In case of acquisition of shares under another person’s name, the criteria and methods for determining who is the shareholder;

Article 332(1) of the Commercial Act provides that a person who has subscribed to shares in the name of a temporary owner or without the consent of another person shall be liable for the subscription to shares under his/her name, and Article 332(2) provides that a person who has subscribed to shares in his/her name with the consent of another person shall be jointly liable for payment with another person. As such, the Commercial Act imposes a liability for payment on the premise that the temporary owner (which does not exist in reality and only takes over shares in the external name) or another person may take over shares in his/her name. However, there is no provision on who is a shareholder.

In a case where shares are subscribed under the name of another person, the determination of who is the shareholder ought to be made on the basis of who is the party to whom the shares were subscribed. In the promotion of incorporation, in the case of issuing new shares to increase capital, a contract for underwriting new shares is concluded between the purchaser of the shares and the company. In this case, since who is the subscriber and the shareholder are the parties to the new shares acquisition contract, it is ultimately a matter of determination of the parties to the new shares acquisition contract in principle

Promoters shall subscribe to shares in writing (Article 293 of the Commercial Act). A person who intends to subscribe to subscription to shares must state the type, number, and address to be subscribed to two copies of the subscription form for shares, and sign and seal or sign it (Articles 302(1) and 425 of the Commercial Act). The reason why the method of subscription to shares is prescribed in the Commercial Act is to ensure the efficiency and legal stability of administrative affairs related thereto by allowing companies to deal with the legal relations related to large number of shareholders in a form and uniform manner.In determining the parties to a contract for subscription to shares, these characteristics should be fully reflected therein.

When acquiring shares in another person's name, the issue of confirmation of the parties to the share acquisition contract shall be divided into the following two cases:

First, it is a temporary name or an agreement to underwrite shares in the name of another person without the consent of the said person. The temporary owner cannot be a party to the share acquisition contract. On the other hand, in the event that shares are acquired in another person’s name and the consent is not obtained, the title holder is not a party to the share acquisition contract, in principle, the nominal owner may not become a party to the share acquisition contract. This is because a person who does not consent to acquire shares in his/her own name does not have any intention to acquire shares and there is no fact that the actual investor has made an agreement to acquire shares in his/her name without the temporary name or the consent of another person and performed the investment without the temporary owner’s name. Therefore, if the actual investor has made an agreement to acquire shares in his/her name and performed the investment, it shall be deemed that he/she acquires the status of a shareholder, barring special circumstances

Second, it is the case where the company has agreed to underwrite shares in its name with the consent of another person. In this case, the nominal owner or the actual investor may become a subscriber pursuant to the terms of the contract, but in principle, the nominal owner shall be deemed a subscriber. Even in the case where the nominal owner and the actual investor have agreed to the actual investor as a subscriber, the actual investor cannot be deemed a subscriber. Unless there are special circumstances, such as where the company, etc., which is the other party to the share acquisition contract, knows that the actual investor is to be a subscriber, it is reasonable to view the nominal owner as a party to the share acquisition contract.

Articles 293, 302(1), 332, and 425 of the Commercial Act

See Attached List of Plaintiffs (Law Firm LLC, Attorneys Kim Yong-nam et al., Counsel for the plaintiff-appellant)

Character Co., Ltd. (Law Firm Jungwon, Attorney Lee Dog-won, Counsel for defendant-appellant)

Daegu High Court Decision 2015Na24820 decided October 12, 2016

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

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

1. Factual basis

The facts found by the court below are as follows.

A. At the port of port, the residents of the Nam-gu Sea-dong and the Songdo-dong and the Songdo-dong as the first chairman of the ○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○○ (hereinafter “△△△△△△△○○”). The above countermeasures council (hereinafter “instant countermeasures council”) filed a civil petition against the Masco Co., Ltd. (hereinafter “Masco”) which is the pollution-generating company around the region, and held an assembly and demonstration demanding the establishment of countermeasures against pollution and the compensation for damages.

B. Nonparty 1, who was the chairman of the Countermeasure Council, concluded the Collaborative Cooperation Convention with Nonparty 2, the representative director of the non-party 2 of the non-party IMS Co., Ltd. (hereinafter “Non-MS”). The main contents of the Collaborative Cooperation Convention are Nonparty 2, who transferred the surface border license held by the non-party 2 and contributed the capital to establish the Defendant, but the Defendant operates the business of delivering the surface border system using the above patent. Instead, Nonparty 1 was dissolved of the Countermeasure Council and decided to suspend the assembly and demonstration.

