With the enactment of the third amendment to the Korean Commercial Code (the “KCC”), which generally mandates the cancellation of treasury shares, it is necessary to establish a specific roadmap for the holding, disposal and cancellation of treasury shares.

Following (i) the first amendment to the KCC in 2025 introducing, among other things, a fiduciary duty of directors to protect the interests of shareholders, and (ii) the second amendment to the KCC mandating cumulative voting for director elections and increasing the number of audit committee members subject to separate election, on November 25, 2025, the Democratic Party of Korea proposed to the National Assembly a bill to partially amend the KCC, which consolidated various previously proposed bills concerning the mandatory cancellation of treasury shares (Link).

Around that time, there had been considerable transactions aiming to dispose of treasury shares, including the issuance of convertible bonds backed by treasury shares, off-hours block trades, over-the-counter transactions and on-exchange disposals. In this context, disclosure regulations concerning listed companies’ holdings of treasury shares and their disposal plans have also been continuously strengthened (Link).

On February 23, 2026, the Legislation and Judiciary Committee of the National Assembly consolidated and amended 14 existing bills, including the above-mentioned bill, and then proposed/approved the committee’s alternative bill. The National Assembly passed the bill at its plenary session on February 25, 2026, which was promulgated and became effective on March 6, 2026.

The key details of the third amendment to the KCC promulgated on March 6, 2026 (the “Amendment”) are as follows:
 

• The Amendment defines treasury shares as unissued shares without any rights, thereby legislatively resolving the longstanding debate between the “asset theory” and the “unissued shares theory” regarding the nature of treasury shares.

• Accordingly, the bill specifies that treasury shares exclude voting rights, preemptive rights and rights to cash dividends and share dividends. It also prohibits (i) issuing bonds convertible into or redeemable with treasury shares, (ii) creating a pledge over treasury shares held by the company, and (iii) allocating split shares to treasury shares in the context of a merger or corporate division.
   

• In principle, where a company acquires treasury shares, it must cancel them within one year from the date of acquisition. However, with respect to treasury shares held by the company prior to the Amendment, the company is granted an additional six-month grace period to cancel the treasury shares, allowing the company a total of one year and six months from the effective date to cancel such treasury shares.

• However, the company may hold or dispose of treasury shares if the articles of incorporation allow it. This is permitted where necessary to achieve business objectives—such as introducing new technology or improving financial structure—or to provide compensation to employees and executives. Any such action must follow a disposal plan approved by the shareholders and signed or sealed by all directors. Such treasury shareholding/disposal plan must be approved by the general meeting of shareholders each year.
   

• When a company is exceptionally permitted to dispose of treasury shares upon satisfying the relevant requirements notwithstanding the general cancellation obligation, the Amendment requires disposal on equal terms to each shareholder in proportion to the number of shares held. However, in the case of the exceptions, such as employee/executive compensation and business objectives as outlined in items (2) through (5) of Article 341-4 (2), a company may dispose of treasury shares to other persons who are not shareholders. In addition, when a company disposes of treasury shares, the Amendment generally applies by analogy the procedures for issuance of new shares to the extent consistent with the nature thereof.
   

The Amendment may make it difficult to issue convertible bonds backed by treasury shares or to engage in other financial transactions, such as loans or derivatives, secured by such bonds. In addition, the exceptions to the holding and disposal of treasury shares will be limited as described above.

As a result, the Amendment may have a significant impact on companies’ capital structures, shareholder return policies, value-up disclosures and investor relations policies. It may also materially affect strategic investment and financing decisions that have historically assumed the availability of treasury shares.

In addition, companies that will be holding their 2026 annual general meetings of shareholders after the promulgation of the Amendment and plan to dispose of treasury shares (e.g., through executive compensation arrangements or sales to third parties) may need to promptly submit to their shareholders agenda the items relating to treasury share holdings, disposal plans and related amendments to their articles of incorporation (with respect to the reasons for third-party allocation to achieve business purposes).

[Korean Version]