As outlined in previous newsletters, the Korean Commercial Code (the “KCC”) has recently undergone two significant amendments: the first introduced directors’ fiduciary duty to protect the interests of general shareholders, and the second mandated cumulative voting for large listed companies and increased the number of audit committee members subject to separate election requirements. A couple of bills have been proposed, and are currently the subject of discussions, regarding a third amendment to the KCC focusing on requiring the cancellation of treasury shares (Link). In parallel, disclosure regulations regarding listed companies’ treasury stock holdings and disposal plans have been steadily strengthened (Link).
On November 25, 2025, National Assembly member Oh Gi-hyoung, Chairperson of the KOSPI 5000 Special Committee established by the Democratic Party of Korea, submitted to the National Assembly a bill to partially amend the KCC, which consolidates several previously proposed bills on the mandatory cancellation of treasury shares. Thereafter, National Assembly member Lee Jung-mun submitted another bill to partially amend the KCC, which reflects supplementary measures to address issues such as potential regulatory violations that may arise when companies in industries with foreign ownership restrictions cancel treasury shares.
In connection with these developments, on January 22, 2026, the KOSPI 5000 Special Committee announced at the briefing session at the National Assembly Communication Building that, during a luncheon held that same day between President Lee Jae-myeong and the committee, President Lee emphasized the need to expedite legislation regarding the third amendment to the KCC, including the mandatory cancellation of treasury shares (Link). As a result, the proposed legislation is drawing significant attention from the market, as it may proceed on an accelerated timetable.
As previously outlined, National Assembly member Oh’s bill would expressly characterize treasury shares as unissued stocks and impose corresponding restrictions (including, for example, a prohibition on issuing exchangeable bonds backed by treasury shares). In addition, where a company acquires its own shares, it would, in principle, be required to cancel such shares within one (1) year following the date of acquisition (and where a company holds treasury shares as of the enactment of the amendment, it would be required to cancel them within one (1) year and six (6) months after enactment). However, where an exception applies under the bill (such as use for officer and employee compensation) and a company has formulated a plan for the holding and disposal of its treasury shares and obtained approval thereof at the general meeting of its shareholders, it will be permitted to hold or dispose of its treasury shares in accordance with such plan. In particular, if a company intends to dispose of treasury shares to a third party in order to achieve business objectives (such as the introduction of new technology or the improvement of its financial structure), it would be required to: (i) establish the basis for such third-party disposal in its articles of incorporation through a special resolution at the general meeting of its shareholders (i.e., an amendment to the articles), and then (ii) obtain approval of the plan to hold or dispose of the treasury shares through an ordinary resolution at a general meeting of its shareholders.
National Assembly member Lee’s bill includes the aforementioned mandatory cancellation framework and further provides an exception to address cases in which companies in industries subject to foreign ownership restrictions (such as telecommunications, electricity, and aviation) would, due to treasury share cancellation, experience an unavoidable reflexive increase in foreign ownership that could trigger a regulatory violation.
In light of the President’s remarks and the Democratic Party’s public position, the bill to amend the KCC to mandate the cancellation of treasury shares could be enacted (following deliberation and resolution by the National Assembly’s Legislation and Judiciary Committee and passage at the plenary session) as early as sometime before the 2026 general shareholders’ meeting season.
If enacted, the amendment would generally mandate cancellation of treasury shares and limit exceptions for holding and disposal to the narrowly defined circumstances described above. This may materially affect transactions related to corporate finance and capital structure and therefore warrants close attention. Additional considerations may also arise for shareholder return policies involving the acquisition and cancellation of treasury shares, as well as related disclosures on corporate value enhancement plans.
Moreover, in future shareholders’ meetings (including the 2026 annual general meetings), companies may need to obtain (i) a special resolution to amend the articles of incorporation in order to hold or dispose of treasury shares, as well as (ii) an ordinary resolution to approve any specific holding and disposal plan. These requirements could significantly impact listed companies’ investor communications and investor relations strategies, their responses to minority shareholder proposals, and the overall conduct of shareholder meetings.
