The National Assembly's Legislation and Judiciary Committee passed the third amendment to the Commercial Act that includes a mandate for corporations to cancel treasury shares. The Democratic Party of Korea plans to bring the Commercial Act amendment to a floor vote during the February extraordinary session.
On the 23rd in the afternoon, the Legislation and Judiciary Committee held a full session at the National Assembly and passed the third amendment to the Commercial Act with 11 in favor and 6 against out of 17 Commissioners present. The bill passed under the ruling party's lead, while Commissioners from the People Power Party opposed.
The amendment requires newly acquired treasury shares to be mandatorily canceled within one year. Existing treasury shares are given a six-month grace period. Accordingly, corporations must cancel treasury shares within one year and six months after the law takes effect. If this is violated, directors face fines of 50 million won.
There are some exceptions to the mandate to cancel treasury shares. In special cases such as business necessity and implementation of the employee stock ownership plan, a company may draw up a plan to dispose of treasury shares and obtain approval at the general meeting of shareholders. If there is a statutory foreign equity cap, an exception allows disposal within three years after the law takes effect.
The amendment also provides that if a company disposes of treasury shares instead of canceling them, it must acquire them on an equal basis according to the number of shares held by each shareholder. If a capital reduction procedure is required due to involuntary cancellation of treasury shares, it is simplified to allow a board resolution instead of a special resolution at the general meeting of shareholders.