Korea Inc. braces for 3rd Commercial Act revision mandating treasury share cancellations
A revision toughening the Commercial Act is passed during a plenary session of the National Assembly in Seoul, Monday. Yonhap
Tension is rising in the business community as the ruling Democratic Party of Korea (DPK) plans to push forward a third amendment to the Commercial Act next month that would make the cancellation of treasury shares compulsory, following the passage of two earlier revisions, industry officials said Wednesday.
Business leaders are concerned that while the previous amendments already pose a significant challenge to management rights, the forced cancellation of treasury shares could fundamentally disrupt companies’ strategies for maintaining management control and managing capital.
On July 3, the DPK, which holds a majority in the National Assembly, pushed through the first amendment to the Commercial Act, expanding directors’ fiduciary duties to cover not only the company but also its shareholders. On Monday, the party also led the passage of the second revision, requiring listed companies with assets exceeding 2 trillion won ($1.4 billion) to adopt cumulative voting.
The ruling party is now advancing a third amendment, which will require treasury shares to be canceled within a certain period. The DPK has not determined the timeline for when cancellations must take place, however, proposing a range between immediately on acquisition to one year after.
The handling of existing holdings remains a key issue, with proposals for canceling previously accumulated shares ranging from six months to five years .
The business community voiced strong opposition, arguing that treasury shares are a strategic tool for defending management control. They claim that rapidly canceling decades of accumulated shares is not only impractical but would also leave companies exposed to foreign investors or hostile takeovers.
On the other hand, the government and ruling party emphasize that the reforms align with global standards, arguing that long-term accumulation of treasury shares undermines market confidence and encourages opaque governance.
“We will continue our efforts without pause to pass key reform bills aimed at improving people’s livelihoods,” DPK floor leader Rep. Kim Byung-kee said.
The ruling party is also preparing measures to ease corporate resistance, including a move to relax liability for breach of trust.
Jung Da-som, a researcher at Korea Investment & Securities, said, “Although the ruling party had already reached consensus on the first and second amendments to the Commercial Act, the proposals in the third amendment have not yet been fully discussed, so many changes to details and timelines are expected.”