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"We meet the percentage, so we can exercise the right now, correct?" In practice, shareholders who clear the threshold still lose rights, because they never checked which shares go into the calculation, what the articles of incorporation say, and how long the right remains available.

[Contents]

1. The ratio is only the first check

2. Non-voting preferred shares normally count

3. The exception: shareholder proposals

4. Articles may lower the bar, but not raise it

5. The check most often missed: deadlines

6. A checklist before you act

1. The ratio is only the first check

Minority shareholder rights require a minimum percentage of total issued shares, so the percentage is where everyone starts. It is, however, only one of three checks.

The other two are what sits in the denominator and whether the right carries a deadline. The second can extinguish the right entirely, even where the shareholding is more than sufficient.

2. Non-voting preferred shares normally count

Holders of non-voting preferred shares often assume those shares drop out of the calculation. As a rule they do not. Most provisions set the ratio against the "total number of issued shares" rather than voting shares.

• Derivative suit (Art. 403(1)): "1/100 or more of the total number of issued shares"

• Removal of a director (Art. 385(2)): "3/100 or more of the total number of issued shares"

The confusion comes from Article 371, which excludes non-voting shares from the total. Its scope, however, is expressly limited to "resolutions of a general meeting". It is a quorum rule, not a rule for minority shareholder thresholds.

3. The exception: shareholder proposals

Not every right is the same. For some, the legislature has expressly excluded non-voting shares. The clearest example is the shareholder proposal.

• Shareholder proposal (Art. 363-2(1)): "3/100 or more of the total issued shares excluding non-voting shares"

• Listed company special rule (Art. 542-6(2)): "10/1,000 (5/1,000 for companies prescribed by Presidential Decree) or more of the total issued shares excluding non-voting shares"

There is therefore no single answer to "do preferred shares count?" The provision governing the specific right you intend to exercise has to be read, because the same holding can satisfy one threshold and fail another.

4. Articles may lower the bar, but not raise it

The articles of incorporation matter too, and direction decides validity.

Relaxation is permitted. For listed companies Article 542-6(8) expressly allows the articles to set a shorter holding period or a lower ratio than paragraphs 1 through 6. For unlisted companies, a provision lowering a 3% requirement to 1% is likewise regarded as valid.

Tightening is not. Minority shareholder rights exist to protect the minority against the majority, so a provision raising 3% to 5% would defeat the purpose and is unlikely to be upheld.

When calculating the threshold, therefore, check whether the company's articles have set a lower figure. A holding below the statutory level may still qualify.

5. The check most often missed: deadlines

Deadlines are the check most often missed. A shareholding persists; a right subject to a time limit disappears once the period runs.

Article 385(2) is the leading example. Where a director has committed a dishonest act or a serious violation of law or the articles and removal is voted down at a general meeting, shareholders holding 3% or more may apply to the court "within one month from the date of the resolution". Article 415 applies the same rule to auditors.

The clock starts on the day the motion fails. Internal deliberation that runs past a month leaves the shareholding intact but the claim based on that resolution gone.

Derivative suits have their own sequence. Under Article 403 a shareholder must first demand in writing, stating reasons, that the company sue; only if the company fails to act within 30 days may the shareholder proceed (immediately, where irreparable harm is threatened). Skipping that demand can lead to dismissal.

6. A checklist before you act

Before exercising a minority shareholder right, work through the following order.

1. Identify the specific right first; each has its own provision.

2. Read the denominator in that provision: "total issued shares" or "total issued shares excluding non-voting shares".

3. Check the articles of incorporation; a lower figure there governs.

4. Check deadlines and prerequisites: one month from the failed resolution for removal, 30 days after a written demand for a derivative suit.

5. Consider later changes in holding: in a derivative suit a drop below 1% after filing does not affect the action, though losing all shares does (Art. 403(5)).

Cheongchul Law Firm handles corporate law matters from threshold analysis to injunctions for inspection of accounting books, removal actions and derivative suits. Where a right is time-limited, delay is itself a loss, so review is best begun immediately after the meeting.

For a consultation, please call 02-6959-9936 or use our consultation request page.

This post is general legal information, not legal advice on any particular matter. Please consult an attorney regarding your specific case.