C. The instant mutual-aid agreement provides that the shareholders who subscribed to the Defendant’s shares in the special agreement shall submit a letter of waiver of shares to the representative director after incorporation (Article 11).

D. According to the instant Collaborative Cooperation Convention, Nonparty 2 established the Defendant by contributing to KRW 250 million in capital, and transferred the right to a surface bordering patent to the Defendant, and the instant countermeasures council was dissolved. Instead, the instant countermeasures council, which is a friendship group, was established based on the members of the instant countermeasures council.

E. The Defendant’s total amount of paid-in capital is KRW 250 million, the total number of outstanding shares is KRW 50,000, the par value per share is KRW 50,000, and the Defendant’s register of shareholders is recorded as the Defendant’s shares holding 10,000 shares (20%). The Defendant’s register of shareholders is registered as the Defendant’s shares holding 5,00 shares (20%).

F. △△△ Council receives profits from the Defendant and distributes them to its members in consideration of the degree of participation in the assembly of its members, etc.

2. Whether all members of the Countermeasure Council are parties to the Collaborative Cooperation Agreement (Ground of appeal No. 1)

A. The lower court, based on the following circumstances, determined that the effectiveness of the instant collaborative cooperation agreement does not extend to the members of the Consultative Council on Measures.

(1) The instant mutually-beneficial cooperation agreement was drafted with the seals affixed by Nonparty 1 and Nonparty 2, and no agreement was made to dissolve the instant countermeasures council after the preparation of the agreement, and it is anticipated that the agreement has the effect on its members.

(2) In relation to the instant collaborative cooperation agreement, Nonparty 1 was prosecuted on charges of taking property in breach of trust, which received a total of KRW 58 million from Nonparty 2, and was sentenced to a two-year suspended sentence for one year of imprisonment (Seoul District Court Port Branch Branch Decision 2011No. 603) and the judgment became final and conclusive. According to the reasoning of the appellate judgment (Seoul High Court Decision 201No. 603), Nonparty 1 accepted Nonparty 2’s request without gathering opinions about the contents of the instant collaborative cooperation agreement without gathering consensus from all residents.

B. In light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on the confirmation of parties to a juristic act and the interpretation thereof, contrary to what is alleged in the grounds of appeal

3. Whether the transferee of the Defendant’s shares is all members of the Countermeasure Council (Ground of appeal No. 2)

A. Article 332(1) of the Commercial Act provides that a person who has subscribed to shares under the name of a temporary owner or without another person’s consent shall be liable for shares as a subscriber, and Article 332(2) provides that a person who has subscribed to shares under the name of another person with the consent of another person shall be jointly liable for payment with another person. As can be seen, the Commercial Act imposes a liability for payment on the premise that a temporary owner (which refers to a temporary owner and a person who takes over shares under the name of another person without actual existence) may take over shares under the name of another person, but there is no provision as to who is a shareholder

In a case where shares are subscribed under the name of another person, the determination of who is the shareholder ought to be made on the basis of who is the party to whom the shares were subscribed. In the promotion of incorporation, in the case of issuing new shares to increase capital, a contract for underwriting new shares is concluded between the purchaser of the shares and the company. In this case, since who is the subscriber and the shareholder are the parties to the new shares acquisition contract, it is ultimately a matter of determination of the parties to the new shares acquisition contract in principle

Promoters shall subscribe to shares in writing (Article 293 of the Commercial Act). A person who intends to subscribe to subscription to shares must state the type, number, and address to be subscribed to two copies of the subscription form for shares, and sign and seal or sign it (Articles 302(1) and 425 of the Commercial Act). The reason why the method of subscription to shares is prescribed in the Commercial Act is to ensure the efficiency and legal stability of administrative affairs related thereto by allowing companies to deal with the legal relations related to large number of shareholders in a form and uniform manner.In determining the parties to a contract for subscription to shares, these characteristics should be fully reflected therein.

