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"Do I really have to pay back a salary I already received?" In Korea, the answer can be yes. Under Korean company law, director remuneration requires a basis — either an amount fixed in the articles of incorporation or a shareholder resolution. Pay made without that basis is unjust enrichment and may have to be returned, potentially covering the past ten years.

[Contents]

1. Why a resolution is required — Commercial Act Article 388

2. No resolution? Past practice does not cure the defect

3. What counts as remuneration — substance over label

4. A cap alone is not enough — individual allocation matters

5. Why ten years of pay can surface at once

6. What to review now

1. Why a resolution is required — Commercial Act Article 388

Article 388 of the Korean Commercial Act provides that director remuneration, unless the amount is fixed in the articles of incorporation, shall be determined by a resolution of the general meeting of shareholders.

The purpose is to prevent directors from setting their own pay. Directors run the company's business, so allowing them to fix their own compensation would open the door to unlimited outflow of corporate assets. The Act therefore reserves that decision for the owners — the shareholders.

As a result, the first question is not "how much was paid" but "on what legal basis it was paid." A modest amount without a basis is exposed; a large amount backed by a valid resolution is far more defensible.

2. No resolution? Past practice does not cure the defect

If neither the articles nor a shareholder resolution supports the payment, the payment lacks legal cause. The company may then claim restitution under Article 741 of the Korean Civil Act. Korean courts have consistently held that director remuneration paid without a shareholder resolution may be recoverable.

The most common defence is "we have always done it this way." Repetition over many years does not cure a missing resolution. Custom is not a substitute for a statutory procedure.

There are narrow exceptions. Where the company is effectively a one-person company, or where all shareholders consented, courts may treat the requirement as satisfied. But those exceptions depend on evidence of the shareholding structure and the circumstances at the time, so a vague assumption that "it is a family business" is risky — that assumption collapses as soon as shareholder relations sour.

3. What counts as remuneration — substance over label

Remuneration is not limited to monthly salary. The test is substance, not the name given to the payment. Any economic benefit received as consideration for performing the director's duties is in principle included:

1. Salary and allowances

2. Bonuses and special incentive payments

3. Severance pay

4. Retirement gratuities and merit awards

Special bonuses and retirement gratuities are frequent flashpoints because the amounts are large and the supporting documents are often thin. Calling a payment a "gratuity" does not take it outside the remuneration rules.

There is a tax dimension as well. Executive bonuses paid in excess of the payment standards set by the articles or a shareholder resolution may be denied deductibility for corporate income tax purposes. One procedural gap can therefore create civil exposure and tax exposure at the same time.

4. A cap alone is not enough — individual allocation matters

In practice, shareholders often approve only an aggregate remuneration cap for all directors, leaving allocation to the board or the representative director. That structure is permissible.

The problem arises when the cap exists but no allocation process does — for example, where the representative director simply takes an amount without any internal decision. Amounts exceeding the approved cap are even more clearly exposed.

Three records should therefore exist:

1. Articles of incorporation or minutes of the shareholder resolution approving the cap

2. Board resolution or internal remuneration rules allocating amounts within the cap

3. Documented grounds and calculation basis for bonuses, severance and other irregular payments

5. Why ten years of pay can surface at once

A claim in unjust enrichment is in principle subject to a ten-year limitation period under Article 162(1) of the Korean Civil Act. In other words, remuneration paid over the preceding decade can be put in issue together. Whether the shorter five-year commercial limitation period (Commercial Act Article 64) applies may be disputed depending on the facts, so the period should be assessed case by case.

A shareholder derivative action adds a second route. If the company does not pursue recovery, a shareholder holding at least 1% of the total issued shares may demand that the company sue under Article 403 of the Commercial Act, and may sue directly if the company fails to act within 30 days. For listed companies, a 0.01% holding held continuously for six months suffices.

The practical consequence is clear: "the company will not raise it" is not a safe assumption. Control disputes, investment due diligence, succession planning and minority shareholder conflicts routinely bring historic remuneration records back into play.

6. What to review now

1. Whether the articles contain a remuneration provision, and in what form

2. Whether minutes approving the remuneration cap actually exist for the past ten years

3. Whether actual payments exceeded the approved cap

4. Whether bonuses, incentives and retirement gratuities have individual supporting grounds

5. Whether any defect can still be remedied by subsequent ratification or rule-making

A defect does not automatically mean repayment. But fixing the process before a dispute begins produces a very different outcome from assembling documents after it starts.

Talk to Cheongchul Law Firm about executive remuneration and shareholder resolutions

Executive remuneration issues combine company law procedure, restitution claims, tax treatment and shareholder disputes. In unlisted SMEs and family companies, the longer the shortcuts have run, the larger the exposure becomes.

Cheongchul Law Firm advises on general meeting procedure, executive remuneration rules, unjust enrichment claims and defences, and shareholder derivative actions. If you are concerned about past remuneration or have already received a repayment demand, please contact us through our consultation booking page.

This article is general legal information, not legal advice on a specific matter. The scope of restitution, the applicable limitation period and the possibility of curing a defective resolution depend on the company's articles, shareholding structure and the circumstances of payment. Please consult a lawyer.