The Democratic Party of Korea has entered the final stage of coordinating the third amendment to the Commercial Act, centered on "mandatory cancellation of treasury shares." The amendment, which could be unveiled as early as next week, is said to require, in principle, the cancellation within one year not only of newly acquired treasury shares but also of existing treasury shares, and to include provisions to strengthen shareholder protection when disposing of treasury shares.
According to reporting compiled on the 21st, the Democratic Party's KOSPI 5000 special committee has sorted out the key issues related to "mandatory cancellation of treasury shares" and is in final coordination.
A key official on the special committee said, "We are trying to (announce) a bill that consolidates the committee's views within this month. We are gathering opinions within the party and need further consultations with the government. The situation is to (announce) it finally afterward. The mood is to wrap it up at the end of this month." Another official also said, "It's not at a level to make public now, but the issues have been narrowed down considerably." Although the announcement was initially expected this week, the schedule was reportedly delayed as they conducted simulation work to assess the impact on the market.
◇ Cancel existing treasury shares within one year as well… Allow holding only after approval by the general meeting of shareholders
The special committee has decided on a direction to mandate the cancellation within one year not only of newly purchased treasury shares but also of existing treasury shares, while allowing holding only in exceptional cases approved by the general meeting of shareholders. As of June 2025, there are 236 corporations with a treasury share holding ratio of 10% or more and 533 corporations with 5% or more, so it appears they took into account that pushing for blanket mandatory cancellation would place a heavy burden on corporations.
The grounds for exceptions are currently under detailed discussion. An option being strongly considered would recognize exceptions when the purpose is internal incentives, such as compensation for executives and employees or grants to an employee stock ownership association or an in-house welfare fund, or when it is funding for new technology development.
A plan to grant an additional grace period for corporations with large holdings of treasury shares is also being reviewed. A special committee official said, "There are not a few corporations that hold 30%–40% in treasury shares, so canceling all within a year is realistically difficult."
◇ Establish "shareholder protection measures upon disposal"… "Dispose only for the purpose of acquisition"
When disposing of treasury shares, a plan is being discussed to newly establish procedures that protect the interests of existing shareholders. When the Commercial Act was amended in 2011, corporations were allowed to use treasury shares relatively freely, but safeguards against governance distortion and damage to shareholder value through treasury shares were lacking, so the issue of "unfair disposal" has been consistently raised.
The current Commercial Act stipulates procedures for acquiring treasury shares, but because there are no clear restrictions on disposal procedures, the board of directors can freely set the timing, target, and price. Accordingly, the amendment is expected to include a principle requiring disposal only for the purpose of acquisition. A special committee official explained, "If acquired for stock options, it must be disposed of only for the purpose of granting stock options, and if for an employee stock ownership purpose, it must be disposed of only for that purpose."
A plan is also being floated to apply the procedures for issuing new shares when disposing of treasury shares acquired involuntarily, such as through a merger, to guarantee equal opportunities for existing shareholders. This means applying stringent procedures to selling treasury shares just as when issuing new shares. If so, existing shareholders must be given the first opportunity to buy (preemptive rights), and it will become difficult to carry out expedient disposals that favor certain shareholders. Mandatory disclosures, as with new share issuances, would also be required.
◇ Amendment likely to be handled early next year… Linked with "easing of breach-of-trust penalties"
The third amendment to the Commercial Act is likely to be handled early next year because it has been pushed out of the priority list in the National Assembly in December this year. Even if the special committee submits the bill as early as next week, judicial reform bills that the ruling party leadership has decided to prioritize after the budget bill is processed—such as "increasing the number of Supreme Court justices, the crime of distorting the law, and the trial petition system," as well as the "fake information eradication bill"—will be discussed first.
The People Power Party plans to counter the reform bills with a filibuster. Under the National Assembly Act, it takes at least 24 hours to end a filibuster, so it takes nearly two days to handle a single bill. For this reason, the prevailing view is that it will be difficult for the third amendment to the Commercial Act to pass even in the December extraordinary session.
The Democratic Party leadership is also reviewing a plan to push the amendment to the Commercial Act in conjunction with the "work to ease penalties for breach of trust," which is scheduled to be wrapped up early next year. This is interpreted as a strategy to ease corporate backlash against the third amendment to the Commercial Act by concurrently discussing the abolition of the breach-of-trust crime, which the business community has strongly demanded.