When inherited shares are dispersed among heirs after a founder's death, a co-founder (uncle) and incumbent management can seize the shareholders' meeting and the board to push aside the second-generation heir.

The real issue here is not "inheritance tax," but director appointments/dismissals (board composition) and consolidating voting rights. Directors can be removed at any time by special resolution of the shareholders' meeting (Korean Commercial Act, Article 385), and once shares enter quasi-co-ownership among co-heirs, voting rights are effectively paralyzed unless one representative for shareholder rights is designated—which can be fatal to the second-generation heir (Commercial Act Article 333; Supreme Court Decision 2025Da211120 dated September 11, 2025).

Proactively, a shareholders' agreement should set rules for voting and share transfers, but to bind the company itself, the rules must be reflected in the articles of incorporation (e.g., requiring board approval for share transfers). Once a dispute erupts, an injunction suspending a director's performance of duties or appointing a substitute under Article 407 of the Commercial Act is a key first move (Commercial Act Articles 335 and 407).

1. A Risky Coexistence: When Shares and On-the-Ground Control Are Separated

In companies built jointly by a founder and a co-founder, "shares" and "on-the-ground control" are often separated. While the founder is alive, the CEO and the majority shareholder remain balanced; right after succession, however, the following structure shakes corporate control.

(1) Share dispersion makes single-bloc voting difficult

When inherited shares are scattered among multiple heirs, it becomes difficult to exercise voting rights as a single bloc (quasi-co-ownership through joint inheritance). The Supreme Court held that, where shares are jointly inherited, the co-heirs jointly own (quasi-own) the shares from the moment of succession, and this is not affected by whether the inheritance has been partitioned or registered in the shareholders' register (Supreme Court Decision 2025Da211120 dated September 11, 2025).

(2) A voting-rights vacuum over co-owned shares

When shares are co-owned, the co-owners must designate "one person to exercise the rights of the shareholder," so if no agreement is reached, the exercise of shareholder rights itself can be cut off. In addition, a request to update the shareholders' register to reflect the co-ownership status itself does not qualify as "exercising the rights of the shareholder" under Article 333(2) of the Commercial Act, so it is generally understood that some co-owners alone cannot unilaterally request such a co-ownership entry (Supreme Court Decision 2025Da211120 dated September 11, 2025).

(3) The counterattack of on-the-ground power

The co-founder (uncle) side may use the board and executive lines to lead the convening of shareholders' meetings, set the agenda, and secure proxies, attempting to relegate the second-generation heir to a "nominal shareholder." The CEO has authority to take all judicial and extra-judicial actions concerning the company's business, making it easy to seize practical control (Supreme Court en banc Decision 2016Da251215 dated March 23, 2017).

2. Legal Norms You Must Know

(1) Directors can be removed at any time by special resolution

Directors can be removed at any time by a special resolution of the shareholders' meeting (resolution under Article 434 of the Commercial Act), but removing a director without justifiable cause during the term may give rise to damages claims (Commercial Act Article 385).

(2) The CEO is, in principle, appointed by board resolution

The CEO is, in principle, appointed by a resolution of the board of directors, but the articles of incorporation may also provide for appointment by the shareholders' meeting (Commercial Act Article 389). Director and auditor status is acquired by the appointing resolution of the shareholders' meeting plus the appointee's acceptance, without a separate appointment contract; the argument that "a person cannot become a director because the CEO refused to sign an appointment contract" is therefore restricted (Supreme Court en banc Decision 2016Da251215 dated March 23, 2017).

(3) Minority shareholders can request cumulative voting

Minority shareholders (holding 3% or more of the total issued shares) can request cumulative voting when two or more directors are to be elected, with directors elected in the order of votes received. In a succession scenario with dispersed shares, this can also work "in reverse" to the opponent's advantage (Commercial Act Article 382-2).

(4) An injunction suspending performance of duties is the key tool at the start of a dispute

Where an action to invalidate or rescind a director's election resolution or to remove a director has been filed (including before filing if there are urgent circumstances), the court may, by injunction, suspend the director's performance of duties or appoint a substitute (Commercial Act Article 407). In such injunctions, the right to be preserved (e.g., the right to seek removal of a director) and the necessity of preservation (such as the risk of irreparable harm) are at issue, and there are precedents that recognized necessity of preservation in cases involving violations of non-compete obligations (Seoul High Court Decision 90Ra129).

