On February 25, 2026, the National Assembly passed the third package of amendments to the Commercial Act, following the first and the second package, each adopted in July and August. The amendment seeks to establish safeguards for general shareholders and enhance the principle of capital maintenance by restructuring the regulatory framework for treasury shares under the Commercial Act. The amendment primarily requires that treasury shares be retired within one year of their acquisition. 

The third package of amendments will enter into force on the date of its promulgation. However, a six-month grace period will be granted regarding treasury shares acquired by a company under its own name and on its own account and held as of the enforcement date of the amendment.

The following is the summary of key provisions and expected implications of the third package of amendments.

■ Summary

1. Nature of Treasury Shares

The amendment explicitly states that a company may not exercise shareholder rights such as voting rights in respect of its treasury shares. It prohibits a company from issuing bonds exchangeable for or redeemable with treasury shares, from using treasury shares as a subject of pledge and from allocating new shares to treasury shares in merger or division.

2. Mandatory Retirement of Treasury Shares

When a company acquires its own shares, it must retire them within one year from the date of acquisition. However, under certain circumstances, such as granting stock option under Article 340-2 or 542-3 of the Commercial Act, the company may hold or dispose of treasury shares according to a Plan for Holding and Disposal of Treasury Shares prepared by the company and approved by the general meeting of shareholders. The company must obtain the approval annually. In case the company fails to retire the treasury shares within one year of acquisition without the approval of the general meeting of shareholders or to hold or dispose of treasury shares according to the approved plan, directors shall be subject to an administrative fine not exceeding 50 million Korean won. 

The circumstances under which a company may exceptionally hold or dispose of its treasury shares are as follows:

3. Disposal Method of Treasury Shares

In principle, a company should dispose of treasury shares under equal conditions in proportion to the number of shares owned by each shareholder. 

The provisions concerning issuance of new shares of the Commercial Act such as Article 418 and 424 shall apply mutatis mutandis to the disposal of treasury shares, unless contrary to its nature.

4. Grace Period

A grace period shall be granted as different record date is to be established depending on the case. For example, treasury shares acquired by a company under its own name and on its own account and held as of the enforcement date of the amendment must be retired within one year from the date six months after the enforcement date of the amendment.

■ Expected Implications

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• 1. The current Commercial Act stipulates that the board of directors shall decide on the disposal of treasury shares if there is no provision in the Articles of Incorporation (Article 342), and many companies have disposed of treasury shares solely by a resolution of the board of directors without having specific provisions in their Articles of Incorporation. Under the amendment, the current board-centered decision making for holding or disposal of treasury shares will shift to a dual structure as the approval of the general meeting of the shareholders is required. It is thus expected to significantly increase shareholder influence over corporate policies regarding treasury shares.
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• 2. Under the amendment, disposal of treasury shares is permitted only in certain circumstances and must be executed in accordance with a Plan for Holding and Disposal of Treasury Shares approved by the general meeting of shareholders, and the plan must include the purpose of disposal, the scheduled disposal time, etc. Therefore, the disposal of treasury shares will be significantly restricted, which would likely end the practice of using treasury shares for management entrenchment or defense.
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• 3. The practice of strengthening a dominant shareholder's control by allocating new shares to treasury shares during spin-off, so-called ‘a magic of treasury shares’, will be difficult to sustain due to mandatory retirement of treasury shares and the prohibition of allocating new shares to treasury shares in merger or division.
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• 4. The amendment applies several provisions concerning issuance of new shares to the disposal of treasury shares, which effectively acknowledges that disposing of treasury shares yields the same economic effects as issuing new shares. In principle, a company should dispose of treasury shares under equal conditions in proportion to the number of shares owned by each shareholder[Article 418 (1)], and the shareholders might be able to exercise protective measures such as rights to injunction in case of the disposal of treasury shares violates statutes or regulations (Article 424). 
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• 5. As a company may exceptionally hold or dispose of its treasury shares in cases where it is necessary to achieve the company's operational objectives and such reasons are specified in the Articles of Incorporation, many companies are expected to attempt amending the Articles of Incorporation.
• The prohibition of issuing bonds exchangeable for or redeemable with treasury shares will restrict companies' ability to raise capital using treasury shares.

6. The third package of amendments to the Commercial Act focus on shifting the perceived nature of treasury shares from assets that a company can utilize to the shares which should be retired. 

Companies must re-evaluate their treasury share policies and the Articles of Incorporation while restructuring internal management system regarding preparing a Plan for Holding and Disposal of Treasury Shares, acquiring the approval by the general meeting of shareholders, etc. It is required for shareholders to monitor various changes such as amending the Articles of Incorporation, and to exercise their voting rights to ensure that the management of treasury shares aligns with the amendment.

【Joo young Kim(Managing Partner) jykim@hnrlaw.co.kr / Hyun Ju Ku(Partner) hjku@hnrlaw.co.kr / Jiyoung Choi(Attorney) jychoi@hnrlaw.co.kr】

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