How to Dispose of Treasury Shares in South Korea

For decades, treasury shares were the quiet reserve of Korean corporate practice. A company bought back its own stock, held it indefinitely, and released it to a friendly party when control was contested or a deal needed currency. As of March 6, 2026, that reserve no longer exists as a matter of law.

The third amendment to the Korean Commercial Act (Act No. 21448) passed the National Assembly on February 25, 2026 and was promulgated and took effect on March 6, 2026. Two rules define it. First, treasury shares acquired by a company must be cancelled within one year of acquisition. Second, if the company wishes to retain or dispose of them instead, it needs shareholder approval, and any disposal must be offered to all shareholders on equal terms in proportion to their holdings. For foreign investors and joint venture partners in South Korea, this rewrites assumptions that were built into existing shareholders agreements. This article focuses on the disposal mechanics and on the bylaws work that must precede them.

1. What changed for treasury share disposal in South Korea in 2026?

The default changed. The previous Article 342 simply directed the board to decide the class and number of shares, the disposal price and payment date, and the counterparty and method. It said nothing about who should receive the shares. The amended provision adds a governing principle: the company “shall have each shareholder acquire the shares on equal terms in proportion to the number of shares held” (Article 342(1)).

In other words, disposal of treasury shares is now a rights offering by default, and a placement to a third party is the exception. The architecture of new share issuance under Korean law, where shareholders hold preemptive rights and third-party allocation requires both a bylaws basis and a business purpose, has been transplanted into treasury share disposal.

2. Why must treasury shares be cancelled within one year?

Article 341-4(1) provides that where a company has acquired treasury shares, it “shall cancel them within one year from the date of acquisition.” The policy concern is straightforward. Treasury shares carry no voting rights while the company holds them, but those rights revive the moment the shares reach a third party. A controlling shareholder could therefore manufacture friendly voting power using corporate funds rather than personal capital.

This is a general provision of Korean company law, not a listed-company special rule. Private companies and venture companies are equally bound. Mid-sized Korean manufacturers that accumulated treasury shares for succession planning or shareholder buyouts are often the most affected.

The workarounds closed at the same time

Article 341-3 should be read alongside the disposal rules. The amendment states expressly that treasury shares carry neither voting rights nor economic rights such as dividends and preemptive rights, and it prohibits pledging treasury shares and issuing bonds exchangeable or redeemable into treasury shares. Allocating new shares to treasury shares in a merger or split, or transferring them as merger consideration, is likewise barred.

Exchangeable bonds backed by treasury shares and treasury share pledges were long used to achieve the economic effect of a disposal without going through a disposal. Those routes are now closed. If a Korean company wants to use its treasury shares, it must go through Article 342 directly, which is precisely why the disposal mechanics now matter.

3. What does pro rata disposal on equal terms actually require?

The equal-terms principle in Article 342(1) means every shareholder must be given the opportunity to buy at the same price and on the same conditions, in proportion to that shareholder’s stake. A quiet off-market sale to one shareholder is no longer the ordinary method of disposal.

In practice the company follows a procedure that closely tracks a rights offering: fixing and publishing a record date, notifying shareholders of their allocation and the subscription deadline, and running subscription and payment. Article 342(4) applies Articles 417 through 419, so these procedural provisions operate directly.

One point is easy to miss. Pro rata equal-terms disposal is itself an exception under Article 341-4(2)(1). Even where the company sells only to existing shareholders, it must still prepare a treasury share retention and disposition plan and obtain shareholder approval to be released from the cancellation duty. Assuming that an offer to all shareholders dispenses with the plan is a costly mistake.

4. Which exceptions permit disposal to a third party?

Article 342(2) permits a company to dispose of treasury shares to a person other than a shareholder only where one of items 2 through 5 of Article 341-4(2) applies. Item 1 is a shareholder allocation by nature, so four exceptions support third-party disposal.

Item 5 is where most cross-border transactions land. Strategic alliances, financial restructuring, and equity swaps tied to technology partnerships all fall here, and the exception is unavailable unless the ground already appears in the bylaws.

The list is exhaustive. A disposal that benefits the company but does not fit an enumerated ground is not permitted. The Ministry of Justice has confirmed, for example, that contributing treasury shares to an in-house employee welfare fund does not fall within Article 341-4(2), so an arrangement that ultimately benefits employees is not automatically covered by items 2 or 3.

5. When is a bylaws amendment mandatory?

A bylaws amendment is indispensable where the company intends to retain or dispose of treasury shares for a business purpose. Article 341-4(2)(5) covers a case “necessary to achieve a business purpose of the company, such as the adoption of new technology or the improvement of the financial structure, where the ground is provided in the bylaws by a resolution of the shareholders meeting under Article 434.” Article 434 sets the special resolution threshold: two thirds of the voting rights present and one third of total issued shares.

Beyond that, the decision-making architecture itself can be designed in the bylaws. Article 342(3) directs the board to decide the class and number of shares, the price and payment date, and the counterparty and method, to the extent the bylaws do not provide otherwise, and adds that this does not apply where another provision of the Act governs or where the bylaws assign the decision to the shareholders meeting.

Copying the statutory language verbatim into the bylaws is not advisable. A catch-all clause reciting “a business purpose of the company” invites a dispute over whether the ground existed when the disposal is later challenged. Specifying concrete grounds that match the company’s actual business, such as technology adoption, strategic alliance, or financial restructuring, is the safer course, and drafting that language carefully is usually the most time-consuming part of the engagement.

