Kyusung Lee Attorney at Law

A Practical Guide to Shareholder-Requested Extraordinary General Meetings Under Korean Law

Kyusung Lee, Attorney at Law | Corporate Governance, Shareholder Activism & Commercial Disputes

Kyusung Lee, Attorney at Law Tel +82-2-6264-7604    Email kyusungii@gmail.com http://www.kyusunglee.com    Naver Blog: blog.naver.com/hotchkiss777

Foreign investors holding minority stakes in Korean companies often discover, usually too late, that the statutory auditor (감사, kansa) — a mandatory internal watchdog role unique to Korean corporate governance — isn’t actually watching anything. Unlike an external accounting auditor, Korea’s kansa is a company officer elected by shareholders and tasked with overseeing the board and management. When that officer is captured by management, or simply inactive, minority shareholders are not stuck waiting for the next annual meeting.

Korean law gives qualifying shareholders a real path to force the issue mid-term: a shareholder-requested extraordinary general meeting (EGM) to remove the sitting auditor. This article walks through the ownership thresholds, the request procedure, the court-permission process if the company stonewalls, and the risks foreign shareholders should manage along the way.

The Short Answer

• A shareholder who meets the statutory ownership threshold can demand that the board convene an EGM to remove the auditor.
• If the company fails to act “without delay,” the shareholder can ask a Korean district court to authorize the meeting directly.
• Court authorization only opens the floor for a vote — actually removing the auditor still requires a special resolution (two-thirds of votes present and one-third of total issued shares).
• Removing an auditor without justifiable cause doesn’t invalidate the resolution, but it can expose the company to a damages claim from the removed auditor.

1. Ownership Thresholds: What Foreign Investors Need to Hold

Article 366(1) of the Korean Commercial Act gives any shareholder holding 3% or more of total issued shares the right to demand an EGM. Multiple shareholders — including funds acting jointly, or a foreign parent and its affiliates — can aggregate their holdings to reach the 3% threshold, and should remain above it not only when filing the request but throughout any court proceeding that follows.

Company Type	Threshold	Holding Period
Private (non-listed) company	3% or more	None
Listed company — general route (Art. 366)	3% or more	None (confirmed by Korean Supreme Court)
Listed company — special route (Art. 542-6)	1.5% or more	Continuous 6 months

Note Foreign shareholders holding shares through a custodian or via the Korea Securities Depository (KSD) should confirm early how their holding will be evidenced — typically through a beneficial shareholder certificate (실질주주증명서) — since this documentation takes time to obtain and is required to support the request.

2. No Need to Prove Misconduct

A common misconception among foreign investors is that removing a Korean auditor requires proving embezzlement, breach of duty, or other serious wrongdoing. It doesn’t. Under Article 415 of the Commercial Act, which applies Article 385’s director-removal rules to auditors, shareholders can remove an auditor mid-term by special resolution simply by withdrawing their confidence in the officer — no criminal-level misconduct is required.

• The auditor has failed to meaningfully oversee the board and management.
• The auditor has not responded adequately to accounting or internal-control issues.
• The auditor’s independence appears compromised by ties to management.
• Shareholders have lost confidence and want to normalize the audit function with a new appointee.

Caution Avoid stating unverified allegations of embezzlement or fraud as established fact in the request letter — doing so can expose the requesting shareholder to defamation or business-interference claims under Korean law. Keep confirmed facts and shareholder assessment clearly separated.

3. If the Company Refuses: Petitioning the Court

If the board does not act without delay after receiving a proper request, the shareholder can petition the competent district court — typically where the company’s head office is registered — to authorize the meeting directly. Korean courts generally look for four things.

1.  The petitioner meets the statutory ownership threshold, evidenced by the shareholder registry, balance certificates, or beneficial shareholder certificates.

2.  A proper request was first delivered to the company’s board — in practice, by certified content-proof mail (내용증명) to the company’s registered head office, served separately on the CEO and each director.

3.  The request specified the agenda item and the reasons for the meeting with enough particularity.

4.  The company failed to act without delay — silence, an indefinite “we’ll consider it,” a board meeting that never sets a date, or dropping the auditor-removal item from an otherwise-convened meeting are all treated as functional refusal.

