"Unlisted Companies Must Submit Notification When Selling Securities if Shareholders Exceed 50"

Financial Supervisory Service Issues Precautions Reminder

On the 20th, the Financial Supervisory Service (FSS) announced that even for unlisted companies, if securities previously issued are sold by shareholders to 50 or more investors, it is considered a public offering (sale) under the Capital Markets Act, and a securities registration statement must be submitted.

Previously, shareholder B of unlisted company A sold A's shares to 55 other investors without notifying company A. Since A was unaware of the sale, it did not submit a securities (sale) registration statement. Company A was subject to the resale restriction regulations as the sale by shareholder B was considered a public offering, and it had to impose resale restrictions on securities newly issued thereafter. However, mistaking it for a private placement issued to fewer than 50 persons, the company violated related regulations twice during the offering process. As a result, company A was fined 90 million KRW, and Mr. B was fined 21.4 million KRW.

Shareholders can freely dispose of securities, but if securities are sold to 50 or more persons without the company submitting a securities registration statement, both the company and the shareholders violate the Capital Markets Act. Additionally, if there have been past offerings or sales, even if the number of securities subscription solicitations is fewer than 50, it is considered an offering, and the obligation to submit a securities registration statement arises. Furthermore, corporations with offering or sales records (over 1 billion KRW) are subject to regular disclosure obligations, which should also be noted.

The FSS explained, "Companies and issuers need to check the shareholder register before issuing new shares to confirm the possibility of sales by existing shareholders," and added, "Sellers must cooperate with the company by notifying it before the sale to ensure compliance with the obligation to submit registration statements."

It further stated, "Investors who acquire shares of unlisted companies should inquire with the company because if the share acquisition is considered a sale, the company has an obligation to submit a securities registration statement."