[According to the Law of Expediency] 64. A Representative Director Who Lent Only Their Name: Is There Unlimited Liability?

*This content was translated by AI.

"Just Lend Your Name for a Moment"

Some people find themselves in trouble after being registered as a director at the request of a friend or acquaintance, without actually Lee Gyeo (CEO)ing. In such cases, actual management is handled by a real owner, while the person's name appears only on the registry as the representative director—a so-called "figurehead director."

They may receive a small fee or take on the role due to relationships they cannot easily refuse. However, if problems arise with the company later, they begin to worry about their liability. In particular, if the person has already resigned as representative director but still holds some shares of the company, it is necessary to carefully examine what legal responsibilities remain.

First, it must be distinguished between "matters that occurred during the tenure" and "matters that occurred after resignation." The weight of liability differs significantly between the two.

If the matter occurred during the tenure, leaving the company does not eliminate liability. Article 401 of the Commercial Code stipulates that a director who neglects their duties due to intent or gross negligence shall bear liability for damages to third parties.

The issue is that even a Myeong Mok-sang (CEO)director is not free from this. Courts have held that a representative director has a duty to monitor the company's overall operations and the illegal acts of the actual controller. Leaving all duties to the actual controller while doing nothing has been deemed a neglect of duty. This means that the defense "I only lent my name" does not automatically lead to exemption from liability. Therefore, it is advisable to calmly check whether there were any illegal or improper transactions by the actual controller during the tenure, or whether any contracts or loans were concluded in the person's name. However, there is room for reducing the extent of liability, as some lower court rulings have limited the liability ratio to around 30% by considering the nominal nature of the position.

Conversely, matters that arise after resignation are different. Upon stepping down as representative director, the duty to monitor and supervise as a director also disappears. What remains is the status of "shareholder." Article 331 of the Commercial Code limits a shareholder's liability to the amount of the subscription price of the shares they hold. Therefore, in principle, merely holding shares does not result in personal liability for debts incurred or torts committed by the company after resignation.

Of course, there are exceptions. If the company is merely a personal enterprise of a specific individual in substance, or if it is used recklessly as a means to evade liability, courts may hold the individual behind the company directly liable through the doctrine of "piercing the corporate veil." However, this legal principle applies to those who actually controlled and operated the company, so it is unlikely to be applied to a Myeong Mok-sang (CEO)director who had no involvement in management.

There is a separate risk that is often overlooked. This is the case where a joint and several guarantee was provided for the company's debts during the tenure. A joint and several guarantee is a separate contractual obligation independent of shareholder status, so it remains even after stepping down as representative director and disposing of shares. This is why it is essential to recheck whether there are any guarantee documents or loan papers previously signed.

In summary, the most critical area of concern is the director's liability for actions taken during the tenure, while matters after resignation are relatively safe under the principle of limited liability for shareholders. However, held shares can become a conduit for disputes or a spark for tax issues such as gift tax arising from nominee arrangements, so it is advisable to settle them at an appropriate time to avoid unnecessary risks. Lending one's name may seem easy, but the liability attached to that name is by no means light.

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*This content was translated by AI.