(5) Shareholders' agreements and restrictions on share transfers

Agreements among shareholders that partially restrict share transfers are, in principle, valid (unless they violate public order and morals or completely block recovery of invested capital), but they are largely treated as a matter of effect between the parties (Supreme Court Decision 2019Da274639 dated March 31, 2022; Busan High Court Decision 2005Na13783 dated January 11, 2007). To block share transfers at the company level, the key axis is to provide for a board approval requirement in the articles of incorporation (Commercial Act Article 335).

3. Why the 30 to 90 Days After Death Is the Decisive Window for Corporate Control

Right after succession, shares are essentially placed in "quasi-co-ownership" among the co-heirs; if voting rights cannot move as a single bloc, the structure of director appointments and removals at the shareholders' meeting works in favor of the opponent (the uncle) (Commercial Act Article 333; Supreme Court Decision 2025Da211120 dated September 11, 2025).

In particular, if the opponent already holds 3% or more, or rallies friendly shares, a strategy of securing a foothold on the board through cumulative voting becomes viable (Commercial Act Article 382-2). If this window is missed, the composition of the board and CEO can become entrenched under the opponent's lead, so consolidating voting rights and managing the schedule of shareholders' meetings from immediately after the start of inheritance are top priorities.

4. A "Shareholders' Agreement" Is Essential, But Must Be Viewed as a Set with the Articles of Incorporation

Agreements among shareholders concerning the exercise of voting rights and share dispositions (rights of first refusal, consent rights, etc.) can, in principle, be valid, and even strong transfer restrictions such as "unanimous consent of all investors" have not always been deemed void, depending on the circumstances (Supreme Court Decision 2019Da274639 dated March 31, 2022).

However, even when violated, the consequences typically end in damages or liquidated damages between the parties, and may not directly operate as a device to immediately block "registration, share-register entries, or resolutions" at the company level (Busan High Court Decision 2005Na13783 dated January 11, 2007). Therefore, to "block the very moment shares pass to the uncle," it is important to also design corporate-law devices, such as inserting a board approval requirement for share transfers into the articles of incorporation (Commercial Act Article 335).

5. Once a Dispute Erupts, the "Initial Litigation Card" Is an Injunction Suspending Performance of Duties

In the process of building the second-generation regime, the issues are when the opponent (i) appoints directors through unlawful or improper procedures, (ii) creates flaws around the removal of directors, or (iii) causes irreparable harm by effectively seizing the company through CEO authority.

In this phase, alongside the merits action (invalidation/rescission of resolutions, action to remove directors), an injunction under Article 407 of the Commercial Act suspending performance of duties or appointing a substitute is considered. Courts focus on the necessity of preservation (risk of irreparable harm, etc.) and have recognized necessity of preservation in cases involving violations of non-compete obligations (Seoul High Court Decision 90Ra129).

6. Practical Checkpoints

• Whether, immediately after succession, designating a single representative to exercise shareholder rights is set as the top priority when shares are co-owned by co-heirs (failing to consolidate voting rights can directly translate into defeat) (Commercial Act Article 333; Supreme Court Decision 2025Da211120 dated September 11, 2025).

• Whether the structure is one in which seizing the board directly leads to appointing the CEO (the game changes if the articles of incorporation provide for "appointment by the shareholders' meeting") (Commercial Act Article 389).

• Whether the opponent can use cumulative voting to pre-empt part of the board (including whether the 3% requirement is met) (Commercial Act Article 382-2).

• Whether the key clauses of the shareholders' agreement (voting rights, transfer restrictions, sanctions for violations) are inconsistent with the articles of incorporation, registration, or actual governance (any inconsistency sharply reduces effectiveness in a dispute) (Commercial Act Article 335; Supreme Court Decision 2019Da274639 dated March 31, 2022).

• Whether, at the first signs of a dispute, evidence is being designed to satisfy the requirements of Article 407 injunctions (right to be preserved and necessity of preservation), in parallel with the merits action (rescission/invalidation of resolutions, action to remove directors) (Commercial Act Article 407; Seoul High Court Decision 90Ra129).

True business succession is completed not by paying taxes, but by fully defending corporate control.

From immediately after the start of inheritance, our firm has lawyers step in to organize a one-stop corporate-control defense plan that goes beyond mere title transfers—covering consolidation of voting rights, design of shareholders' agreements, and injunctions suspending performance of duties.