SOUTH KOREA Law and Practice Contributed by: Hyeon-Deog Cho, Yeong-Ik Jeon, Ji-won Lim and Hakbum Ahn, Kim & Chang
holders”) have pre-emptive rights and are entitled to subscribe for any newly issued shares in proportion to their existing shareholdings, and the company must offer them the new shares on uniform terms. The company must notify the shareholders who are entitled to subscribe for newly issued shares of the deadline for subscription at least two weeks in advance. If a shareholder fails to subscribe on or before such deadline, that shareholder’s pre-emptive rights will lapse. If certain shareholders forfeit their right to subscribe to newly issued shares, non-listed companies may allot the forfeited shares to a third party through a board resolution. Pursuant to the Financial Investment Services and Capital Markets Act (FSCMA), listed companies must, in principle, withdraw the forfeited shares but may allot the forfeited shares to a third party under limited conditions (including conditions regarding share price). Notwithstanding the foregoing rule, a company may issue new shares to persons other than existing share- holders in accordance with the provisions set forth in the company’s AOI (“allotment to a third party”), so long as such allotment is limited to cases where it is necessary to achieve the company’s managerial objectives, such as the introduction of new technol- ogy or the improvement of the company’s financial structure. Under the KCC, a company must notify its sharehold- ers or make public notice of the conditions and other details of new shares issued by way of allotment to a third party no less than two weeks prior to the rel- evant subscription payment date. Listed companies may (pursuant to the FSCMA) substitute such notifica- tion or public notice by disclosing the material fact in a report publicly filed with the listing authorities. 3.2 Share Transfers In principle, shares are freely transferable. The KCC provides for a free transfer of shares so that share- holders may recoup their share capital. Under the KCC, shares can be transferred by way of transfer of the relevant share certificates. Generally, no
transfer of shares is valid or in effect until such share certificates are transferred. In some limited cases, shareholders may validly transfer shares without share certificates if the company has failed to issue share certificates within six months from the date of incor- poration or the payment due date for the subscription price for such shares. The AOI may provide that board approval is required with respect to a share transfer. In the absence of such requisite board approval, any transfer of shares will be deemed null and void against the company. If the board of directors does not approve a share transfer, the transferring shareholder may request the company to either purchase the shares or designate a transferee acceptable to the company, and the company must accede to such request. 3.3 Security Over Shares Shareholders are entitled to grant security interests over their shares. Security interests on shares may be granted by way of creating a pledge on such shares, pursuant to the provisions of the KCC, or by creating a security transfer ( yangdo-dambo in Korean, which means a transfer of the ownership of shares to a credi- tor as collateral). A statutory pledge on shares may be created as a summary pledge or a registered pledge. A summary pledge is effected by mutual agreement of the parties and the transfer of a share certificate. A registered pledge requires the company to reflect the name and address of the pledgee on the register of shareholders and the pledgee’s name on the share certificate, at the request of the pledgee. 3.4 Disclosure of Interests Any person who, alone or acting together with spe- cially related persons, holds 5% or more of the total issued and outstanding shares of a listed company must report their shareholding information to the FSC and the relevant securities exchange, until their aggre- gate holding falls below 5%. Initially, the report must be made within five business days from the date when such person first becomes a 5% holder. Thereafter, each time the number of shares held by them changes by 1% or more of the total issued and outstanding shares of the company or the purpose of the share-
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