Whether only shareholders on the register of shareholders can exercise shareholders' rights in relation to the company (affirmative in principle), and in a case where a company knows that there is another person who actually acquired or intended to acquire shares other than shareholders on the register of shareholders, whether the exercise of shareholders' rights by shareholders on the register of shareholders can be denied or the exercise of shareholders' rights by those who did not complete the registration on the register of shareholders can be recognized (negative in principle)

The reason for the establishment of the shareholder registry system under the Commercial Act is to promote efficiency and legal stability in handling related affairs by ensuring that the legal relations related to a large number of shareholders can be easily identified externally through a form and uniform standard due to the nature of collective legal relations in which the number of shareholders continues to change following issuance and transfer of shares. This is the form of separating the legal relations between the parties other than the company regarding ownership of shares and the source of exercise of shareholder rights against the company, and recognizing special effect on the entry in the shareholder registry or transfer of shareholders to the latter. Therefore, barring any special circumstance, a person who is legally entered in the shareholder registry can exercise shareholder rights, such as voting rights, in relation to the company. A company cannot deny the exercise of shareholder’s rights among those who actually acquired or intended to acquire shares, other than the shareholders on the shareholder registry, regardless of whether the company had known the existence of a separate person who actually acquired or attempted to acquire shares on the shareholder registry, and cannot be recognized as exercising shareholder’s rights.

However, the Commercial Act only prescribes the entry of the register of shareholders as a requisite for setting up against the company, but is not stipulated as a requirement for the transfer of shares, so the entry of the register of shareholders is not a shareholder of an unentitled person, but a shareholder does not lose his/her right on the ground that the transfer of shares was not made.

As such, the legal relationship on stock ownership and the face value of the shareholder's exercise of shareholder's rights against the company are divided. The same applies to cases where the ownership of stocks and the ownership of shareholder's rights are disputed between the company and the shareholder.

Articles 336(1) and 337(1) of the Commercial Act

Supreme Court en banc Decision 2015Da248342 Decided March 23, 2017 (Gong2017Sang, 847) Supreme Court Decision 2017Da221501 Decided October 12, 2018 (Gong2018Ha, 2091)

New Walls Market Co., Ltd. (Law Firm Line, Attorneys Gyeong-kum et al., Counsel for the plaintiff-appellant)

IMN Co., Ltd. (Law Firm Shinsung, Attorneys Lee Dong-soo et al., Counsel for the plaintiff-appellant)

Busan High Court Decision 2017Na5043, 50440 decided September 27, 2017

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal by both parties are examined as follows.

1. A. The reason for the establishment of the shareholder registry system under the Commercial Act is to promote efficiency and legal stability in handling affairs related to the issuance and transfer of shares so that a company can process the legal relationship related to multiple shareholders in a form and uniform manner easily recognizable through the issuance and transfer of shares. This is to distinguish the legal relationship between the parties other than the company regarding ownership of shares and the phase where shareholders exercise shareholders' rights against the company. As such, barring any special circumstance, a person who is lawfully entered in the shareholder registry can exercise shareholders' rights such as voting rights in relation to the company, and the company cannot deny the exercise of shareholders' rights in relation to the company, regardless of the existence of a separate person who actually acquired or intended to acquire shares other than the shareholders on the shareholder registry, and cannot be recognized as exercising shareholders' rights (see, e.g., Supreme Court en banc Decision 2015Da24834, Mar. 23, 2017).

B. However, the Commercial Act only provides for the entry in the register of shareholders as a requisite for setting up against the company, but does not provide for the effective requirements for the transfer of shares, so the entry of a change of holders is not a shareholder but a shareholder does not lose his/her right (see Supreme Court Decision 2017Da221501, Oct. 12, 2018).

C. As such, the legal relationship on stock ownership and the face value of the shareholder’s exercise of shareholder’s rights against the company are divided. The same applies to cases where the company and the shareholder dispute over stock ownership, i.e., stock ownership, as well as the right relationship on stock ownership.

