Ok-Rial Song, A Thought on Enforcement of Shareholder Agreement - Enhancing Private Ordering in Corporate Law, The Justice, Vol. 178 (2020), pp. 328-368.
<Abstract>
Shareholder agreements are frequently used by investors to exclude, modify, and confirm what is enforced by the corporate law. Korean courts, however, have been dominated by a negative view on such private ordering. Investors, the argument goes, should not be allowed to choose the corporate legal order which will be apply to themselves in corporate law context. This approach is not convincing, however. In principle, if the parties have reached an agreement, it is socially desirable to enforce that agreement unless such enforcement results in harmful effects. Thus, it is most efficient to respect the shareholder agreements of the parties as much as possible. The current inflexible precedent law needs to be changed. To prove the arguments, several foreign court cases should be examined. The U.S. case law, for instance, has widely recognized the binding power of shareholder agreements. The UK jurisprudence also pays attention to the functions of the shareholder agreement, and in the case of a violation of the shareholder agreement, a prohibition order or specific performance, if any, can be adopted as a remedy. In Germany and Japan, academic debates have been focused on the voting agreement, and several commentators have argued that a preliminary injunction should be available as a remedy. In addition to this comparative legal analysis, the economic theory of mandatory rule in corporate law is also closely examined. The logic used to support the notion of mandatory rule mainly emphasizes the diverse interests of company’s stakeholders, but this argument is not very convincing. The other arguments such as (1) the parties’ decision-making process is likely to be distorted, (2) an external effect on third parties can be created, or (3) a standard internal system need to be disclosed to creditors, are partly acceptable. However, the scope of its application is limited. In conclusion, the private ordering by investors should be respected. Based on these study, the shareholder agreement was examined in detail. Several factors, which may influence in deciding the effect of shareholder agreements, would be examined. They are, (1) whether all shareholders are participated, (2) whether the content was reflected to the articles of incorporation, (3) whether the company is involved in contracting the shareholder agreement, and (4) how long does it lapse since the contracting between the parties. In conclusion, this paper argues that shareholder agreements should be viewed in such a way that enhances private ordering in corporate law.
<Keyword>
Shareholder agreement, Transfer restriction, Voting agreement, Procure provision, Private ordering, Mandatory rule
Ok-Rial Song, A Thought on Enforcement of Shareholder Agreement - Enhancing Private Ordering in Corporate Law, The Justice, Vol. 178 (2020), pp. 328-368.
<Abstract>
Shareholder agreements are frequently used by investors to exclude, modify, and confirm what is enforced by the corporate law. Korean courts, however, have been dominated by a negative view on such private ordering. Investors, the argument goes, should not be allowed to choose the corporate legal order which will be apply to themselves in corporate law context. This approach is not convincing, however. In principle, if the parties have reached an agreement, it is socially desirable to enforce that agreement unless such enforcement results in harmful effects. Thus, it is most efficient to respect the shareholder agreements of the parties as much as possible. The current inflexible precedent law needs to be changed. To prove the arguments, several foreign court cases should be examined. The U.S. case law, for instance, has widely recognized the binding power of shareholder agreements. The UK jurisprudence also pays attention to the functions of the shareholder agreement, and in the case of a violation of the shareholder agreement, a prohibition order or specific performance, if any, can be adopted as a remedy. In Germany and Japan, academic debates have been focused on the voting agreement, and several commentators have argued that a preliminary injunction should be available as a remedy. In addition to this comparative legal analysis, the economic theory of mandatory rule in corporate law is also closely examined. The logic used to support the notion of mandatory rule mainly emphasizes the diverse interests of company’s stakeholders, but this argument is not very convincing. The other arguments such as (1) the parties’ decision-making process is likely to be distorted, (2) an external effect on third parties can be created, or (3) a standard internal system need to be disclosed to creditors, are partly acceptable. However, the scope of its application is limited. In conclusion, the private ordering by investors should be respected. Based on these study, the shareholder agreement was examined in detail. Several factors, which may influence in deciding the effect of shareholder agreements, would be examined. They are, (1) whether all shareholders are participated, (2) whether the content was reflected to the articles of incorporation, (3) whether the company is involved in contracting the shareholder agreement, and (4) how long does it lapse since the contracting between the parties. In conclusion, this paper argues that shareholder agreements should be viewed in such a way that enhances private ordering in corporate law.
<Keyword>
Shareholder agreement, Transfer restriction, Voting agreement, Procure provision, Private ordering, Mandatory rule