Taking advantage of the delay in the National Assembly's passage of the third Commercial Act amendment bill, corporations are rushing to dispose of treasury shares. If the bill passes, the retirement of treasury shares will be mandatory, and even when using treasury shares, corporations will have to be strictly controlled by a shareholders meeting instead of the board of directors. Some also criticize that the use of treasury shares runs counter to the "global standard."
According to the Financial Supervisory Service's electronic disclosure system on the 31st, 71 corporations in the Korea Exchange and KOSDAQ markets disclosed decisions to dispose of treasury shares during the month this year (1–26). That is a 209% increase from 23 in the same period a year earlier. The total number of disclosures of decisions to dispose of treasury shares was 657 in 2023 and 348 in 2024.
By purpose of disposal, compensation for executives and employees was the most common with 40 cases. Bonus payments and the exercise of stock options were the main uses. DB HiTek disclosed on the 20th that it would use 300,816 treasury shares (about 25.8 billion won) for employee bonuses and grants to the in-house employee welfare fund. ROBOTIS also used 42,000 treasury shares (about 10.3 billion won) on the 25th for performance compensation for executives and employees.
There were also nine cases of disposing of treasury shares to secure corporate funds. ROBOTIS disposed of 97,646 treasury shares (about 26.3 billion won) to secure operating funds, and Ananti likewise used 2 million treasury shares (about 15.2 billion won) on the 14th to raise funds for new business investment.
There were eight cases of using treasury shares to acquire other corporations or strengthen strategic partnerships. Daewoong contributed 564,745 treasury shares in kind (about 12.1 billion won) to acquire shares in U2Bio. The company said it was a "strategic investment in U2Bio, which engages in in vitro diagnostic services and medical IT solutions." Kumbi also strengthened its business cooperation relationship by conducting a stock exchange with Muhak using 80,378 treasury shares (about 4 billion won).
There were also five cases of issuing exchangeable bonds (EB) using treasury shares as the exchange target. Exchangeable bonds are bonds granted the right to be exchanged for shares under certain conditions, and when treasury shares are used as the underlying asset, they have an effect similar to a paid-in capital increase. AJU Steel recently disclosed that it would issue exchangeable bonds targeting 877,820 treasury shares (about 2.8 billion won). Earlier, Taekwang Industrial tried to issue EBs using treasury shares but withdrew the plan after a day when controversy arose over infringement of shareholder rights.
◇ If the third Commercial Act is amended, the bar for using treasury shares will be raised… corporations hurry to retire shares
As discussions on the third Commercial Act amendment bill are delayed, there is an interpretation that corporations are moving to use treasury shares before the law changes. The National Assembly postponed the bill review subcommittee scheduled for the 21st–22nd, making the legislative schedule, which goes through the standing committee's subcommittee, the full committee meeting, and the plenary session, uncertain.
In this situation, as some corporations rush to dispose of or use treasury shares, some experts are raising criticism that this is a "trick use ahead of the Commercial Act amendment." After the law is amended, the use of treasury shares will require approval at a shareholders meeting, but before the amendment it is possible with only a board resolution.
The core of the third Commercial Act amendment bill is to mandate retirement within one year when a company acquires treasury shares. However, in unavoidable cases such as compensation for executives and employees, it exceptionally allows the holding and use of treasury shares, but requires approval by a shareholders meeting instead of a board resolution. The intent is to apply stronger shareholder control over the use of treasury shares.
◇ "The use of treasury shares itself is the problem vs. blanket retirement of treasury shares is excessive"
Some also view the use of treasury shares itself as problematic. Lee Bang-u, chair of the Korea Governance Forum, said, "Under accounting principles and the global standard, treasury shares are deducted from shareholders' equity the moment the company buys them and cannot be seen as an asset," and noted, "Selling such shares again or using them strategically is wrong."
In fact, California corporate law and the Model Business Corporation Act (MBCA) in the United States do not recognize the concept of a treasury share, and provide that shares acquired by the company are immediately restored to authorized but unissued shares. This means that the legal existence of the shares disappears the moment the company buys them, effectively treating them as retired.
On the other hand, there is also a counterargument that uniformly mandating the retirement of treasury shares is excessive. A business community official said, "Even overseas, while treasury shares may be regarded as unissued shares, rather than mandating retirement, the process for disposing of treasury shares is made equivalent to issuing new shares, limiting only the abuse of treasury shares as a means to expand friendly equity for controlling shareholders or related parties."
Accordingly, the argument is that, rather than unconditionally retiring treasury shares, the system should be refined to block abuse for the purpose of defending management control. They emphasize that allowing the use of treasury shares as a means of defending management control was the legislative intent at the time of the 2011 Commercial Act amendment.
In particular, there are concerns that in a situation where tools for defending management control are limited, blanket retirement of treasury shares could cause unintended side effects. A professor of accounting said, "The treasury share system is a representative tool for defending management control recognized under the Commercial Act, but Korea faces a serious imbalance between tools for attacking and defending management control," and said, "To follow the global standard, discussions on various defensive tools, such as poison pills, need to come first."