Law firm K&P has won an injunction for agenda inclusion.
Shareholder A of Company X exercised their shareholder proposal right with the agenda item "Dismissal of Director Y".
Company X sent out the notice of shareholders' meeting to shareholders without including A's proposed agenda item.
In response, law firm K&P applied for and won an injunction to "include the dismissal of Director Y as an agenda item" for X's shareholders' meeting.
Related Laws
COMMERCIAL ACT
Article 363-2 (Shareholders' Rights to Make Proposals)(1) Shareholders who hold no less than 3 percent of the total number of issued and outstanding shares excluding nonvoting shares may make a proposal to directors in writing or by an electronic document that certain matters be raised as agenda items for a general meeting of shareholders (hereinafter referred to as "shareholders' proposal") at least six weeks prior to the date set for the general meeting of shareholders (in cases of an ordinary general meeting of shareholders, the date of the year corresponding to the date of the ordinary general meeting of shareholders of the preceding year; hereafter the same shall apply in this Article).
(2) Shareholders under paragraph (1) may request that directors enter or record a summary of the proposals submitted by the shareholders in writing or by an electronic document in a notice under Article 363, in addition to the agenda for the meeting, at least six weeks prior to the date set for a general meeting of shareholders.
(3) Where a shareholders' proposal has been made under paragraph (1), directors shall report to the board of directors, which shall accept the proposal as an agenda item of a general meeting of shareholders, except where such proposal is in violation of statutes or the articles of incorporation, and in other cases as prescribed by Presidential Decree. In such cases, the shareholder who made the proposal shall, on his/her request, be given an opportunity to explain the proposal at a general meeting of shareholders.
Article 542-6 (Minority Shareholders' Rights)
(2) Any person who has continued to hold stocks equivalent to no less than 10/1,000 (5/1,000 for listed companies determined by Presidential Decree) of the total number of issued and outstanding shares of a listed company, except for nonvoting stocks, for more than six months may exercise shareholder's rights under Article 363-2 (including cases where Article 542 shall apply mutatis mutandis).
ENFORCEMENT DECREE OF THE COMMERCIAL ACT
Article 12 (Rejection of Shareholders' Proposals)
"Cases as prescribed by Presidential Decree" in the former part of Article 363-2 (3) of the Act means those cases where the contents of a shareholder's proposal fall under any of the following subparagraphs:
1. Where another proposal is presented again within three years from the date on which a proposal with the same contents was rejected because it obtained merely less than 10/100 of the votes at a general meeting of shareholders;
2. Where the proposal concerns a shareholder's personal grievance;
3. Where the proposal concerns a matter that involves a right of minority shareholders obligated to hold shares in excess of a certain ratio to exercise shareholders' rights;
4. Where the proposal concerns a matter that involves the removal of an incumbent executive officer (applicable only to a listed company as defined in Article 542-2 (1) of the Act (hereinafter referred to as "listed company"));
5. Where the proposal concerns a matter that the company is unable to materialize, is based on an evidently false ground, or defames a particular person.
Article 32 (Companies subject to Reduced Requirements for Exercise of Minority Shareholders' Rights)
"Listed companies determined by Presidential Decree" in Article 542-6 (2) through (5) of the Act means listed companies with equity capital valued at 100 billion won or more as at the end of the latest business year.
Qualifications of the Proposer
- Non-listed companies: 3% or more of the total issued shares excluding non-voting shares
- Listed companies: 1% or 0.5% (for companies with capital of 100 billion won or more) of the total issued shares excluding non-voting shares, with a condition of holding for at least 6 months
- Non-voting shares are excluded from both numerator and denominator in calculating ownership ratio
- Proposal must be made at least 6 weeks before the meeting date
Content of the Proposal
- Agenda proposal (Commercial Act Article 363-2 Paragraph 1): Proposing abstract content such as "Election of Directors", "Amendment of Articles of Incorporation", etc.
- Resolution proposal (Commercial Act Article 363-2 Paragraph 2): Proposing specific content such as "Election of OOO as Director", "Amend Article 8 Paragraph 1 of the Articles of Incorporation to OOO", etc.
Cases Where a Company Can Reject a Shareholder Proposal
Commercial Act Article 363-2 Paragraph 3 and Enforcement Decree of the Commercial Act Article 12
- Violation of laws or articles of incorporation: Proposing at a shareholders' meeting something that falls under the authority of the board of directors
- Proposing the same content that failed to get more than 10% of voting rights at a shareholders' meeting within 3 years of the rejection
- Matters concerning personal grievances of a shareholder
- Matters concerning minority shareholder rights that require holding a certain percentage of shares to exercise rights
- Matters concerning the dismissal of officers during their term of office (only applicable to listed companies)
- Matters that the company cannot realize or where the reason for the proposal is clearly false or defamatory to a specific person
Timing and Method of Proposal, Company's Measures
- To the directors, in writing or electronic document, at least 6 weeks before the shareholders' meeting
- If unaware of when the shareholders' meeting will be held, calculate 6 weeks based on the next shareholders' meeting (both regular and special) after receiving the shareholder proposal
- Directors who receive a shareholder proposal must report it to the board of directors
- Unless there are grounds for rejection, it must be included as an agenda item or resolution for the shareholders' meeting
Solutions When the Board of Directors Rejects a Shareholder Proposal
- Injunction for agenda inclusion is possible
- In case a shareholder proposed the appointment of Gap as a director, but the shareholders' meeting did not include Gap's appointment as an agenda item, did not mention it in the convocation notice, and only voted on Eul's appointment as a director, resulting in Eul's appointment: Can be cancelled due to defects in the convocation procedure or resolution method
In other cases, claims for damages against directors are possible
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