Executive Severance & Shareholder Resolution in South Korea

1. What does Article 388 of the Korean Commercial Act require?

In South Korea, director compensation is not a matter of private negotiation. Article 388 of the Korean Commercial Act requires that the amount be fixed by the articles of incorporation or, failing that, by a shareholder resolution.

The Supreme Court of Korea treats this as a mandatory provision designed to prevent directors from pursuing personal gain through their own pay, thereby protecting the company, its shareholders, and its creditors (Supreme Court of Korea, 2004Da25123; 2018Da290436). Because it is mandatory, the parties cannot opt out of it by private agreement. Importantly, “remuneration” here covers every form of consideration paid for performing the duties of a director, including salary, bonuses, retirement pay, and severance, regardless of the label attached (Supreme Court of Korea, 2015Da51968).

2. Why did a promised executive severance go unpaid in South Korea?

A recent Seoul High Court decision shows how strictly this rule operates. In Seoul High Court, decided April 15, 2026, case 2025Na205650 (affirming Seoul Central District Court, decided January 16, 2025, case 2023Gadan56338), a former representative director, X, resigned before the end of his term from company Y, the general partner of a private equity fund (PEF).

X claimed that B, the major shareholder who effectively controlled parent company A — which owned 100% of Y — had promised severance worth roughly KRW 570 million in exchange for the resignation. Both the trial court and the appellate court dismissed the claim. Because Y’s articles of incorporation and its executive retirement pay rules said nothing about severance pay, X could only claim it if a shareholder resolution had fixed the amount, method, and timing. The parties did not dispute that no such resolution existed, and that fact alone defeated the claim.

3. Can a controlling shareholder’s promise replace a resolution?

No. This was the heart of the case. X argued that because he had reached a severance agreement with B, who effectively controlled parent company A that owned 100% of Y, it should be treated as if a shareholder resolution existed. The court rejected this for three reasons.

First, when B proposed the severance, B was only a non-standing director of parent company A, not its representative director, and lacked authority to bind A in an agreement with the subsidiary’s representative director.

Second, parent company A was not a one-person company. B held about 28% of A and, counting the shares of C’s spouse and children, slightly more than half. The remainder was split among B’s younger sibling C and C’s family, and company D where C served as representative director. With multiple shareholders on the register, A could not be a one-person company.

Third, even assuming B was a so-called de facto one-person company effectively owned by B, the court held that the one-person company doctrine cannot be stretched to reach such a company. An agreement with a parent company’s major shareholder, standing alone, cannot be equated with a shareholder resolution of A or Y.

4. How did the Supreme Court of Korea establish this doctrine?

The rule applied by the Seoul High Court was already settled by the Supreme Court of Korea. In Supreme Court of Korea, decided December 28, 2023, case 2023Da269818, a real estate development company paid KRW 165 million to an inside director without any shareholder resolution.

The lower court had found that because all shareholders agreed, it could be treated as equivalent to a resolution. The Supreme Court reversed. It explained that in a one-person company, the sole shareholder’s intent can be deemed a resolution even with procedural defects; but for a company that is not a one-person company, the mere fact that shareholders holding a quorum consented or approved does not make a resolution clearly destined to pass, nor equivalent to a resolution actually adopted (Supreme Court of Korea, 2016Da241515, 241522; 2022Da217513).

In other words, the Supreme Court of Korea draws a sharp line between shareholders “agreeing in fact” and the company “validly resolving.” That distinction is exactly why X’s claim failed in 2025Na205650, and it is a point our team at Atlas Legal repeatedly emphasizes in corporate governance advisory.

5. Is investment performance pay part of average wage?

Generally not. Separately from severance, X argued that substantial investment performance pay he had received should be included in the average wage used to compute his retirement pay. This claim also failed.

The court first confirmed that the relationship between an executive and the company is one of delegation, not employment. An executive’s compensation or retirement pay is therefore not a wage or retirement allowance under the Labor Standards Act, but contractual remuneration for handling delegated affairs (Supreme Court of Korea, 2001Da61312; 2002Da64681).

Including investment performance pay in X’s average wage would have required the articles of incorporation or a shareholder resolution to say so. Instead, Y’s executive retirement pay rules had expressly excluded investment performance pay from average wage; a later amendment removed the definition clause, but there was no evidence of a resolution to fold performance pay into the calculation. Because the performance pay was funded by fund profits and varied sharply, the court found it was not paid in a fixed, regular manner and did not qualify as average wage.

6. Do later South Korean courts confirm the same rule?

Yes. The doctrine continues to be applied consistently. A clear example is Changwon District Court, decided January 8, 2025, case 2023Gadan111202.

There, a former representative director of a South Korean subsidiary of a multinational group argued he was substantively an employee under the Labor Standards Act, so his retirement pay should be recomputed with incentives included and a doubled multiplier under the company’s executive personnel rules. The court made two points clear.

On employee status, an executive with management authority is, absent special circumstances, not an employee receiving wages under a supervisor’s direction; the burden of proof lies with the person claiming employee status (Supreme Court of Korea, 2006Da54637, 54644). Reporting to and obtaining approval from the parent reflected an inter-company control relationship within the multinational group, distinct from an employer-employee subordination.

On the doubled multiplier, retirement pay for the period as representative director is also director compensation, so it needed to be fixed by the articles of incorporation or a shareholder resolution. No such evidence existed; the shareholders had in fact resolved to apply only a single multiplier. The court stated that applying the rules’ double-multiplier clause to a commercial-law director would violate the mandatory Article 388 (Supreme Court of Korea, 2016Da241515, 241522; 2015Da213308).

From the Supreme Court of Korea in 2023Da269818, through the Seoul High Court in 2025Na205650, to the Changwon District Court in 2023Gadan111202, the mandatory nature of Article 388 and the shareholder-resolution requirement have been applied without deviation.

7. What should foreign-invested companies in South Korea check?

These rulings matter to foreign investors and multinational groups operating in South Korea, including those in the Incheon Free Economic Zone (IFEZ), which covers the Songdo International Business District, Cheongna International City, and Yeongjong International City. A subsidiary’s executive pay cannot rest on a parent company’s informal assurance.

For the company and its board

• Fix the amount, method, and timing of executive compensation, retirement pay, and severance in the articles of incorporation or a documented shareholder resolution.
• Recognize that a verbal promise by a controlling shareholder or de facto owner does not create a legal obligation of the company.
• When amending executive retirement pay rules, record key terms such as the inclusion of performance pay in the shareholder resolution minutes.

For the executive

• If promised severance, ensure it is documented in the form of a shareholder resolution.
• Remember that an agreement with a controlling shareholder alone is not enforceable against the company.
• Note that the director claiming compensation bears the burden of proving the resolution existed (Supreme Court of Korea, 2015Da213308).

Atlas Legal advises foreign-invested companies and their executives on director compensation and corporate disputes in South Korea. Reviewing the shareholder-resolution process at the design stage of an executive pay package is the most reliable way to prevent these disputes.

Frequently Asked Questions

This article is provided for general information based on published court decisions and does not constitute legal advice on any specific matter. Outcomes depend on the facts of each case, so please consult a qualified attorney. For advice on executive compensation and corporate disputes in South Korea, contact Atlas Legal at +82-32-864-8300.

About the Author

Taejin Kim | Managing Partner

Corporate Counseling, Corporate Disputes, White-Collar Crime

Former Public Prosecutor | Judicial Research and Training Institute, 33rd Class

Korea University LL.B. & LL.M. (Criminal Law), University of California, Davis LL.M.

Atlas Legal | Incheon Songdo, South Korea

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