I invested in a Korean startup and I'm being squeezed out — dilutive share issuance, no information, board decisions without me. What can a foreign minority shareholder do?

An 18% shareholder in a Korean company has more statutory rights than most foreign investors realize, and a share issuance to third parties at a price "far below" the last round, without proper notice to you, is exactly the transaction those rights exist to challenge. You can seek to stop the issuance before the meeting, you can compel information, and Korean law gives a shareholder in your position ways to hold a director accountable and, in some circumstances, to exit at a fair value. Your shareholders' agreement matters too, but its enforceability depends on how it was drafted, and the statute may be the stronger ground. Most of this is done from Australia through counsel; the timeline is the meeting date.

What this is under Korean law

The Commercial Act (상법, sangbeop) governs. New shares in a joint-stock company (주식회사, jusik hoesa) are, by default, offered to existing shareholders in proportion to their holdings under Article 418; issuance to third parties is permitted only where the articles of incorporation allow it and the purpose is a business necessity such as new technology or financing — not a change in control. An issuance to "strategic investors" at a low price, whose effect is to dilute a shareholder from 18% to under 8%, is the fact pattern the courts examine for abuse of that exception.

An issuance at a price notably below fair value to third parties can also be an unfair issuance that damages the company and existing shareholders; directors who approve it may be liable to the company under Article 399 and, where the discount is gross and the beneficiaries are connected, may face examination under the criminal breach-of-trust provisions.

Stopping the issuance

Article 424 gives a shareholder the right to demand that the company stop an issuance that violates law or the articles or is grossly unfair, and the courts grant preliminary injunctions (신주발행금지 가처분, sinju balhaeng geumji gacheobun) on that basis before the issuance takes effect. The application must be made before the shares are issued — in practice, before or immediately after the meeting — and it is decided on paper, quickly. Grounds: absence of a legitimate business purpose, exclusion of shareholders' preemptive rights without proper basis, an unfair price, and a purpose of shifting control. The below-market price and the silence toward you are your evidence.

If the issuance proceeds despite the challenge, an action to nullify it (신주발행무효의 소) is available within six months.

Information rights

Under Article 466, a shareholder holding 3% or more may demand access to the company's accounting books and records; refusal is challengeable in court, which can order inspection. Separately, any shareholder may inspect the register of shareholders, the articles, and minutes of shareholders' meetings, and, with a court's permission, minutes of the board. The bridge round that was "already done" is documented in registrations and board minutes that you are entitled to see. The demand goes in writing now; refusal becomes a fact in the injunction application.

You are also entitled to proper notice and to attend and vote at the meeting — by proxy from Australia — and to ask questions on the record.

Accountability and exit

If the founder as director has issued shares to connected parties at a discount, or otherwise acted against the company's interest, a shareholder holding 1% or more may bring a derivative action on the company's behalf under Article 403 after demanding that the company act. Where the transactions benefited the founder personally, the exposure is also criminal, and a complaint is a lever the founder will understand.

Exit at fair value: Korean law provides an appraisal right (주식매수청구권, jusik maesu cheonggugwon) for shareholders who dissent from certain fundamental transactions — mergers, business transfers — but not from an ordinary share issuance. For a squeeze-out by dilution, the practical exit is negotiated: an injunction that stops the round and a demand for records tends to produce a buyout conversation with the incoming investors, who do not want a litigating minority on the cap table. Your shareholders' agreement — its anti-dilution, information, tag-along and drag-along terms — is the framework for that negotiation and, where it was properly drafted under Korean law, an independent basis for claims.

From Australia

A power of attorney (위임장, wiimjang), notarized and apostilled, and a proxy for the meeting. Counsel files the records demand, the injunction application and, as needed, the derivative claim; you attend nothing in person unless a hearing calls for it.

Practical insight

Foreign minority investors in Korean startups are diluted because they receive a Korean-language notice, assume the statute favors founders, and act after the meeting. The statute is protective; the timing is unforgiving. An injunction application filed before the meeting is what converts you from a diluted shareholder into a party the round cannot close without. Send the records demand this week, the injunction the week after, and let the incoming investors ask the founder why his co-founder is in court.

Send us the meeting notice, the articles and the shareholders' agreement and we can tell you within days whether the issuance is challengeable and what the injunction application needs — by text consultation or at +82-2-522-3959.

— MEGA X Law Firm Korea, Corporate Disputes Team