shareholders in Korea

Questions arise, often, in Korean companies if a non-registered shareholder (not placed in the Korean corporate registry), that can prove that the shareholder is the beneficial “owner” of shares of the company, may exercise rights of a owner of the company.  The Supreme Court has recently made a running on this issue.

Supreme Court 2015Da248342 Decided March 23, 2017

The Supreme Court, in this case, ruled that:

“In light of the legal nature of a company whereby its ownership structure constantly changes depending on the issuance and transfer of shares, the purpose of the shareholder registry system under the Commercial Act lies in making it easier for a company to externally distinguish its legal relationship with numerous shareholders based on a cursory and uniform standard, thereby improving efficiency in handling matters related to the exercise of shareholder rights and ensuring legal certainty.

Only a person owning a company’s shares and whose name appears in the register of shareholders may lawfully exercise voting rights in relation to the company. This is applicable in either of the following cases: if a company’s shares have been transferred but the transferor remains as the shareholder on the register of shareholders due to entry of change not having been made, or if a person used another’s name to purchase or transfer a company’s shares and the borrowed name was subsequently entered in the register of shareholders.

A company – regardless of whether being aware that there are those, other than shareholders whose names are in the shareholder registry, who intended to purchase or transfer shares – may neither deny the exercise of rights by shareholders whose names are in the shareholder registry nor acknowledge the exercise of rights by shareholders whose names have not yet been recorded therein.”

Therefore, a non-registered shareholder of a Korean company may be granted the right to sue the corporation, by a Korean court, based on proof of a beneficial ownership in a Korean company.  In most cases, demanding or forcing the registration of shares in a Korean company is advisable over the hope that the courts shall step in when a need arises.

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