Whether, in the appointment of auditors, shares without voting rights under Article 409(2) of the Commercial Act are included in the “total number of shares issued” under Article 368(1) of the Commercial Act (negative), and whether the same applies to a corporation, the total amount of capital of which is less than one billion won and which does not necessarily require the appointment of auditors (affirmative)

In order to appoint an auditor at a general meeting of shareholders, the quorum of a majority of the voting rights of the shareholders present shall be met, and further, the quorum shall be at least 1/4 of the total number of issued shares. Article 371 of the Commercial Act provides for “stocks which are not included in the total number of issued shares” under Article 371(1) of the Commercial Act, and does not include “stocks exceeding 3%” under Article 409(2) of the Commercial Act (hereinafter “stocks exceeding 3%”), and Article 409(2) of the Commercial Act provides for “stocks which are not included in the number of voting rights of the shareholders present at a general meeting of shareholders.”

However, if more than 3% of the shares are deemed to be included in the “total number of issued shares” under Article 368(1) of the Commercial Act, if one shareholder owns more than 78% of the total number of issued and outstanding shares, and if the number of more than 3% of shares exceeds 75% of the total number of issued and outstanding shares, it is entirely impossible to satisfy the requirement of “number of more than 1/4 of the total number of issued and outstanding shares” under Article 368(1) of the Commercial Act. This result is inconsistent with the basic position of the Commercial Act, which provides for the auditor as a necessary permanent institution of the company. Accordingly, more than 3% shares in the appointment of an auditor are not included in the “total number of issued and outstanding shares” under Article 368(1) of the Commercial Act, notwithstanding Article 371 of the Commercial Act. This does not change because the total amount of capital is less than 1 billion won, and thus, it does not necessarily mean a stock company that does not necessarily appoint

Articles 368(1), 371, 409(1), (2) and (4) of the Commercial Act

Plaintiff (Law Firm Hannuri, Attorneys Yang Jin-young et al., Counsel for the plaintiff-appellant)

Dlima Co., Ltd. (Attorneys Lee Dong-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2015Na206194 decided April 29, 2016

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

Article 409 of the Commercial Act provides, “A shareholder who holds more than 3/100 of the total number of issued and outstanding shares other than nonvoting shares shall not exercise his/her voting rights in the appointment of an auditor under paragraph (1).” As to the method of resolution by the general meeting of shareholders, Article 368(1) of the Commercial Act provides, “Except as otherwise provided in this Act or in the articles of incorporation, the resolution by the general meeting of shareholders shall be at least 1/4 of the total number of issued and outstanding shares shall be at least a majority of the shareholders present at the meeting and at least 1/4 of the total number of issued and outstanding shares.” Therefore, in order to appoint an auditor at the general meeting of shareholders, the resolution by the general meeting of shareholders shall satisfy the quorum of the general meeting of shareholders present at first, which shall be at least 1/4 of the total number of issued and outstanding shares.” Article 371 of the Commercial Act provides, “stocks that are not included in the total number of issued and outstanding shares” under paragraph (1) of this Article 409(2) of the Commercial Act.

However, if more than 3% of the shares are deemed to be included in the “total number of issued shares” under Article 368(1) of the Commercial Act, if one shareholder owns more than 78% of the total number of issued and outstanding shares, and if the number of more than 3% of shares exceeds 75% of the total number of issued and outstanding shares, it is entirely impossible to satisfy the requirement of “number of more than 1/4 of the total number of issued and outstanding shares” under Article 368(1) of the Commercial Act. This result is inconsistent with the basic position of the Commercial Act that provides for an auditor as a necessary permanent institution for an audit. Therefore, the excess of 3% of shares in the appointment of an auditor is not included in the “total number of issued and outstanding shares” under Article 368(1) of the Commercial Act, notwithstanding the provision of Article 371 of the Commercial Act. This does not change because the total amount of capital is less than 1 billion won and thus, it does not necessarily mean a stock company that does not necessarily appoint

According to the reasoning of the judgment below, the court below acknowledged the following facts: (a) the plaintiff held 340 shares (34%) of total 1,000 shares issued by the defendant company; (b) the non-party 1 held 330 shares (33%) and the non-party 2 held 30 shares (33%); and (c) the resolution of this case was made by appointing the non-party 3 as the auditor at the temporary general meeting of shareholders of the defendant company held by the plaintiff, the non-party 1 and the non-party 2 with the consent of the non-party 1 and the non-party 2. Furthermore, the court below held that the non-party 1 and the non-party 2 did not have voting rights with respect to shares exceeding 3% (30 shares) of total number of shares issued by the plaintiff, the non-party 1, and the non-party 2 did not have voting rights with respect to shares exceeding 90 shares issued by the non-party 3 among the above 90 shares; and (d) the non-party 1 and the non-party 2's.

The above judgment of the court below is just in accordance with the legal principles as seen earlier, and there is no violation of the law as alleged in the grounds of appeal. In addition, the judgment of the court below on the costs of lawsuit is not erroneous in the misapprehension of law as

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Park Sang-ok (Presiding Justice)