Removing a Company Director in Korea: Legal Procedure Explained
If you’re a foreign investor, business owner, or corporate officer operating in Korea, working with a Korean lawyer for foreigners is critical when removing a company director. This guide explains the legal procedure under the Korean Commercial Act, from special resolutions and notice rules to the 14-day registry filing, provided by Kang & Shin. (For a database of Korean law in English click here; For a detailed case example of removing a director in Korea, see: Removing a Director in Korea: A Step-by-Step Case Example).
Ways a Director’s Term Ends in Korea (Resignation, Expiry, Removal)
In practice, the most common ways a director of a company may lose their position under Korean law include:
- Resignation – The director voluntarily resigns.
- Expiration of Term – The director’s term ends upon the completion of a set period.
- Removal – The director is removed by a shareholders’ resolution.
Among these, resignation and expiration of term involve relatively straightforward procedures, typically requiring only minimal documentation to be submitted to the registry. In contrast, removal is more complex. It requires a detailed process that includes adopting a shareholders’ resolution and submitting documentation verifying that all legal steps were followed.
Special Resolution Requirement Under the Korean Commercial Act
Pursuant to the Korean Commercial Act, the power to remove a director lies with the shareholders, who must make this decision through a special resolution at a shareholders’ meeting. This special resolution requirement underscores the gravity of removing a director, demanding a higher level of consensus than ordinary company matters.
To successfully pass a special resolution for director removal, a two-pronged voting requirement must be met: (1) Supermajority of Present Shareholders: The resolution must gain the approval of at least two-thirds (2/3) of the voting rights held by those shareholders present at the meeting; and (2) Minimum Quorum of Total Shares: The approving votes must also represent at least one-third (1/3) of the total issued and outstanding shares.
A distinct aspect of removal under the Commercial Act is that there need not “just/good cause” to remove a director. This provides shareholders with significant flexibility and control over the composition of their board. However, this flexibility comes with a caveat. If a director has been appointed for a predetermined term and is removed without a justifiable reason before that term ends, the removed director has the right to claim damages from the company. These damages typically aim to compensate the director for the losses incurred due to the early termination, often calculated based on the remuneration they would have earned during the remainder of their fixed term.
- Commercial Act
- Article 385 (Removal) (1) A director may be removed from office at any time by a resolution adopted at a general meeting of shareholders under Article 434: Provided, That where the term of office of a director has been determined and his/her removal is made without good cause before the expiration of his/her term of office, he/she may file a claim for damages caused thereby against the company.
- Article 434 (Special Resolutions for Amending Articles of Incorporation) A resolution under Article 433 (1) shall be adopted by the affirmative votes of at least two thirds of the voting rights of the shareholders present at a general meeting of shareholders and of at least one third of the total number of issued and outstanding shares.
Step-by-Step Procedure for Removing a Director
1. Convening a Board of Directors’ Meeting
A board of directors (“BOD”) meeting must first be convened to pass a resolution proposing the removal of the director to a shareholders’ meeting. Under Korean law, any director may convene a BOD meeting by issuing a notice to all directors and auditors at least one (1) week in advance. The notice requirements for BOD meetings are more lenient than those for shareholders’ meetings, allowing greater flexibility in both timing and method of delivery.
- Commercial Act
- Article 390 (Convocation of Board of Directors’ Meetings) (1) A board of directors’ meeting shall be convened by each director: Provided, That this shall not apply where a director with the power to convene such meetings has been designated by a resolution of the board of directors.
- (3) In convening a board of directors’ meeting, the date of such meeting shall be fixed and a notice of convocation shall be sent to each director and auditor at least one week prior to such date: Provided, That the said period may be shortened by the articles of incorporation.
- (4) When there is consent of all the directors and auditors, a board of directors’ meeting may be held at any time without undergoing the procedures set forth in paragraph (3).
2. Convening a Shareholders’ Meeting
Under Korean law, the authority to convene a shareholders’ meeting lies with the BOD. When the removal of a director is proposed, the BOD may pass a resolution to convene a shareholders’ meeting with that specific agenda item. To validly adopt this resolution, a majority of the directors must be present, and a majority of those present must vote in favor of the resolution, as required by law.
- Commercial Act
- Article 362 (Decision of Convocation) A decision to convene a general meeting of shareholders shall be made by the board of directors, unless otherwise prescribed by this Act.
- Article 391 (Methods of Resolution by Board of Directors) (1) A resolution of the board of directors shall be adopted in the presence of a majority of directors in office by the affirmative votes of a majority of directors present at the meeting: Provided, That the voting requirement may be increased by the articles of incorporation.
3. Executing the Meeting Notice
After the BOD resolves to convene a shareholders’ meeting, it is the responsibility of the representative director to execute that decision. The representative director must send a notice of the meeting to all shareholders at least two (2) weeks prior to the scheduled date of the shareholders’ meeting. To ensure that shareholders’ procedural rights are properly protected, it is advisable to send the notice via certified mail with proof of delivery.
The notice must clearly state the date, time, location, and the agenda of the meeting, including the proposed resolution to remove the director. If a shareholder has given prior consent, the notice may alternatively be sent in electronic form, such as via email.
For companies with capital of less than KRW one (1) billion, i.e., “small-scaled companies” under the Commercial Act, the notice period is reduced to ten (10) days. In addition, if all shareholders consent in writing, the company may hold the shareholders’ meeting without any formal notice procedure.
- Commercial Act
- Article 363 (Notice of Convocation) (1) When a company convenes a general meeting of shareholders, it shall give a written notice or notice in an electronic form to each shareholder by obtaining the consent of each shareholder, at least two weeks prior to the date set for such general meeting: Provided, That if such notice has not arrived at the address of a shareholder entered on the register of shareholders for three consecutive years, the company may choose not to give such notice to that shareholder.
- (2) Written notices under paragraph (1) shall state the agenda for the meeting.
- (3) Notwithstanding the provisions of paragraph (1), when a company with total capital of less than one billion won, convenes a general meeting of shareholders, it may give each shareholder a notice in writing, or in an electronic form, in which case after obtaining consent from each shareholder, at least ten days prior to the date of the general meeting of shareholders.
- (4) A company with total capital of less than one billion won may hold a general meeting of shareholders without undergoing a convocation procedure if there is consent of all shareholders, and a resolution of a general meeting of shareholders may be replaced by a written resolution. If all shareholders consent to the subject matter of a resolution in writing, a written resolution shall be deemed adopted.
4. Shareholders’ Resolution
At the shareholders’ meeting, the proposed removal of the director must be formally adopted by a special resolution. Under Korean law, as discussed above, the special resolution requires: (1) at least two-thirds (2/3) of the voting rights of shareholders present at the meeting; and (2) at least one-third (1/3) of the total issued and outstanding shares of the company.
5. Corporate Registry Update
Once the shareholders’ resolution to remove the director has been adopted, the company is legally required to update its corporate registry to reflect the change in directorship. This registration must be filed with the registry office within 14 days from the date of the shareholders’ meeting. Failure to meet this deadline may result in administrative penalties of up KRW 5 million.
When to Involve a Korean Lawyer for Foreigners
Working with a Korean lawyer for foreigners is prudent any time director removal is on the table. Counsel can draft and QA your notices and minutes, verify quorum and vote counts against Article 434 thresholds, and prepare a complete registry filing within the 14-day deadline, reducing the risk of invalid resolutions or damages claims under Article 385. For bilingual, end-to-end support, consult an English-speaking lawyer in Korea at Kang & Shin.