Supreme Court: Resolution to Amend Articles of Incorporation by Unauthorized Written Document Is Invalid

The Supreme Court has ruled that, unless there are special provisions in the articles of incorporation of a corporation, amendments to the articles of incorporation made through written resolutions have no effect.

According to the legal community on the 30th, the Supreme Court's Second Division (Presiding Justice Shin Sook-hee) upheld the lower court's ruling in favor of the plaintiffs in the final appeal trial of a lawsuit filed by Park and others against the Korea Association of Persons with Physical Disabilities (hereinafter the Association) seeking to nullify the resolution of an extraordinary general assembly.

Supreme Court, Seocho-dong, Seoul.

The court stated the reason for dismissing the Association's appeal was that "there is no error affecting the judgment in the lower court's interpretation of the Civil Act regarding the permissibility and validity of written resolutions of the general assembly of a corporation, and the interpretation of the defendant's articles of incorporation."

In December 2020, the Association decided to conduct an extraordinary general assembly through a written resolution and collected written consent forms from the delegates. As a result, among 454 delegates, 449 approved the amendment to delete the provision limiting the president's reappointment to one term.

At that time, Kim, who was the 8th president of the Association, had already served as the 7th president and had been reappointed once, so under the existing articles of incorporation, he was ineligible to run. However, thanks to the amendment, he ran unopposed at the extraordinary general assembly held in person in June 2021 and assumed office as the 9th president.

Subsequently, Park and some other members of the Association filed a lawsuit in October 2021, claiming that the amendment to the articles of incorporation was invalid.

The first trial ruled in favor of the Association, finding the amendment valid.

However, the second trial overturned the first trial and ruled that the amendment deleting the reappointment limit was invalid.

The court, citing Supreme Court precedents, stated, "In the case of corporations under the Civil Act, unless there are explicit provisions in individual laws or the articles of incorporation permitting written resolutions, it is reasonable to consider that replacing a general assembly resolution solely by written means without convening the assembly is not allowed." It added, "Therefore, if a corporation under the Civil Act replaces a general assembly resolution solely by written means without provisions permitting written resolutions in individual laws or the articles of incorporation, such resolution has a significant procedural defect and should be considered as non-existent."

The Association appealed, but the Supreme Court also found no problem with the second trial's judgment.

The court explained, "Unless otherwise stipulated in the Civil Act or the articles of incorporation, resolutions of the general assembly of a corporation under the Civil Act are made by the attendance of a majority of members and the approval of a majority of those present, pursuant to Article 75, Paragraph 1 of the Civil Act. The assembly must be convened by sending a notice specifying the agenda at least one week in advance, and unless otherwise provided in the articles of incorporation, the assembly can only resolve matters included in the notice."

It continued, "In light of these Civil Act provisions, the general assembly resolutions of a corporation under the Civil Act should principally be made by members attending a convened and held assembly."

The court further stated, "Written resolutions conducted by sending a written notice of the agenda without convening or holding the assembly and deciding by simple written votes for or against, thereby obtaining a majority, may restrict members' rights to actively discuss the agenda and reflect their intentions in the operation of the corporation's affairs." It added, "Therefore, if a corporation under the Civil Act holds a general assembly resolution solely by written means without convening or holding the assembly, without legal or articles of incorporation provisions permitting such, the resolution should be considered to have a significant defect unless special circumstances exist."

The court noted, "The defendant (Association) board decided to proceed with a written resolution citing the spread of COVID-19, but it is unclear whether it was difficult to hold a general assembly with many attendees for a considerable period at that time, nor is there any indication that there was a necessity to make the amendment resolution at that time."

This content was produced with the assistance of AI translation services.