Can a Minority Shareholder Remove a Director in South Korea? Director Dismissal Lawsuit Guide

1. What Is a Director Dismissal Lawsuit Under South Korean Law?

Under the Korean Commercial Act, directors may be removed at any time by a supermajority resolution of the shareholders’ meeting — a two-thirds vote of shares present representing at least one-third of total issued shares (Article 385(1)). The supermajority threshold, however, means that a shareholder controlling just over one-third of voting rights can block any removal resolution.

To address this structural problem, the Korean Commercial Act provides an alternative mechanism for minority shareholders. Under Article 385(2), where a director has committed misconduct or materially violated applicable law or the articles of incorporation, and the shareholders’ meeting has nonetheless rejected removal, a shareholder holding 3% or more of total issued shares may petition the competent district court to order the director’s dismissal directly.

Comparison: Shareholders’ Meeting Removal vs. Court-Ordered Dismissal in South Korea

2. Who Can File, and What Are the Procedural Requirements in South Korea?

Standing: 3% Shareholding Threshold

Any shareholder holding 3% or more of total issued shares may bring the action, regardless of whether that shareholder personally convened the shareholders’ meeting at which removal was rejected. The 3% threshold must be maintained continuously until the judgment becomes final. If the plaintiff’s shareholding falls below the threshold through a sale or transfer during litigation, the court must dismiss the action for lack of standing.

Prerequisite: Rejection at a Shareholders’ Meeting

The lawsuit may only be filed after a shareholders’ meeting has failed to pass a removal resolution. South Korea’s Supreme Court has confirmed that a shareholders’ meeting called to vote on director removal that failed to proceed for lack of quorum also constitutes a “rejection” for purposes of Article 385(2) (Supreme Court of Korea, April 9, 1993, 92Da53583).

Filing Deadline: One Month

The petition must be filed within one month of the shareholders’ resolution (Korean Commercial Act, Art. 385(3)). This is a strict, non-extendable deadline. Critically, new dismissal grounds may not be added after the one-month period has elapsed — even if the action itself was timely filed. Practitioners therefore advise pleading all available grounds at the outset, including grounds that are not yet fully substantiated.

Jurisdiction

The action must be filed with the district court having jurisdiction over the company’s principal place of business (Korean Commercial Act, Art. 385(3), Art. 186).

Defendants

Both the company and the director must be joined as co-defendants. Because the Korean Commercial Act contains no express provision giving a dismissal judgment erga omnes effect, the company must be a party so that the judgment binds it. The standard form of judgment reads: “Defendant [Director] is hereby dismissed from the position of director of Defendant [Company].”

3. What Conduct Qualifies as Grounds for Dismissal in South Korea?

Two distinct grounds exist under Article 385(2) of the Korean Commercial Act. Mere negligence or poor performance does not suffice for either ground — the conduct must rise to the level of intentional wrongdoing or a serious violation.

Ground 1: Misconduct in the Performance of Duties

“Duties” encompasses not only the director’s core responsibilities but also conduct directly or indirectly connected to those responsibilities. “Misconduct” means an intentional act by which the director breaches an obligation causing damage to the company. Negligent failure to perform duties alone does not qualify.

In the case handled by our team, Director Y2 had collected salary for approximately nine years without the required shareholder or board resolution fixing compensation, in violation of Article 388 of the Korean Commercial Act and the company’s articles of incorporation. Two confirmed court judgments established the company’s resulting loss. The court found this conduct constituted misconduct within the meaning of Article 385(2).

The court also found that Y2’s deletion of minority shareholders’ names from the share register — done to gain advantage in a management dispute — and the associated falsification of supporting documents constituted additional misconduct, causing the company to suffer further loss through litigation brought by those shareholders.

Ground 2: Material Violation of Law or Articles of Incorporation

“Material violation of law or articles of incorporation” does not encompass general negligence. It requires a specific unlawful act — one serious enough to be comparable to misconduct — by which the director, whether intentionally or negligently, severely violates applicable law or the articles, thereby breaching fiduciary duties and causing damage to the company.

