📌 목차 (Table of Contents)

Foreign groups that acquire a Korean company often end up with less than full ownership. A few minority shareholders may refuse to sell, cannot be located, or demand a price far above what others accepted. Running a company with a handful of minority shareholders is more than an inconvenience. It means:

  • holding formal shareholders’ meetings
  • exposure to minority shareholder lawsuits
  • limits on intragroup transactions
  • difficulty integrating the company into the group

Korean law provides several ways to reach 100%. This article explains the statutory squeeze-out procedure for a 95% shareholder, how the courts have applied it, and the alternative routes available when the 95% threshold has not been reached.

Table of Contents

1. Why 100% Ownership Matters

With minority shareholders on the register, the company must:

  • convene shareholders’ meetings with proper notice to every shareholder
  • respect minority shareholders’ rights to inspect books, bring derivative actions, and challenge resolutions
  • price transactions with its parent at arm’s length and defend them against minority challenge

A wholly owned subsidiary can make decisions more quickly, enter into intragroup arrangements more freely, and be restructured, merged, or wound up without minority objections. For many foreign groups, the last few percent are worth the cost of a formal process.

2. The Statutory Squeeze-Out: Who Qualifies

Under the Commercial Act, a controlling shareholder may demand that the remaining minority shareholders sell their shares. To qualify:

  • 95% threshold. The shareholder must hold, in its own name, 95% or more of the company’s total issued shares.
  • Group holdings count together. Shares held by the shareholder’s subsidiaries are added to its own. The shareholder must be a company to aggregate in this way.
  • Treasury shares count. The Supreme Court has held that, in calculating the threshold, treasury shares held by the company are included both in the total issued shares and in the parent’s holding. In that case, a parent holding about 85% directly, combined with the company’s own treasury shares of about 13%, was treated as holding more than 95%.
  • Managerial purpose. The squeeze-out must be necessary to achieve a managerial purpose of the company . Common justifications include streamlining decision-making, reducing the cost of maintaining minority shareholders, and enabling group integration. The purpose should be stated concretely in the meeting materials.

Key takeaway: Before starting, verify the 95% calculation carefully, including subsidiaries’ holdings and treasury shares. Document the managerial purpose in writing.

3. The Procedure Step by Step

① Shareholders’ meeting approval. The controlling shareholder must first obtain approval of the squeeze-out at a general meeting of the company. The meeting notice must state:

  • the controlling shareholder’s shareholding
  • the purpose of the squeeze-out
  • the proposed price and the basis for its calculation
  • a guarantee of payment of the price

The controlling shareholder must also explain these matters at the meeting.

② Advance notice to shareholders. At least one month before the demand, the controlling shareholder must give public notice, and individual notice to each shareholder on the register. The notice must state that the minority must deliver their share certificates, and that certificates not delivered will become invalid on the transfer date.

③ The demand. The demand must cover all shares held by the minority shareholders. The Supreme Court has confirmed that the controlling shareholder cannot select only some minority shares. A minority shareholder that receives the demand must sell its shares within two months.

④ Price negotiation. The price is first determined by agreement between the controlling shareholder and each minority shareholder.

⑤ Court determination. If no agreement is reached within 30 days after the demand, either party may apply to the court to determine the price.

⑥ Payment or deposit. The shares transfer when the controlling shareholder pays the price. If a minority shareholder cannot be located, or refuses to accept payment, the controlling shareholder may deposit the price with the court.

4. Price: How Fair Value Is Determined

  • Unlisted companies. Courts generally determine fair value using recognized valuation methods. Courts have accepted a weighting of earnings value and net asset value of 3:2, following the method in the Inheritance and Gift Tax Act. A price paid in an earlier negotiated sale is not necessarily treated as fair value. In one Supreme Court case, a price that included a control premium was rejected as an objective measure.
  • Listed companies. The price is determined primarily on the basis of the market price of the shares.
  • Supporting evidence. Because the controlling shareholder must explain the basis of its proposed price at the general meeting, it should obtain an independent valuation before the meeting. A well-supported price also reduces the risk that the court will set a higher one.

5. When the Shares Actually Transfer

The most important case in practice involved a foreign controlling shareholder of a Korean company.

