Whether only shareholders on the register of shareholders can exercise shareholders' rights such as voting rights (affirmative in principle), and in this case, whether a company may deny the exercise of shareholders' rights by shareholders on the register of shareholders or recognize the exercise of shareholders' rights by those who did not complete entry on the register of shareholders (negative in principle)

Articles 337(1), 352(1), and 353(1) of the Commercial Act

Supreme Court en banc Decision 2015Da248342 Decided March 23, 2017 (Gong2017Sang, 847)

Plaintiff (Attorney Nam Tae-chul et al., Counsel for plaintiff-appellee)

G. M. L. S. L.S.C.

Daegu High Court Decision 2014Na3895 decided July 23, 2015

The judgment below is reversed, and the case is remanded to the Daegu High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the fourth ground for appeal

A. (1) The lower court acknowledged the following facts: (a) The Defendant’s list of shareholders indicated: (i) Nonparty 1, Nonparty 2, the Plaintiff’s 20%, 50%, and 30% of the issued shares; (ii) Nonparty 3’s former representative director’s son’s son’s son’s son; and (iii) Nonparty 1 and Nonparty 4’s son’s son’s son’s son’s son’s son; (b) the actual shareholder of the Plaintiff’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son’s son.

(2) Furthermore, the lower court determined that the instant lawsuit seeking confirmation of the representative director, the auditor’s resignation and absence of a resolution for appointment at the temporary general shareholders’ meeting on February 26, 2013, which had the nature as a resolution of the general shareholders’ meeting regarding the appointment of the Defendant’s representative director and auditor, was unlawful as there was no benefit of protection of rights or there was no benefit of lawsuit.

B. However, the lower court’s determination is difficult to accept for the following reasons.

(1) The reason for the establishment of the shareholder registry system under the Commercial Act is to ensure the efficiency and legal stability of business affairs related to the issuance and transfer of shares so that a company can process the legal relations related to a large number of shareholders in a form, uniform and easy way to externally identify the legal relations related to such large number of shareholders, given the nature of organizational legal relations where the composition of a shareholder continues to change following the issuance and transfer of shares. This is to uniformly determine persons entitled to exercise shareholder rights according to the entry in the shareholder registry, without conducting a separate examination of the substantive legal relations with the shareholders, by taking into account the fact that the exercise of shareholder rights may have a significant impact on the legal relations between the company and the large number of interested parties surrounding the company, rather than

Therefore, barring special circumstances, a person who is lawfully entered in the register of shareholders is entitled to exercise voting rights, such as voting rights, in relation to the company. A company cannot deny the exercise of shareholder rights by a shareholder on the register of shareholders, regardless of the existence of another person who actually acquired or intended to acquire shares other than a shareholder on the register of shareholders, and cannot be recognized as exercising shareholder rights by a person who did not complete the entry in the register of shareholders (see, e.g., Supreme Court en banc Decision 2015Da248342, Mar. 23, 2017).

(2) According to the reasoning of the lower judgment and the record, Nonparty 1, who is a shareholder holding 20% of the shares issued by the Defendant’s shareholder registry, may be aware of the fact that he did not participate in the instant management agreement. In light of the aforementioned legal principles, in principle, only Nonparty 1, who is recorded as the shareholder in the shareholder registry, may exercise shareholder rights in relation to the Defendant, and the Defendant may not recognize the exercise of shareholder rights by a person other than Nonparty 1, regardless of whether he was aware of the existence of the shares, or of the existence of another person who owns them

(3) Nevertheless, the court below rejected the lawsuit of this case on the grounds as indicated in its holding, on the premise that Nonparty 1 delegated the authority to reach an agreement to the person who participated in the management agreement of this case, and as such, whether the delegation is valid or not, without further examination, on the premise that Nonparty 4 can exercise shareholder rights in relation to the Defendant as the actual shareholder of Nonparty 1’s shares in the name of Nonparty 1, and that the management agreement of this case has the nature and validity as a resolution of the general meeting of shareholders by the Defendant’s participation and consent. The court below erred by misapprehending the legal principles on the exercise of shareholder rights by a person who is recorded in the register of shareholders

2. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kwon Soon-il (Presiding Justice)