4. When Courts Decline to Authorize the Meeting

• The petitioner’s ownership falls short of the threshold, or share ownership isn’t properly evidenced.
• The pre-petition request was defective — sent to an individual rather than the board, missing the agenda item or reasons, or materially inconsistent with what’s later filed in court.
• The company has already lawfully initiated its own convening process for the same agenda.
• The purpose has become moot — for example, the target auditor has already resigned or their term has already expired.

5. Does the Court Judge Whether Removal Is Justified?

No — and this matters for foreign investors used to jurisdictions where courts scrutinize the substance of a removal claim. A Korean court hearing an EGM-authorization petition is not deciding whether the auditor actually deserves to be removed. It checks eligibility, procedure, and whether the agenda falls within shareholder authority, and otherwise defers to the shareholder vote itself. The Korean Supreme Court has held that unless the statutory requirements are unmet or the petition is a clear abuse of rights, courts should authorize the meeting.

• The company is in the middle of a control contest.
• The petitioning shareholder is a short-term or activist investor.
• The shareholder is motivated by share-price appreciation or investment returns.
• An annual general meeting is coming up soon anyway.
• Management disagrees with the stated grounds for removal.

6. The Actual Removal Vote: Special Resolution

Court authorization only gets the meeting onto the calendar — it does not remove the auditor. The removal resolution itself requires a special resolution under Articles 385 and 415: at least two-thirds of the voting rights present at the meeting, and at least one-third of total issued shares.

Note Don’t confuse this with the separate 3% voting-rights cap under Article 409(2), which limits large shareholders’ votes when electing (not removing) an auditor at a general, non-listed company. That cap does not automatically apply to a removal vote. Listed-company audit committee member removals are governed separately under Article 542-12 and require their own analysis.

7. Removal Without Cause: Damages Exposure

Caution Removing an auditor mid-term without justifiable cause does not invalidate the resolution — the removal stands. But the company can be held liable to the removed auditor for damages, typically calculated based on the compensation the auditor would have earned for the remainder of the term.

Shareholders planning a removal should build a documentation file well before filing the court petition, including:

• Audit reports and audit opinions issued during the auditor’s term
• Board and shareholder meeting minutes
• Internal-control or accounting issues that were reported to the auditor
• Evidence the auditor declined or ignored requested investigations
• Any special relationships between the auditor and management
• A record of opportunities given to the auditor to correct the problem

8. Five Practical Strategies for Foreign Shareholders

1.  Name the target precisely. “Removal of management” is not an agenda item a Korean court or company will act on — specify “Removal of Auditor [Name].”

2.  Pair the removal with a replacement nominee. Leaving the auditor seat vacant creates governance problems and weakens the case for urgency; nominate a successor in the same request.

3.  Keep the stated grounds factual. You don’t need to prove wrongdoing at the authorization stage, but grounds that read as a personal dispute weaken the petition.

4.  Model the vote before you file. Court authorization is meaningless if you can’t secure two-thirds of votes present and one-third of total shares — map allied shareholders, proxy availability, treasury shares, and cross-shareholdings first.

5.  Anticipate the company’s defenses. Expect challenges to your shareholder status or ownership percentage, claims the request wasn’t properly delivered to the board, assertions that a meeting is already underway, or accusations that the petition is a pretext for a takeover.

For foreign shareholders, the practical friction points are rarely the legal standard itself — Korean courts apply it fairly consistently — but execution: serving the request correctly in Korean, documenting beneficial ownership through a custodian chain, and building the damages-defense file in parallel with the petition. Missteps at any one of these stages can delay or derail an otherwise valid claim.

If you are evaluating a shareholder-led auditor removal, a board dispute, or a broader corporate governance matter involving a Korean company, feel free to reach out using the contact information below.

Attorney Kyusung Lee, Korean Bar Association — B.A. in Economics, Brown University — Yonsei Law School — Former International Contracts Counsel, Samsung C&T — Former Equity Research, BofA Merrill Lynch — CAMS (Certified Anti-Money Laundering Specialist) — Korean Bar Association-registered Startup Law Specialist — Practice areas: corporate governance, shareholder activism, foreign investment, cross-border contracts, commercial disputes

Kyusung Lee, Attorney at Law Tel +82-2-6264-7604    Email kyusungii@gmail.com http://www.kyusunglee.com    Naver Blog: blog.naver.com/hotchkiss777

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