As explained in our previous newsletter, the third amendment to the Korean Commercial Code (the “KCC”), which in principle mandates the cancellation of treasury shares of a joint stock company and treats treasury shares as unissued shares for purposes of applying related restrictions, was revised and supplemented as it passed the first sub-committee of the Legislation and Judiciary Committee of the National Assembly on February 20, 2026, was submitted to and passed at the Committee’s plenary meeting on February 23, 2026, and was finally approved by the National Assembly plenary session on February 25, 2026.
Thereafter, the amendment (the “Amendment”) was approved by the State Council on March 5, 2026, and was promulgated and took effect at midnight on March 6, 2026. The key contents of the Amendment and related considerations remain as previously outlined(Link). Below is a detailed explanation of the effective dates following promulgation.
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Effective Date: Pursuant to Article 1 of the Addenda to the Amendment, the Amendment took effect on the date of promulgation, namely midnight on March 6, 2026. From that point forward, where a company acquires treasury shares, it must, in principle, cancel such shares within one year from the acquisition date (Article 341-4(1) of the KCC). Other amended provisions relating to treasury shares also apply from the same time. |
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Application of exceptions to existing treasury shares: Pursuant to Article 2 of the Addenda to the Amendment, transitional grace periods apply as set out below: |
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Exception |
Deadline for Cancellation or Disposal |
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Treasury shares previously acquired directly |
General rule: Must be cancelled within one year and six months from the effective date of the Amendment |
By midnight on Monday, September 6, 2027 |
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In the case of treasury shares previously acquired directly where a pledge has been created over them: Must be cancelled within one year from the date the pledge is released after the effective date of the Amendment |
Within one year from the date the pledge is released |
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In the case of the previous issuance of bonds exchangeable for or redeemable with treasury shares previously acquired directly: Must be cancelled within one year from (i) the date the claim is extinguished due to repayment or otherwise, or (ii) the date the exchange or redemption period expires, in each case after the effective date of the Amendment |
Within one year from the date of claim extinguishment or expiration of exchange/redemption period |
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Treasury shares previously acquired indirectly |
Must be cancelled within one year from the date the company receives the shares back from the trustee after the effective date of the Amendment |
Within one year from the date of return from the trustee |
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Where cancellation of previously acquired treasury shares would result in a violation of foreign investment restrictions listed under Article 2, Paragraph (2) of the Addenda to the Amendment, such as the restriction under the Telecommunications Business Act |
Must be disposed of within three years from the effective date of the Amendment |
By midnight on Monday, March 5, 2029 |
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Under the amended KCC, treasury shares are generally treated as unissued shares, and the relevant restrictions apply on that basis. Cancellation of treasury shares of a joint stock company becomes mandatory in principle, and companies wishing to hold and dispose of treasury shares must obtain approval of holding and disposal plans at a general meeting of shareholders, but such exceptions are available only in limited circumstances. In particular, the exception permitting disposal of treasury shares to specific third parties for the purpose of raising capital may be significant from a corporate perspective. To rely on this exception, a company must not only obtain shareholder approval (by way of an ordinary resolution) for the disposal plan, but also amend its articles of incorporation (by way of a special resolution), in a manner similar to the requirements applicable to a third party allotment issuance of new shares. There had also been controversy that, for shares acquired not out of distributable profits but for specific purposes under Article 341-2 (such as in connection with dissenting shareholders’ appraisal rights), capital reduction procedures (special resolution at the shareholders’ meeting and creditor protection procedures) may be required for their cancellation, imposing an excessive burden on companies. The Amendment addresses this by permitting cancellation of treasury shares by board resolution alone, without capital reduction procedures. |
The Amendment may materially affect corporate financial structures, shareholder return policies, value up program disclosures, investor relation policies, and other related areas. It will also inevitably require changes to strategic investment and finance related decision-making where such decisions assumed the use of treasury shares as a source of funding. Because the Amendment was promulgated and became effective before the 2026 annual general meeting season, companies that plan to dispose of treasury shares (including for employee compensation or sales to third parties) will likely need to submit agenda items for the 2026 annual general meeting relating to treasury share holding and disposal plans and any necessary amendments to the articles of incorporation. There are, in fact, cases where companies have already taken this approach. These matters should be thoroughly considered in preparing for the 2026 annual general meetings.
Because the Amendment is still at an early stage of implementation and introduces a number of new concepts that differ from the previous regulatory framework, various practical issues are arising regarding the scope and manner of application of individual provisions. Accordingly, careful legal analysis may be required in advance, and it will also be useful to monitor the development of court precedents, as well as governmental interpretations and official guidelines as they become available.
Related Topics
#Amendment to KCC #Treasury Share #Treasury Share Cancellation
