KB Securities: Legislation Accelerates Mandatory Treasury Share Cancellation for Holding Companies... Response Intensifies

On September 24, KB Securities analyzed that companies actively carrying out share cancellations or using treasury shares for employee compensation-both of which are directly linked to enhancing shareholder value-are expected to receive positive evaluations.

According to KB Securities, since June, a total of five bills related to amendments to the Commercial Act have been proposed and are currently pending in the National Assembly. All of these bills include the same principle that requires not only newly acquired treasury shares but also previously held treasury shares to be cancelled.

Park Geonyoung, a researcher at KB Securities, stated, "The new government, which was launched after the presidential election on June 3, is pushing ahead with Commercial Act amendments at a rapid pace. The first amendment has already expanded the fiduciary duty of directors to all shareholders, and the second amendment has mandated cumulative voting."

He continued, "The core of the third amendment, which is currently drawing attention, is the mandatory cancellation of treasury shares, requiring companies to cancel the treasury shares they have acquired. The effective date for all these bills is set as six months after promulgation, so if the bills pass, companies will have a six-month preparation period before the regulations are applied."

Park identified the options available to holding companies as: ▲cancellation ▲disposal to a third party ▲employee compensation ▲issuance of different classes of shares. He said, "It is expected that holding companies will combine these options depending on their shareholding structure (owner family shareholding ratio) and financial situation. It is rare for a company to choose only one of these four options exclusively; in reality, it is more likely that multiple measures will be used in parallel."

He added, "Looking at the use of treasury shares by holding companies since the new government was launched, it has so far been limited in scope. Depending on whether the Commercial Act amendments currently being discussed in the National Assembly are passed, the response of holding companies regarding treasury shares is expected to become much more active."

He also said, "In particular, companies that actively carry out share cancellations or use treasury shares for employee compensation-both of which are directly linked to enhancing shareholder value-will receive support from investors. From a stock price perspective, they are also expected to be evaluated more positively."

This content was produced with the assistance of AI translation services.