A shareholder deadlock in Korea can lead to court-ordered dissolution when the conflict prevents normal business operations, causes or threatens irreparable harm, and leaves no realistic alternative for protecting the shareholder’s interests. Equal ownership alone, however, does not automatically provide grounds to dissolve a company.
On June 26, 2026, the 10th Civil Division of the Suwon High Court, in Case No. 2025Na13796, dismissed a company’s appeal and upheld a judgment ordering its dissolution. The dispute involved two business partners who each owned 50% of the company’s shares but could no longer operate the business together.
The practical lesson for founders and joint-venture partners is straightforward: an equal ownership arrangement should include a workable plan to resolve disagreements and end the relationship.
Facts: A Korean Company Owned Equally by Two Business Partners
The Plaintiff and Defendant agreed to jointly operate an ophthalmology network. In 2019, they established Company B to provide public relations and management support services. Each shareholder held 45,000 shares, representing half of the company’s issued shares.
The relationship deteriorated over disagreements involving promotional expenses and key money. Litigation followed. Company B failed to appoint a successor director for more than four years after the previous director’s term expired, and its business activities effectively stopped. The Plaintiff sought dissolution of Company B, which was the defendant in the proceedings. The other 50% shareholder was the plaintiff’s business partner—not the defendant company itself.
Company Dissolution Under Article 520 of the Korean Commercial Act
Article 520(1) of the Korean Commercial Act allows a shareholder holding at least 10% of the total issued shares to request judicial dissolution where unavoidable circumstances exist and one of the statutory grounds is satisfied. The relevant ground in this case, Article 520(1)(1), concerns a company whose business remains in a state of serious stagnation, resulting in, or threatening, irreparable harm. Article 520(1)(2) separately addresses serious impropriety in managing or disposing of company assets that endangers the company’s continued existence.
For a shareholder-deadlock claim, the central questions are therefore whether the company is genuinely unable to function, whether the situation causes or threatens irreparable harm, and whether dissolution is unavoidable. Personal hostility or dissatisfaction with a business partner should not be confused with proof of those requirements.
Why the Suwon High Court Upheld the Dissolution Judgment
The court’s published summary identifies two decisive conclusions.
First, the conflict between the shareholders had caused continuing, serious stagnation of the company’s business, creating actual or threatened irreparable harm.
Second, there was no alternative to dissolution that would adequately protect the plaintiff’s interests as a shareholder. The court therefore found grounds for dissolution.
The case illustrates the difference between an ordinary shareholder disagreement and a structural deadlock: the owners could not restore functioning management, the underlying relationship had broken down, and the business was no longer operating normally.
Neither shareholder held a majority interest. A dissolution resolution or the exercise of minority-shareholder rights offered no realistic way out of the impasse. Company B’s unlisted status also made an exit through a public-market share sale unavailable. These circumstances supported dissolution in this case.
Why a 50% Shareholder Cannot Simply Vote to Dissolve the Company
Under Article 518, a voluntary dissolution resolution must satisfy the special-resolution requirements in Article 434. The statutory voting requirement is approval by at least two-thirds of the voting rights of shareholders present, representing at least one-third of the total issued shares. Accordingly, where two shareholders each hold 50% of the ordinary voting shares, both attend the meeting, and they vote against each other, neither can independently obtain the required approval. Judicial dissolution provides a separate route, but the shareholder must establish the requirements of Article 520.
Preventing Shareholder Deadlock in a Korean Joint Venture
The central drafting recommendation is to settle the rules for disagreement before the relationship deteriorates. For a proposed 50/50 company, the agreement should address three practical areas:
- Decision-making and operating authority. Identify who controls routine operations, which decisions require joint approval, and what happens when a director must be replaced. Avoid requiring unanimous approval for every ordinary business decision.
- A defined deadlock process. Specify what constitutes a deadlock, how it is escalated, and the deadlines for negotiation or mediation. Consider how essential operations and access to company information will be maintained during the dispute.
- A workable exit mechanism. Address whether one shareholder may buy out the other, how shares will be valued, payment arrangements, and what happens when neither party can finance a purchase. Have the proposed terms reviewed alongside the articles of incorporation and applicable Korean corporate procedures.
Equal ownership can be a commercial choice. The absence of an exit plan should not be an accidental one.
IPG Legal: Korean Shareholder Disputes and Joint Ventures
IPG Legal assists businesses, investors, and entrepreneurs with Korean corporate matters, joint ventures, shareholder agreements, and commercial disputes. Sean Hayes advises companies, entrepreneurs, investors, and individuals on complex legal and commercial matters in Korea. Sean is the first non-Korean to work for the Korean court system. You can schedule a call with Sean Hayes at: Contact Us
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