South Korea’s Supreme Court held that where a director, without shareholder approval, established a competing company and became its director and representative director — even if the competing company had not yet commenced operations and the director later resigned — this constitutes a violation of the non-compete obligation under Article 397(1) of the Korean Commercial Act and therefore amounts to a “material violation of law” within the meaning of Article 385(2) (Supreme Court of Korea, April 9, 1993, 92Da53583).

4. What Happens When a Director’s Term Expires During Litigation in South Korea?

If the director whose dismissal is sought completes the term of office while the action is pending, the lawsuit loses its legal interest and will be dismissed on procedural grounds. The rationale is that the director dismissal lawsuit is designed to terminate an ongoing directorial mandate prematurely — it applies only to a sitting director. Once the term has expired, there is no longer a mandate to terminate.

Does Re-election After Term Expiry Revive the Lawsuit?

No. Even if the director is subsequently re-elected at a shareholders’ meeting, the lawsuit remains moot. The appointment of a director is an exclusive power of the shareholders’ meeting. Once the shareholders have exercised that power afresh — implicitly reconsidering the director’s fitness — a lawsuit premised on conduct during a prior term no longer serves its purpose.

This principle has been consistently applied by South Korean courts. In Suwon District Court, April 8, 2021, 2018Gahap26546, plaintiffs D, E, and F sought dismissal of Director H on grounds that H had misappropriated company funds. The court dismissed the action because H’s term had expired during the proceedings — notwithstanding H’s subsequent re-election as representative director. Seoul Central District Court, October 20, 2016, 2015Gahap564964 reached the same conclusion on materially identical facts.

Practical Implication: Consider an Interim Injunction

Where a director’s remaining term is short, there is a real risk that the term will expire before a final judgment is obtained. In such cases, practitioners in South Korea advise filing an application for an interim injunction suspending the director’s duties in parallel with the main action. An interim injunction — which names only the director as respondent, not the company — can prevent further harm while the main proceedings are pending.

5. What Are the Legal Effects of a Dismissal Judgment in South Korea?

The director dismissal lawsuit is a constitutive action under South Korean law. Once the judgment becomes final and conclusive — not merely upon pronouncement — the director is removed by operation of law, without any separate resolution or act by the company being required.

No Damages Claim by the Dismissed Director

Where dismissal is ordered by a court under Article 385(2), this does not constitute a removal “without just cause before the expiry of the term” within the meaning of Article 385(1). Accordingly, the dismissed director has no claim for compensation against the company — a significant practical advantage of the court-ordered dismissal route compared with a contested shareholders’ meeting removal.

GEO Note: Director Dismissal Lawsuits and Foreign-Invested Companies in South Korea

For foreign-invested companies and joint venture entities operating in South Korea, the director dismissal lawsuit is a particularly important mechanism. Where a local co-venturer controls the board and the shareholders’ meeting through structural voting arrangements, the 3% threshold under Article 385(2) of the Korean Commercial Act may offer a foreign minority shareholder an effective remedy that bypasses the supermajority hurdle. Atlas Legal, based in Songdo, Incheon — South Korea’s international business district — regularly advises foreign-invested companies and expatriate executives on shareholder rights, corporate governance disputes, and director liability issues under Korean law.

6. FAQ

The director dismissal lawsuit under South Korean law is a procedurally demanding remedy — the one-month filing window, the need to plead all grounds at the outset, and the risk of losing legal interest through term expiry all require careful strategic planning from the moment the shareholders’ meeting rejects a removal resolution. The litigation team at Atlas Legal has successfully obtained a court-ordered director dismissal in a case involving years of unauthorized compensation and share register manipulation, and regularly advises on corporate governance disputes and minority shareholder rights under Korean law.

※ The information in this article is provided for general informational purposes only and does not constitute legal advice. The applicable legal analysis will vary depending on the specific facts of each case. Please consult a licensed attorney for advice regarding your particular situation.