The controlling shareholder could not agree a price with some minority shareholders. Instead of applying to the court, it deposited the amount it had calculated itself and treated the shares as transferred. It then held shareholders’ meetings without notifying those shareholders.

In June 2020, the Supreme Court held that the “price” whose payment or deposit transfers the shares means either:

  • the price agreed between the parties, or
  • the fair price determined by the court

An amount set unilaterally by the controlling shareholder does not qualify. As a result, the shares had not transferred, the minority shareholders were still shareholders, and the meetings held without notice to them were defective.

Key takeaway: If a minority shareholder does not agree to the price, apply to the court for a price determination. Do not deposit your own figure and treat the squeeze-out as complete. Plan the timetable on the assumption that court proceedings may take several months.

6. The Minority’s Mirror Right: Demanding a Buyout

The same rules give minority shareholders a corresponding right. A minority shareholder of a company with a 95% controlling shareholder may demand that the controlling shareholder buy its shares at any time. The controlling shareholder must do so within two months, and the price is determined in the same way, by agreement or by the court.

This matters for planning. Once a foreign group crosses 95%, it should expect that minority shareholders may force a buyout on their own timing.

7. Alternatives When You Hold Less Than 95%

If the controlling shareholder holds less than 95%, Korean law offers other routes. Each requires a special resolution of shareholders: two-thirds of the votes present, representing at least one-third of the issued shares. Each also has its own protections for minority shareholders.

  • Cash-out share exchange. The target becomes a wholly owned subsidiary of the acquiring company, and minority shareholders receive cash instead of shares. Dissenting shareholders have appraisal rights.
  • Cash-out merger. The target merges into the acquiring company, and minority shareholders receive cash as merger consideration. This also involves creditor protection procedures and appraisal rights for dissenting shareholders.
  • Reverse stock split. The company consolidates its shares at a high ratio, so that minority holdings become fractions that are cashed out. In November 2020, the Supreme Court held that a reverse split is not invalid merely because minority shareholders lose their status, provided the split applies equally to all shares and the treatment of fractions is fair. The case involved a 10,000:1 consolidation approved by about 97% of issued shares. The Court sent the case back for further review of whether the split was an abusive attempt to evade the squeeze-out rules. This route is therefore available, but it is scrutinized for fairness, and the treatment of fractional shares requires court involvement.
  • Tender offer. For listed companies, a tender offer under the Financial Investment Services and Capital Markets Act is usually the first step to reach the squeeze-out threshold, often followed by delisting procedures.

Cross-border limitation. Share exchanges and mergers under the Commercial Act are available between Korean companies. A foreign parent that wants to use these routes generally needs a Korean acquisition vehicle.

8. Practical Points for Foreign Acquirers

  • Plan for 100% from the start. Include drag-along rights, rights of first refusal, or put and call arrangements with significant minority shareholders in the acquisition documents, so that a squeeze-out is needed only for a small remainder.
  • Trace every shareholder. Old companies often have shareholders who cannot be located, or shares registered under nominees. The deposit procedure addresses unlocatable shareholders, but only after the notice and price steps are completed correctly.
  • Use a valuation that will survive review. Commission an independent valuation, explain it at the general meeting, and be prepared to defend it in court.
  • Respect the formalities. Defects in notice, the meeting resolution, or the price can invalidate the transfer, as the 2020 case shows. Until the transfer is effective, the minority shareholders keep all their rights.
  • File the required reports. Additional share acquisitions by a foreign investor may require updates to its foreign investment registration, and remittances must be processed through a foreign exchange bank.
  • Consider the tax effects. Minority shareholders bear capital gains tax and securities transaction tax on the sale. For the acquirer, the deemed acquisition tax for controlling shareholders typically arose when it first crossed 50%, but further increases in its shareholding may create additional liability.

9. Conclusion

Korean law gives a 95% shareholder a clear route to full ownership. It must:

  • obtain general meeting approval
  • give at least one month’s notice
  • demand all the minority shares
  • settle the price by agreement or by court determination

The courts have enforced these steps strictly, particularly the rule that only an agreed or court-determined price transfers the shares. For shareholders below 95%, a cash-out share exchange, cash-out merger, or reverse stock split may achieve the same result, subject to special resolutions and fairness review.

Key takeaway: Choose the route that matches your shareholding, follow the procedure precisely, and support the price with an independent valuation.