The Exclusion of Preemptive Rights under the Shareholder Equality Principle

This study examines whether the doctrine governing third-party allotments of new shares under Article 418(2) of the Korean Commercial Act adequately reflects ‘the shareholder equality principle’. Preemptive rights are a core shareholder right that preserves shareholders’ proportional economic value and collective control, and thus constitute a concrete expression of shareholder equality. However, Korean courts have assessed the legality of third-party allotments primarily based on abstract managerial necessity or significant effects on corporate control, without sufficiently considering the infringement of shareholders’ proportional interests caused by the exclusion of preemptive rights. This approach tends to focus on whether the allotment was motivated by an improper purpose, such as entrenchment in the context of control disputes, rather than on whether the resulting dilution disproportionately harms existing shareholders. By contrast, German stock law and case law treat the exclusion of preemptive rights as a serious restriction on shareholder rights and subject it to substantive judicial review based on the principle of proportionality, balancing objective corporate interests against shareholders’ disadvantages. In light of the 2025 amendment to the Korean Commercial Act, which extends directors’ duty of loyalty to shareholders, this study argues that the interpretation of third-party allotments should be restructured to require a proportional balancing of corporate interests and shareholders’ disadvantages.