2. The reasoning of the lower judgment and the record reveal the following facts.

A. The Defendant (Counterclaim Plaintiff; hereinafter “Defendant”) established a stock company with Nonparty 1 and Nonparty 2 to carry on the business of constructing and selling market buildings (hereinafter “instant business”). The Defendant, etc. was liable for the business expenses, such as investors’ water color, and decided to carry out construction works on behalf of the Defendant, including building permission, on behalf of the Defendant. The shares of the newly established three companies were issued 14,000 shares and allocated 2,00 shares to the investors in kind in the business site, investors, and the Defendant, respectively. The Defendant agreed to allocate 10,000 shares to the investors in four parcels in water color. The Defendant agreed to allocate 8,000 shares to the investors in four parcels.

B. Accordingly, on August 17, 2012, the Defendant et al. established the Plaintiff (Counterclaim Defendant; hereinafter “Plaintiff”) and issued a total of 14,000 shares. At the time of the Plaintiff’s establishment, Nonparty 1, who was the representative director at the time of the Plaintiff’s establishment, stated that Nonparty 2,00 shares, Nonparty 2,00 shares, and the Defendant owned KRW 10,00 shares (hereinafter “instant shares”).

C. The Plaintiff received an investment from Nonparty 3, etc. or obtained a loan from a financial institution, and completed the registration of ownership transfer in the name of the Plaintiff after purchasing the entire land on four parcels of land. In particular, on March 2013, the Plaintiff prepared a register of shareholders dated November 12, 2012, stating the Plaintiff’s shares issued as “Non-Party 12,00 shares, Non-Party 22,00 shares,” stating the Plaintiff’s shares issued for the convenience of the loan examination. At the time, there is no separate share acquisition contract between the Defendant and Non-Party 1.

D. On October 2013, when the Defendant received investment in the instant business from Nonparty 3, there was a dispute between Nonparty 1 and the Defendant, the representative director of the Plaintiff, and the Plaintiff filed the instant lawsuit against the Defendant seeking confirmation that the instant shares were not owned by the Plaintiff’s shareholder registry at the time of its establishment on the ground that, even if the instant shares were not vested in the Defendant, the Defendant still referred to as a shareholder of the instant shares on the ground that it was stated as holding the instant shares at the time of its establishment.

3. After finding the above facts, the lower court determined that it is reasonable to view that there is an exceptional circumstance where it is difficult to determine whether a shareholder is a shareholder solely based on the formal entry in the shareholder registry stated in the above judgment on March 23, 2017, on the premise that the Plaintiff’s acquisition of shares with respect to 10,000 shares of the instant case between the Defendant and Nonparty 1 did not have entered into a loan agreement, and thus, seeking confirmation that the shareholder was not a shareholder on the basis of the shareholder registry on November 12, 2012, stating that the 10,000 shares of the instant case was Nonparty 1, for the financial institution’s loan examination convenience, constitutes an unfair delay or refusal of entry in the shareholder registry, and thus, it is difficult to view that the Defendant lawfully acquired 2,00 shares out of the shares of the instant case from Nonparty 2 prior to establishment of the Plaintiff, but it is difficult to view that the Plaintiff purchased shares from Nonparty 30 or 400 shares from the Plaintiff’s establishment.

4. The instant case pertains to the dispute between the Plaintiff and the Defendant, which was legally recorded in the shareholder registry, and between the Plaintiff and the Defendant, who were legally recorded in the shareholder registry, and the issue is different from the en banc Decision 2015Da248342 Decided March 23, 2017, which was rendered by the Supreme Court en banc Decision 2015Da248342 Decided March 23, 2017, and it is inappropriate to be invoked in

However, in light of the aforementioned legal principles and records, it is reasonable to conclude that the Defendant was merely a shareholder of 2,000 shares out of the instant shares and was not a shareholder with respect to 8,000 shares. In so doing, the lower court did not err by misapprehending the legal doctrine regarding the shareholder registry system, contrary to what is alleged in the Plaintiff’s ground of appeal, or by misapprehending the legal doctrine regarding the shareholder registry system, as otherwise alleged

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

Justices Noh Tae-tae (Presiding Justice)