CONTENTS
- 1. The Account of the Client Who Requested Corporate Legal Advisory
- - Detailed Circumstances of the Case
- 2. The Response Strategy Established During the Corporate Legal Advisory
- - Establishing the Scope of a Shareholder’s Right of Inspection and the Standard for Determining Abuse
- - Establishing Internal Response Procedures and a Record Management System
- - Communication Strategy for Minimizing Reputational Risk
- 3. The Result of the Response Through Corporate Legal Advisory: ‘Management Stabilization’
- 4. Why a Strategy for Responding to Abuse of Shareholder Rights Is Devised During Corporate Legal Advisory
- - The Standard for Determining Abuse of Shareholder Rights
- - FAQ on Abuse of Shareholder Rights
- 5. If You Need a Corporate Advisory Attorney
1. The Account of the Client Who Requested Corporate Legal Advisory
The client who requested corporate legal advisory was in a situation where management control was being threatened by repeated and extensive demands to inspect materials.
The client sought the help of a corporate attorney to respond to the abuse of shareholder rights.
Detailed Circumstances of the Case
The client in this case was the representative of Company A, a domestic mid-sized enterprise, and as conflict with certain shareholders who had been with the company for a long time intensified, the management’s decision-making was continually being obstructed.
In particular, a specific shareholder demanded inspection of a wide range of materials, citing the securing of transparency, including not only the accounting books but also personnel-related documents and details of major transactions.
The company was already having its financial materials regularly verified through external audits, but the shareholder repeatedly requested materials of the same scope on multiple occasions, and circumstances were even detected suggesting that internal information was being conveyed to outside persons.
Recognizing the possibility of an abuse of shareholder rights beyond the ordinary purpose of verifying information, the client requested corporate legal advisory from an attorney specializing in corporate matters in order to obtain a legal review and establish a response strategy.
2. The Response Strategy Established During the Corporate Legal Advisory
The main issues in this case were as follows.
· Whether, if the company refused the inspection demand, that measure would be legally valid
· Whether the impact of the shareholder’s external statements on the company’s reputation and management stability could be minimized
Focusing on the above issues, the corporate attorney concentrated on securing legal legitimacy, protecting management control, and establishing a system to prevent the recurrence of disputes.
Establishing the Scope of a Shareholder’s Right of Inspection and the Standard for Determining Abuse
The corporate attorney closely reviewed the legal basis for and limits of a shareholder’s right of inspection and copying under the Commercial Act.
As a result, it was made clear that a repeated request, or one whose purpose was unclear, runs counter to the principle of protecting the company’s trade secrets and risks infringing on management control.
On this basis, a response standard was established that allowed the company to limit the submission of unnecessary materials while maintaining proper procedures.
Establishing Internal Response Procedures and a Record Management System
The corporate attorney advised that, so that the refusal of inspection would not be misunderstood as an arbitrary decision by management, all measures be carried out in accordance with board of directors’ resolution procedures.
The attorney also managed the response details for each inspection request using a standardized document format, thereby establishing a system that could be presented as objective evidence in the event of a legal dispute.
Through this management structure, the company was able to respond to repeated requests with consistent standards and to prepare for future investigations by supervisory authorities.
Communication Strategy for Minimizing Reputational Risk
A strategy was established to preemptively block the possibility that the shareholder’s external statements could damage the company’s trust.
The corporate attorney reviewed fact-based media response language and advised that, where necessary, a formal legal warning letter be used in parallel.
Through this, the company secured a legal basis for responding to defamation and the dissemination of false information, and managed its external reputation in a stable manner.
3. The Result of the Response Through Corporate Legal Advisory: ‘Management Stabilization’
Through the assistance of the attorney specializing in corporate matters, the client established a legal basis for responding to the shareholder’s repeated demands.
Thereafter, the client was able to minimize unnecessary disputes and, through corporate legal advisory, to reorganize internal order, and overall management stability was maintained.
4. Why a Strategy for Responding to Abuse of Shareholder Rights Is Devised During Corporate Legal Advisory
Article 466 of the Commercial Act grants a shareholder holding at least 3/100 of the total number of issued shares the right to request inspection and copying of accounting books and documents.
This is a system intended to secure transparency in management and to guarantee the shareholder’s monitoring function, and the company cannot refuse such a request unless it proves that the request is improper.
Because this process of proof is difficult for an ordinary person to carry out, it is necessary to respond step by step through corporate legal advisory.
The Standard for Determining Abuse of Shareholder Rights
For the company’s refusal to be justified, it must prove that the shareholder’s request was not based on a ‘legitimate purpose.’
The court comprehensively considers the following factors.
② The purpose of the inspection and whether there is bad faith
③ The effect on the company’s operations and the common interest of the shareholders
④ The nature of the information and the degree of management confidentiality
► See Supreme Court Decision 2017Da270916, rendered on February 28, 2018
► Cases Recognized as Abuse of Shareholder Rights
In light of the above standard, in cases such as the following, the shareholder’s exercise of rights is assessed as an abuse.
▷ The purpose of sharing information with a competing company or an outside force
▷ A request in which a leak of trade secrets or financial information is anticipated
▷ An intentional request made by taking advantage of a time disadvantageous to the company
In such cases, the company may refuse the exercise of the right of inspection and copying on the basis of the ‘impropriety of the request.’
FAQ on Abuse of Shareholder Rights
A. A repeated request, in itself, does not amount to an abuse of shareholder rights.
However, where the request obstructs the company's normal management or is intended to leak business secrets or internal information, it is assessed as an abuse.
In such a case, the company needs to prove the background and purpose of the request and respond through proper procedures.
A. The company should first review whether the purpose and grounds stated in the request satisfy the requirements under the Commercial Act.
Where necessary, it is advisable for the legal and finance departments to consult and limit the scope of inspection, or to document the response policy through a board resolution.
In addition, by recording and retaining all request details and the handling process, the company can use them as objective evidence in any future dispute or regulatory investigation.
5. If You Need a Corporate Advisory Attorney
The exercise of shareholder rights is a legitimate procedure guaranteed under the Commercial Act, but depending on its purpose and manner, it can directly threaten the stability of corporate management.
In particular, when requests for inspection and copying of accounting books or for the submission of materials are repeated, the company must consider not only its legal response but also information protection and reputation management in a comprehensive manner.
The corporate attorneys of our firm provide strategic assistance for the defense of management control and the maintenance of corporate trust, going beyond a simple legal review.
By systematically analyzing the relevant legal principles, such as the scope of shareholder rights, the criteria for determining a legitimate purpose, and response procedures, we build a prevention-oriented response system so that the company does not become entangled in unnecessary disputes.
In addition, by coordinating overall practical matters such as internal record management, external communication, and board operations, we establish a foundation that minimizes legal risk and maintains consistency and transparency in management.
If you need corporate advisory assistance in a situation similar to the case above, please feel free to request help at any time through 🔗Corporate Attorney Legal Consultation Booking.
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