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"I hold the largest stake — and I cannot vote on my own remuneration?" This question comes up constantly in shareholder meeting practice. The short answer is yes. The Korean Commercial Act restricts voting by anyone with a special interest in a resolution, and the Supreme Court has held that a person who is both a director and a shareholder has a special interest in resolutions concerning their own remuneration.

[Table of Contents]

1. What the Commercial Act provides — voting limits for interested parties

2. The Supreme Court's holding: a director-shareholder is an interested party

3. How this differs from the 3% rule — total exclusion, not a cap

4. The practical question: does the resolution pass without the majority holder?

5. Minutes and later disputes — resolutions can be challenged

1. What the Commercial Act provides — voting limits for interested parties

Article 368(3) of the Commercial Act provides that a person who has a special interest in a resolution of a general meeting may not exercise voting rights on it.

The rationale is straightforward. A general meeting is a decision-making body serving the interests of the company as a whole. Where a particular shareholder holds a personal interest unrelated to the company in a given item, that shareholder's vote can distort the outcome. The statute therefore removes the vote entirely.

The "special interest" contemplated here is not the general interest a shareholder holds as such, but a relationship in which the resolution directly confers a personal benefit or detriment.

2. The Supreme Court's holding: a director-shareholder is an interested party

Under Article 388 of the Commercial Act, directors' remuneration is fixed by resolution of the general meeting where the articles of incorporation do not specify the amount. In practice, companies usually seek approval of an aggregate cap on remuneration for all directors rather than setting each director's pay individually.

The difficulty arises where the director votes on that item as a shareholder. The Supreme Court held that a person who is both a director and a shareholder is an interested party in relation to resolutions on their own remuneration.

The reasoning runs as follows: once the cap is approved, that director stands in a position to receive remuneration within it. The item is therefore not a question of corporate governance but one in which a direct pecuniary benefit accrues personally to the voter.

The separate question of who decides directors' remuneration — that it requires the articles or a shareholder resolution and cannot be delegated wholesale to the representative director — is addressed in our earlier article on the subject. This post concerns the next stage: who may actually vote at the meeting.

3. How this differs from the 3% rule — total exclusion, not a cap

This is where confusion most often arises. The Commercial Act contains several mechanisms constraining voting rights, and they operate differently.

• The 3% rule for appointing auditors and audit committee members — the largest shareholder's voting rights are recognised up to 3%, with only the excess disregarded. It is a cap.

• Exclusion of an interested party — the voting right is removed altogether for that item. Not 3%, not 1%, but zero.

A controlling shareholder holding 60% who also serves as a registered director may exercise 3% on an audit committee appointment, but the entire 60% drops out of the count on their own remuneration cap. Missing this distinction throws off the tally itself.

4. The practical question: does the resolution pass without the majority holder?

Where a controlling shareholder also serves as a registered director, the company must calculate in advance whether the resolution requirements are met once that stake is excluded.

Approval of directors' remuneration is an ordinary resolution. Under Article 368(1), it requires both a majority of the voting rights of shareholders present and at least one quarter of the total issued shares. Under Article 371(2), shares whose voting rights cannot be exercised are not counted toward the voting rights of shareholders present.

The practical consequence is clear: the larger the controlling stake, the more turnout among the remaining minority shareholders determines whether the resolution passes. If a 70% holder is excluded, only 30% remains — and if a substantial portion of that does not attend, the one-quarter of total issued shares requirement may fail and the item will be rejected.

Companies should therefore settle the following in advance:

1. Identify which shareholders also serve as directors, and their holdings

2. Simulate whether the ordinary resolution requirements are met with those holdings excluded

3. Forecast actual attendance and approval, accounting for electronic voting, proxies and institutional investors

4. Consider adjusting how items are tabled, including splitting the agenda where appropriate

5. Minutes and later disputes — resolutions can be challenged

Record-keeping matters as much as the tally. The minutes of the general meeting must accurately record which shareholders were treated as interested parties and excluded, and how the attending voting rights and affirmative votes were calculated as a result.

Neglecting this exposes a hard-won remuneration resolution to later challenge on grounds of defect in the resolution. Where the method of resolution violates statute or the articles, shareholders may bring an action to rescind the resolution, which must be filed within two months of the resolution date.

Family companies and unlisted SMEs often streamline these procedures on the assumption that "the majority holder decides anyway" — and that is precisely where disputes begin. If shareholder relations sour or a minority shareholder raises an objection, the basis for years of remuneration payments can be called into question at once.

In short, holding a majority stake does not mean voting on every item. Where the item concerns your own remuneration, confirm first whether your voting rights are restricted.

Consult Cheongchul Law Firm on shareholder resolutions and directors' remuneration

A remuneration item ties together exclusion of voting rights, quorum calculation, minute-taking and the handling of later disputes. Designing the vote-counting structure before the meeting alone prevents a great many disputes.

Cheongchul Law Firm handles corporate law matters directly, from advising on the conduct of general meetings to claims for inspection of accounting books, exercise of minority shareholder rights, and litigation over defective resolutions. If you are preparing for an annual general meeting or the validity of a remuneration resolution is in question, please reach out through our consultation request page.

This post is general information for reference only and does not constitute legal advice on any specific matter. Whether a person is an interested party, and how the quorum is calculated, depend on the articles of incorporation, the shareholding structure and the specific terms of the item, so please consult a qualified attorney.