6. How is the retention and disposition plan prepared and approved?

To rely on an exception, the company must prepare a treasury share retention and disposition plan and obtain the approval of the shareholders meeting (Article 341-4(2)), and must obtain that approval every year (Article 341-4(3)). It is a standing annual agenda item, not a one-time filing.

The plan must state the following and be signed or sealed by all directors (Article 341-4(4)).

• The purpose of retaining or disposing of the treasury shares
• The class and number of treasury shares concerned and the method of acquisition
• As of the start of retention and the expected disposal date: the class and number of shares and acquisition method, the class and number of shares other than treasury shares within total issued shares, and the change in the ratio of treasury shares to total issued shares
• The expected retention period
• The expected timing of disposal

The signature requirement is not a formality. It allocates individual responsibility for the contents to each director, so the board record should document why the purpose is legitimate and how the shareholding ratios will move. Preparing the board minutes and the draft plan as a single package is the practical response.

7. Who decides — the board or the shareholders meeting?

Both, in sequence. The shareholders meeting decides whether the company may retain and dispose at all, by approving the plan. The board decides the specific terms within the approved plan.

• Board — prepares the retention and disposition plan, signed by all directors
• Shareholders meeting — approves the plan; where the business purpose exception is used, the bylaws provision must already be in place by special resolution
• Board — fixes the class, number, price, payment date, counterparty, and method within the approved plan
• Execution — follows the applied new share issuance procedure of publication, notice, subscription, and payment
• Annual general meeting — renews approval of the plan each year

8. What follows from applying new share issuance rules to disposal?

Article 342(4) applies Articles 417 through 419, 421, 422, 423(2) and (3), 424, 424-2, and 427 through 432 to treasury share disposal to the extent not inconsistent with its nature. Korean lower courts had long divided over whether new share issuance rules could be applied by analogy to treasury share disposal. The legislature has now settled the question.

• Procedure (Arts. 417–419, 421) — record date designation and publication, notice to subscribe, and payment mechanics now govern disposal.
• In-kind contribution review (Art. 422) — inspection or appraisal becomes an issue where treasury shares are disposed of against non-cash consideration.
• Injunction right (Art. 424) — a shareholder facing prejudice from a disposal that violates law or the bylaws, or that is grossly unfair, may demand that the company refrain from it.
• Liability for a grossly unfair price (Art. 424-2) — a person who acquires treasury shares at a grossly unfair price in collusion with a director owes the company the difference from the fair price.
• Invalidation action (Arts. 427–432) — challenges to a disposal are channelled into a statutory action with a fixed filing period and defined judgment effects.

For the company, a procedural defect now converts directly into litigation risk. For minority shareholders, the remedies are clearer than before. The qualifier “to the extent not inconsistent with its nature” means the reach of individual provisions will be worked out case by case, and no judicial guidance exists yet given how recently the amendment took effect.

9. What should foreign-invested companies in the IFEZ do now?

The supplementary provisions grant a grace period for treasury shares already held when the amendment took effect, requiring cancellation within one year from the date six months after the effective date. Shares held indirectly by a trustee under a trust arrangement are also covered by the transitional rules.

Within that window, a company must decide whether to cancel or to seek annual shareholder approval to retain, and if the latter, prepare the general meeting agenda and the bylaws amendment together. Because the bylaws amendment requires a special resolution, the shareholding structure often determines whether the timetable is realistic at all.

A frequently overlooked case is a disposal already resolved and disclosed but not yet completed. Even where the company resolved on a disposal and made the disclosure before the effective date, completing it afterward requires the new procedure: confirming that a statutory exception applies and obtaining shareholder approval of the retention and disposition plan. Relying on the earlier resolution alone is not safe.

Shareholders agreements need to be reopened

Joint ventures and investee companies in South Korea commonly carry treasury share provisions in their shareholders agreements. Clauses that collide with the amendment include the following.

• An undertaking that the company will buy back shares and transfer them to a designated shareholder — test against the equal-terms principle and the exception list.
• Use of treasury shares as collateral or as exchange consideration — now prohibited, so the structure must be redesigned.
• Anti-dilution and ratio maintenance clauses — cancellation reduces total issued shares, changing the arithmetic they assume.
• Pre-agreement on special resolution items — plan approval and bylaws amendment are new agenda items that the voting arrangements must cover.

Atlas Legal has recently advised companies preparing treasury share disposals across the full sequence: designing the bylaws amendment, renegotiating and revising shareholders agreements, preparing the retention and disposition plan and the supporting board minutes, and running the general meeting agenda and resolution process. Because the amendment is so recent, this work has meant reading the statute closely and building the procedure without the benefit of precedent. Companies in the Incheon Free Economic Zone (IFEZ), covering Songdo International Business District, Cheongna International City, and Yeongjong International City, should start with the threshold question of whether cancellation or retention serves the shareholder base better.

10. Frequently asked questions

This article reflects the Korean Commercial Act as amended and effective March 6, 2026. Outcomes depend on each company’s shareholding structure, bylaws, and shareholders agreement. For assistance with bylaws amendments, treasury share retention and disposition plans, or board and shareholders meeting procedure, please contact Atlas Legal in Songdo, Incheon.

About the Author

Taejin Kim | Managing Partner

Corporate Counseling, Corporate Disputes, White-Collar Crime

Former Public Prosecutor | Judicial Research and Training Institute, 33rd Class

Korea University LL.B. & LL.M. (Criminal Law), University of California, Davis LL.M.

Atlas Legal | Incheon Songdo, South Korea

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