[비즈한국] To grow a company, one usually has to give up equity. It is a familiar price for growth that startup founders seeking investment understand well. As they secure development funds, hire staff, and expand overseas, the number of investors grows. Even if the enterprise value multiplies tenfold, the founder's stake can shrink to less than half. This is especially true after building the company to the point of an IPO.
The game company Smilegate was different. It became a giant in the industry by launching hits like ‘Crossfire’ and ‘Lost Ark,’ yet its equity is 100% owned by founder Kwon Hyuk-bin alone. This unconventional ownership structure is drawing attention once again. It is the decisive reason why a staggering 2.55 trillion won property division occurred in the divorce proceedings of CEO Kwon.
On the 9th, the Seoul Family Court accepted the divorce petition filed by his spouse, identified as Ms. Lee, and ruled that Chief Visionary Officer (CVO) Kwon Hyuk-bin must pay 35% of Smilegate’s shares and 65 billion won in cash. This is the largest scale among all publicly disclosed divorce and property division rulings in Korea to date. Although it is currently a first-instance ruling, if finalized, it will likely bring changes to the sole shareholder system of Smilegate that has been in place since 2012.
Court Assesses Smilegate’s Value at ‘7.1049 Trillion Won’
Looking at the 100% stake today, it appears as though the founder owned the company alone from start to finish. However, the beginning was not like that. The two married in 2001, and Smilegate was established the following year. At the time of founding, the equity split was 70% for founder Kwon and 30% for Ms. Lee. At one point, Ms. Lee was even listed as a CEO and registered director.
The equity structure changed during the company’s growth process. During the company’s development, Ms. Lee’s stake decreased through means such as new share issuances, and in 2010, she sold her remaining stake to Tencent. Afterward, through a share repurchase and restructuring process via the holding company in 2012, the current 100% ownership structure by founder Kwon was established.
The game that changed the company's fate during that process was the first-person shooter 'Crossfire.' Released in 2007 and launched in China via Tencent in 2008, the game achieved massive success in the Chinese market. With the subsequent addition of 'Lost Ark,' Smilegate solidified its position as a game developer with major blockbusters.
Success revenues become resources for subsequent development and investment. However, one cannot conclude based on this that Smilegate expanded all its business solely with internal funds. The key is not the entire financing method, but the final ownership structure. This is significant because, even while remaining unlisted, founder Kwon held all the shares, and as the company’s stock value grew, his personal wealth increased accordingly.
In reality, the scale of a corporate group and the personal wealth of the head are different. A group head can control the group with a partial stake in a holding company or core affiliates. Even if a group is massive, not every share within it is the personal property of the group head. In divorce cases, what is considered for division is not the entire company's assets, but the personal property, such as stocks, held by the individual.
Smilegate was different. Because founder Kwon holds all the shares of the company subject to division. The court evaluated the value of those shares at 7.1049 trillion won. Company stocks account for approximately 96.8% of the 7.3375 trillion won in net assets.
However, this is not a market capitalization formed on a stock exchange or an actual sale price. It is the court's judgment evaluating unlisted shares for property division. Nevertheless, the value calculated for division is astronomical. If the 35% stake recognized by the first instance is applied to the shares, the evaluated amount for division reaches a whopping 2.4867 trillion won.
Spouse Removed from Shareholder Registry, Why Demand Half?
In the trial, Ms. Lee demanded half of the shares held by founder Kwon, citing her initial stake at the time of founding, her history as an executive, and the long-term burden of domestic chores and child-rearing. However, founder Kwon’s side countered that she could not be considered a co-founder, as there was no actual capital investment or work performed. Whether she was an initial shareholder and registered director was a separate issue from her contribution in practical work.
While the first-instance ruling acknowledged Ms. Lee’s initial shareholding, her listing as CEO, and her contribution to domestic chores and child-rearing, it evaluated founder Kwon’s business acumen and management decisions more highly. It also took into account the economic support from Ms. Lee’s family early in the marriage. Nevertheless, the demand for half of the equity was not fully accepted.
However, the 30% initial stake formerly held by Ms. Lee is interpreted as data to judge her contribution, and the current division ratio is interpreted as a separate judgment result. This is because there was insufficient evidence in the disclosed data to conclude that Ms. Lee led the development of specific games or the expansion into China. This is also distinct from alimony. The court dismissed the alimony claim, viewing that both sides were equally responsible for the breakdown of the marriage.
Since most of the property consists of unlisted shares, attention is also focused on the method of payment. Even if there are trillions of won in property on paper, it does not mean there is that much cash in the bank account. Even if one attempts to sell the shares to raise the funds, finding a buyer for a multi-trillion won unlisted stake is not a simple task.
Considering this reality, the court ordered the transfer of 35% of the shares directly and the payment of 65 billion won in cash. Ms. Lee also does not receive cash equivalent to the evaluation immediately; she is now in a situation where she gains if the stock value rises and bears losses if it falls. To cash out, she would need to determine a buyer, price, and trading conditions. Naturally, the evaluated price in the ruling does not guarantee an actual transaction price.
More importantly, this gives Ms. Lee the status of a shareholder. For founder Kwon, she is now in the position of another major shareholder who co-owns the company. This is a significant issue that leads to the company’s decision-making problems, rather than just a simple property division.
The Hidden Value of 35%, Not One-Third
Earlier this year, Smilegate launched a management system integrating core entities such as Holdings, Entertainment, and RPG. The intention was to consolidate dispersed businesses and resources to increase execution power. In this situation, if the ruling is finalized and the share transfer occurs, the structure will become 65% for founder Kwon and 35% for Ms. Lee.
65% is well over a majority. It is difficult for Ms. Lee to become CEO or immediately take over routine management rights just by receiving 35%. However, the story changes for matters requiring a special resolution, such as changes to the articles of incorporation.
Under commercial law, changing the articles of incorporation requires at least two-thirds of the voting rights of attending shareholders and at least one-third of the total issued shares. If both parties exercise all their voting rights and Ms. Lee opposes, founder Kwon’s 65% alone cannot pass the resolution. Conversely, the result may vary depending on Ms. Lee’s attendance and participation in voting. While 35% is not an unconditional veto on all management matters, analysis suggests it could exert considerable influence.
However, it has not been confirmed whether Ms. Lee will hold the shares long-term, actively exercise shareholder rights, or sell them. If she attempts to sell, the value is expected to be even higher, as it is a stake exceeding one-third, which can block special resolutions, even if it falls short of the half she originally wanted.
It was reported that founder Kwon’s side plans to decide on subsequent procedures after reviewing the ruling immediately following the sentencing.