The Democratic Party of Korea’s proposal to mandate the cancellation of treasury shares is drawing scrutiny over whether it aligns with international standards, as most major economies allow companies to hold such shares under specific conditions.
The push comes as the Democratic Party, using its majority control in the National Assembly, advances a third amendment to the Commercial Act. The proposed revisions would require listed companies to retire treasury shares within strict deadlines. Treasury shares refer to stock repurchased by a company after buybacks.
Party leader Lee Jae Myung has tied the initiative to his broader “Kospi 5000” agenda, which seeks to address the so-called “Korea discount”,the undervaluation of Korean stocks compared to global peers, often attributed to weak corporate governance. Several bill versions are under review, amending both the Commercial Act and the Capital Markets Act. While current law governs how companies can repurchase stock, it does not stipulate how those shares must be managed afterward. The new proposals would either require immediate or time-limited retirement of newly repurchased shares, or mandate cancellation of existing holdings within six months to five years of the law’s enactment.
Supporters argue that forcing cancellations would reduce the number of outstanding shares, boosting earnings per share and reinforcing investor confidence. Yet the plan has alarmed South Korea’s large conglomerates, which have historically used treasury shares as a protective buffer against hostile takeovers.
The business community is pushing back. The Korea Chamber of Commerce and Industry (KCCI) warned that a blanket cancellation rule could disrupt corporate restructuring, weaken financial resilience, and expose companies to greater managerial risks. It also emphasized that countries such as the United States, Japan, and the United Kingdom grant companies discretion in managing treasury stock, rather than imposing mandatory retirements.
In the US, there is no federal law or SEC rule requiring cancellation; decisions are left largely to state law and company boards. Most states, including Delaware and New York, permit companies to hold and repurchase treasury stock, leaving the choice of cancellation to the board of directors. California is a notable outlier, having abolished treasury shares decades ago, automatically treating repurchased stock as cancelled.
The UK also allows companies to both retain and cancel treasury shares at their discretion. Japan maintains a similar system, with decisions depending on whether authority rests with the board or requires shareholder approval. Germany, however, has stricter controls: while companies may hold treasury shares, they must dispose of any holdings exceeding 10 percent of capital within three years, or face automatic cancellation.
Data from the KCCI shows that Korea’s largest companies actually hold fewer treasury shares than their global counterparts. Among the top 30 firms by market capitalization, the average treasury stock ratio was 2.31 percent, compared with 2.54 percent in the US, 5.43 percent in Japan, and 4.93 percent in the UK.
Industry experts caution that South Korea lacks alternative defenses against hostile takeovers,such as poison pills, golden shares, or dual-class voting rights,that other developed economies allow. Treasury shares remain Korea’s primary safeguard. Without complementary measures, they warn, mandatory cancellation could leave Korean firms increasingly vulnerable.
Kang Seok-koo, head of research at the KCCI, stressed the need for balance. “Making treasury share cancellation mandatory could harm capital market development and lead to unintended consequences,” he said. “Instead, discussions should focus on ensuring fairness in disposal processes, alongside introducing stronger protections for management rights.
