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Do shareholders of listed and unlisted companies have the same rights? The short answer is that the rights are identical, but the requirements for exercising them are not. Because listed companies have many shareholders and highly dispersed ownership, the Korean Commercial Act sets special, much lower shareholding thresholds. For a derivative suit, the threshold drops to 0.01%.

[Contents]

1. Same rights, different requirements

2. The numbers in Article 542-6

3. The trade-off: six months of continuous holding

4. Capital of KRW 100 billion or more lowers it again

5. If you cannot meet the six months: the parallel route

6. Three things to check before you act

1. Same rights, different requirements

Minority shareholder rights, unlike rights available to a holder of a single share, require a minimum percentage of total issued shares. Inspection of accounting books, calling an extraordinary general meeting, seeking removal of a director and filing a derivative suit all fall into this category.

The substance of these rights is the same whether the company is listed or not. What changes is only the requirement: how large a stake, held for how long.

The reason is practical. If a listed company with tens of thousands of shareholders required the same 3% as an unlisted company, virtually no one could exercise the right. Article 542-6 of the Commercial Act therefore lowers the thresholds for listed companies.

2. The numbers in Article 542-6

Set against the general rules that apply to unlisted companies, Article 542-6 provides as follows.

• Derivative suit (Art. 403): 1% → 0.01% (Art. 542-6(6))

• Injunction against unlawful acts (Art. 402): 1% → 0.05% (para. 5)

• Inspection of accounting books (Art. 466): 3% → 0.1% (para. 4)

• Removal of a director or auditor (Art. 385), removal of a liquidator (Art. 539): 3% → 0.5% (para. 3)

• Multiple derivative suit (Art. 406-2): 1% → 0.5% (para. 7)

• Shareholder proposal (Art. 363-2): 3% → 1% (para. 2)

• Calling an extraordinary general meeting (Art. 366) and appointment of an inspector (Art. 467): 3% → 1.5% (para. 1)

Note that the size of the reduction differs sharply by right. A derivative suit falls to one hundredth of the general threshold, while the right to call a general meeting is only halved. Remembering simply that "listed companies have lower thresholds" leads to miscalculation for the specific right you intend to exercise.

3. The trade-off: six months of continuous holding

In exchange for the lower percentage, one more condition attaches. Every paragraph of Article 542-6 begins with the words "a person who has held ... continuously for six months." The special rule is therefore made up of two elements: a shareholding ratio and a six-month holding period.

The general rules contain no holding period. A shareholder of an unlisted company may, in some cases, exercise minority shareholder rights immediately after acquiring the shares, provided the percentage requirement is met. That is why a listed company shareholder is not automatically in a better position.

Timing is the practical issue: building a stake after a dispute has already surfaced still leaves six months to wait. Article 542-6(8), however, allows a listed company to set a shorter holding period or a lower ratio in its articles of incorporation, so the articles should be checked first.

4. Capital of KRW 100 billion or more lowers it again

Paragraphs 2 through 5 of Article 542-6 refer in parentheses to "a listed company prescribed by Presidential Decree." Article 32 of the Enforcement Decree defines this as a listed company with capital of KRW 100 billion or more as of the end of the most recent business year. For such companies the thresholds fall once again.

• Shareholder proposal: 1% → 0.5%

• Removal of a director or auditor: 0.5% → 0.25%

• Inspection of accounting books: 0.1% → 0.05%

• Injunction against unlawful acts: 0.05% → 0.025%

The 0.01% threshold for a derivative suit under paragraph 6, by contrast, is the same regardless of capital size. In short, it is not enough to ask whether the company is listed; its capital size must be checked as well.

5. If you cannot meet the six months: the parallel route

What if the six months cannot be met? Article 542-6(10) provides that paragraphs 1 through 7 "shall not affect the exercise of minority shareholder rights under other sections of this Chapter."

It was once disputed whether the listed-company provisions displaced the general rules or whether a shareholder could choose between them. This paragraph settled the point in favour of selective application.

Two routes therefore exist. A long-standing holder with a small stake relies on the special rule (0.01% plus six months for a derivative suit), while a recent holder with a larger stake may rely on the general rule (1%) without any holding period.

6. Three things to check before you act

Before exercising a minority shareholder right, three points should be settled rather than looking at your percentage alone.

1. Which right you intend to exercise, since the required ratio differs for each.

2. What kind of company it is: listed or not, and if listed, whether its capital reaches KRW 100 billion.

3. How the shares are held and for how long. Article 542-6(9) defines a "person who has held shares" to include not only the owner but also a person delegated to exercise shareholder rights and two or more shareholders acting jointly.

A claim dismissed for failure to meet the requirements signals your intentions to the company while achieving nothing, so the requirements are best fixed before the first written demand is sent.

Cheongchul Law Firm handles corporate law matters ranging from threshold analysis to injunctions for inspection of accounting books, derivative suits and general meeting disputes.

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.