Treasury shares and buybacks in Korea

Updated 2026-10-31

Shares that a company has bought back and still holds are called treasury shares (자기주식, often shortened to 자사주). For years many Korean companies bought shares and kept them instead of cancelling them. A major change to the Commercial Act in 2026 now requires cancellation in most cases, so older explanations of Korean buybacks are partly out of date.

Two ways to buy

A direct purchase is a clearer commitment: the filing states how many shares will be bought. A trust contract gives a budget, and the trustee may spend less than the full amount. When a trust ends, the company files a notice of termination (신탁계약 해지) showing how much was actually bought. A result report (자기주식취득결과보고서) is also filed after a direct purchase period ends.

Holding, cancelling and disposing

A company can do three things with shares it owns:

• Cancel them (자기주식 소각): the shares disappear and the share count falls.
• Hold them: treasury shares have no voting rights and receive no dividends while held.
• Dispose of them (자기주식처분): sell them on the market, give them to employees as compensation, or transfer them to a partner.

Before 2026, holding was common. Critics argued that treasury shares were used to protect control, for example by selling them to a friendly party before a vote or by keeping them through a split-off so that the controlling group gained voting power in the new company.

The 2026 cancellation rule

The National Assembly passed a third round of Commercial Act amendments in February 2026, and the treasury share provisions took effect on promulgation in March 2026. In outline:

• Treasury shares acquired after the change must generally be cancelled within one year of acquisition. Cancellation can be done by board resolution.
• Shares that companies already held receive a transition period: they must be cancelled within one year after a six-month grace period, about eighteen months from the effective date in total.
• Shares bought through a trust are counted from the date the trustee returns them to the company.
• A company can keep or dispose of treasury shares for specific purposes, such as employee share compensation, only if the articles of incorporation allow the purpose and shareholders approve a holding and disposal plan, which must be approved again each year.
• Disposals generally must be offered to all shareholders on equal terms, unless an approved exception applies.

The law also makes clear that treasury shares carry no shareholder rights, and they cannot be used as the asset behind an exchangeable bond. Some details, including sector-specific exceptions and sanctions, are in the law and its decrees; check the Ministry of Justice guidance or the law text for a specific case.

Worked example

A hypothetical company has 50,000,000 shares and net income of ₩100B, so earnings per share are ₩2,000. It buys 1,000,000 shares at ₩20,000, spending ₩20B.

• If it cancels them, 49,000,000 shares remain. With the same net income, earnings per share rise to about ₩2,041, up 2%.
• If the dividend budget stays at ₩25B, the dividend per share rises from ₩500 to about ₩510.
• If, under an approved plan, it later sells the shares in the market, the share count returns to 50,000,000 and the per-share effect disappears.

The size that matters is the buyback as a share of shares outstanding (2% here) or of market value, not the won amount. The buyback page ranks filings by planned amount; compare that with the company's size.

Reading the filings

• Purpose (취득목적): shareholder value, price stabilisation, cancellation, or employee compensation. A stated plan to cancel is now the default expectation.
• Source of funds: most buybacks use distributable profits (배당가능이익). Buybacks of this kind are capped by the amount of distributable profits.
• Cancellation decision (주식소각결정): filed separately, with the number of shares and the planned date.
• Disposal decision: check the buyer and the price. A sale to an affiliate or a friendly party at a low price is a warning sign.
• Execution: compare the result report with the plan. A company may buy fewer shares than it announced.

Comparison with the US

A US buyback programme is usually an authorisation with no fixed end date, and execution is reported after the fact in the 10-Q or 10-K. US companies may hold treasury stock indefinitely. In Korea each decision has its own filing with a fixed period, results are reported when it ends, and since 2026 most repurchased shares must be cancelled within a year. A Korean trust contract is loosely similar to a US 10b5-1 repurchase plan, because a third party decides the daily timing.

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