The Korea Venture Business Association on the 25th urged supplementary legislation that takes into account the management environment of venture corporations after a Commercial Act amendment requiring corporations to mandatorily cancel treasury shares they hold passed a plenary session of the National Assembly.
In a commentary the same day, the association said, "We agree with the legislative intent of enhancing shareholder value and strengthening corporate transparency," but noted, "For venture corporations, effective safeguards must be prepared, such as creating an exception to the mandatory cancellation of treasury shares."
The association argued that the purposes for which venture corporations use treasury shares are fundamentally different from those of large corporations. While large corporations use treasury shares for share price management or shareholder returns, venture corporations use them as an essential strategic tool in management and growth. The association said, "Treasury shares are not a simple financial asset, but a device that cushions risks in a growth process marked by high uncertainty."
The association also emphasized the talent acquisition aspect. Venture corporations have limited capacity for cash compensation, so they rely on stock-based compensation such as stock options or restricted stock units (RSUs). It explained that compensation based on treasury shares is highly necessary because it allows swift compensation without issuing new shares and can reduce dilution of existing shareholders' equity.
It also mentioned the function as a means of securing liquidity. For venture corporations, bank loans or corporate bond issuance are difficult due to a lack of collateral and low credit ratings, and paid-in capital increases carry a heavy burden of equity dilution. The association said, "Disposing of held treasury shares is effectively the only funding means that can be used swiftly in a management crisis."
The association also emphasized the aspect of defending management control. Large corporations possess various defensive means such as circular shareholding, affiliate equity, and friendly equity, but in the course of attracting investment, founders' equity at venture corporations is often diluted to the 20%–30% range. The association argued, "Treasury shares have functioned as a practical means of stabilizing management, and a blanket mandate to cancel them could significantly threaten founders' management stability."