Responding to a Dispute over Defects in Shareholder Meeting Resolutions and Representative Director Authority under a 50:50 Equity Structure

The client was a small, unlisted corporation with a 50:50 shareholding structure, and a management-control dispute arose under a structure in which both shareholders served as directors. At the general meeting of shareholders held in 2024, a resolution was passed on the limit of executive remuneration, after which the opposing shareholder asserted the possibility of nullity or rescission of the resolution on grounds such as (i) non-delivery of the convocation notice, (ii) exercise of voting rights by a person with a special interest, and (iii) the non-existence of the representative director's authority.

In addition, numerous issues were raised simultaneously, including whether the representative director retained his position after the expiration of his term, the lawfulness of the execution of company expenses (vehicles, corporate cards, legal fees, etc.), and the possibility of repeatedly convening extraordinary general meetings on the same agenda. It was a high-risk dispute that could potentially escalate into an action to confirm the non-existence of the shareholders' meeting resolution, an action to rescind the resolution, and criminal allegations of embezzlement and breach of trust.

The crux of this matter lay in how to distinguish and organize formal procedural defects from the substantive existence of authority.

First, with respect to the lawfulness of the convocation notice, we organized the analysis around the framework of Articles 353, 362, and 363 of the Commercial Act, holding that whether the notice had been lawfully dispatched to the address on the shareholder register was the key to the determination. We examined, in light of relevant case law, the principle that the mere fact that the mail was returned as "addressee absent, premises closed" does not in itself constitute a ground for non-existence of the resolution. In particular, we analyzed the position of case law that non-notification to some shareholders constitutes, as a rule, a ground for rescission, and is extended to a ground for non-existence only where its degree is serious.

Second, with respect to the restriction of voting rights of persons with a special interest, we examined the applicability of Article 368(3) of the Commercial Act. Premised on recent case-law trends suggesting that a director who is also a shareholder is highly likely to be a person with a special interest with respect to a resolution on the "limit of director remuneration," we analyzed that, although a ground for rescission as to the method of resolution may be recognized, the decisive factor is whether the two-month filing period under Article 376(1) of the Commercial Act had elapsed. As a result, we concluded as a matter of law that, even if a ground for rescission existed, the matter could no longer be contested due to the lapse of the limitation period.

Third, with respect to the continuation of the representative director's authority after the expiration of his term, we clearly organized, on the basis of the mutatis mutandis provisions of Articles 386 and 389 of the Commercial Act, his status as an "interim representative director whose rights and duties continue until a successor is appointed." Through this, we structurally rebutted the opposing party's assertion that "the representative director is no more than a mere management agent" as lacking legal basis.

Fourth, in terms of managing the criminal risk of the execution of company expenses, we conducted an advance review of the lawfulness of corporate expense execution on the basis of business relevance and whether the benefit accrued to the company, and proposed internal-control measures that clearly separate personal disputes from company disputes.

Fifth, with respect to the possibility of repeatedly convening extraordinary general meetings on the same agenda, premised on the absence of an express prohibition under the Commercial Act, we organized the conclusion that re-tabling is possible if lawful procedures are observed within a scope that does not constitute abuse of rights, and even proposed structural resolution measures such as mediation and equity reorganization to break the deadlock of the 50:50 structure.

Through this advice, the client secured the following substantive outcomes. By legally establishing that the 2024 shareholders' meeting resolution remains validly in effect as of the present time, we minimized the risk of unjust-enrichment restitution of the remuneration paid. By clarifying the basis for the continuation of the representative director's status and authority, we blocked the risk of a management vacuum and of damage to trust in external transactions. By reviewing in advance the possibility of breach-of-trust and embezzlement allegations related to the execution of company expenses and re-establishing internal-control criteria, we structurally managed the criminal risk.

By overhauling the evidence-management system concerning the procedures for convening and notifying the shareholders' meeting, we strengthened defensive capacity in the event of future disputes. In a company with a 50:50 shareholding structure, even a minor procedural defect can immediately escalate into a management-control dispute, criminal complaints, and an action for nullity of a resolution. This matter is a case in which the escalation of the dispute was blocked by analyzing formal defects and substantive effect separately, and by integrally organizing the compound issues of the limitation period, restriction of voting rights, and continuation of authority after the expiration of the term.

A management-control dispute is not a question of "who is right" but of "how to control risk." Your Legal Team diagnoses the structure of management-control disputes based on analysis of the Commercial Act and case law, and proactively manages risk at the stage before litigation.