When acquiring shares in another person's name, the issue of confirmation of the parties to the share acquisition contract shall be divided into the following two cases:

First, it is a temporary name or an agreement to underwrite shares in the name of another person without the consent of the said person. The temporary owner cannot be a party to the share acquisition contract. On the other hand, in the event that shares are acquired in another person’s name and the consent is not obtained, the title holder is not a party to the share acquisition contract, in principle, the nominal owner may not become a party to the share acquisition contract. This is because a person who does not consent to acquire shares in his/her own name does not have any intention to acquire shares and there is no fact that the actual investor has made an agreement to acquire shares in his/her name without the temporary name or the consent of another person and performed the investment without the temporary owner’s name. Therefore, if the actual investor has made an agreement to acquire shares in his/her name and performed the investment, it shall be deemed that he/she acquires the status of a shareholder, barring special circumstances

Second, it is the case where the company has agreed to underwrite shares in its name with the consent of another person. In this case, the nominal owner or the actual investor may become a subscriber pursuant to the terms of the contract, but in principle, the nominal owner shall be deemed a subscriber. Even in the case where the nominal owner and the actual investor have agreed to the actual investor as a subscriber, the actual investor cannot be deemed a subscriber. Unless there are special circumstances, such as where the company, etc., which is the other party to the share acquisition contract, knows that the actual investor is to be a subscriber, it is reasonable to view the nominal owner as a party to the share acquisition contract.

B. The reasoning of the lower judgment and the evidence duly admitted reveal the following facts.

(1) The main contents of the instant Collaborative Cooperation Convention are to dissolve the instant Countermeasures Council and suspend assemblies and demonstrations, instead of using the operating profits for the members of the instant Countermeasures Council after Nonparty 2 transferred a patent right on the surface border system and established the Defendant with a contribution to capital.

(2) In the instant collaborative cooperation agreement, Nonparty 5, Plaintiff 2, Nonparty 8, and Nonparty 6 were decided to be the Defendant’s shareholders, but in fact, unlike the contents of the said collaborative cooperation agreement, Nonparty 3, Nonparty 4, Nonparty 5, Nonparty 6, and Nonparty 7, according to the agreement between Nonparty 2 and Nonparty 1, were listed as the Defendant’s shareholders on the Defendant’s list of shareholders. The Defendant’s profit sharing method in the said collaborative cooperation agreement is not specified in detail.

(3) Since the Convention on Collaborative Cooperation, the instant countermeasures are dissolved, and a large number of the members of the Committee are forming the △△△ Council, and the Defendant’s profits accrue to the △△ Council, and are distributed to the members.

(4) The instant countermeasures council including the Plaintiffs, or the members of △△△△ Council did not have any act to be naturally made by the Defendant’s shareholders, such as requesting the Defendant to pay dividends directly or attending a general meeting of shareholders of the Defendant.

(5) The Defendant’s capital amounting to KRW 250 million was contributed by Nonparty 2, and the Plaintiffs did not have paid the capital directly to the Defendant.

C. Examining the above facts in light of the legal principles as seen in the above 3. A., the Plaintiffs did not acquire the Defendant’s shares with the Defendant’s consent of the shareholders listed in the Defendant’s shareholder registry or with the Defendant’s consent as a party to a share acquisition contract, and thus, it cannot be deemed that they acquired the status of shareholders. Although the Defendant established the Defendant to distribute the Defendant’s operating profit to all members of the instant countermeasure council, including the Plaintiffs, such circumstance does not constitute a ground to deem that the Plaintiffs acquired the status as a shareholder. Furthermore, even if the instant collaborative cooperation agreement stipulates that the person who subscribed to shares at the time of the establishment of the Defendant should prepare and submit a letter of waiver of shares

Meanwhile, even if the Plaintiffs acquired the Defendant’s status as the Defendant’s shareholder, they cannot exercise shareholder rights in principle in relation to the Defendant denying the change of ownership without completing the change of ownership in their name (see Supreme Court en banc Decision 2015Da248342, Mar. 23, 2017). In this regard, the instant claim against the Plaintiffs seeking perusal and copying of the Defendant’s account books, etc. based on their shareholder rights cannot be accepted.

The lower court did not err by misapprehending the legal doctrine on the judgment of shareholders of a stock company, contrary to what is alleged in the grounds of appeal.

4. Conclusion

The plaintiffs' appeals are dismissed in entirety as it is without merit, 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 on the bench.

[Attachment] List of Plaintiffs: Omitted

Justices Kim Chang-suk (Presiding Justice)