Involuntary Dissolution of a Company in Korea: Shareholder Disputes in Korean Companies

Under Article 520 of the Korean Commercial Act, a minority shareholder, holding at least 10 percent of the total and outstanding shares of a Korean company, may request to the Korean court of competent jurisdiction the dissolution of a company in Korea.  Korean court judges consider this procedure an extraordinary procedure and, only, rule in the affirmative, usually, after all other avenues to resolve the shareholder dispute have failed.

However, this procedure is useful, in many disputes, in resolution of the shareholder dispute via litigation or pushing the defaulting shareholder into a settlement.

Article 520 of the Commercial Act of Korea (Judgments for Dissolution)

“(1) If, in any of the following cases, there exists unavoidable reasons, any shareholder who holds shares representing no less than 10 percent of the total issued and outstanding shares may request a court to dissolve the company;

  1. When the company’s business operation continues to be considerably in deadlock and as a result irreparably damage to the company is caused or threatened;
  2. When the management or disposal of the company’s assets is considerably improper and the existence of the company is thereby at risk.”

Thus, a Korean court can windup a Korean company if either a:

  1. “considerable deadlock” exists that may lead to “irreparable damage”; or
  2. management is acting “considerably improper” and these acts are placing the company’s existence at risk; or
  3. management is disposing of company assets in a “considerably improper” manner and these acts are placing the company’s existence at risk.

Other articles on Korean Corporate Compliance that may be of interest:

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