Commercial Act Amendment Enters Round Two... Focus on Treasury Share Cancellation and Easing of Breach of Trust Offense

Ruling Party Pushes for "Treasury Share Cancellation"...
Opposition Seeks "Easing of Breach of Trust Offense"
Key Issues to Be Discussed Through Public Hearings

The ruling and opposition parties have entered a second round of legislative competition over supplementary legislation for the Commercial Act amendment, which passed the plenary session of the National Assembly on July 3. The Commercial Act amendment has drawn attention as the first bipartisan bill since the inauguration of the Lee Jaemyung administration. Although it was finally passed in the National Assembly after prolonged debate, there is still a long way to go. The Democratic Party has pledged to pursue an even stronger amendment to the Commercial Act. The People Power Party has decided to focus on supplementary legislation to mitigate potential side effects.

On July 3, the partial amendment to the Commercial Act was passed at the plenary session of the National Assembly. 2025.7.3 Photo by Kim Hyunmin

The recently passed amendment to the Commercial Act includes the following provisions: expansion of directors' duty of loyalty (from the company to both the company and shareholders); introduction of electronic general shareholders' meetings; and restriction of voting rights for the largest shareholder and related parties exceeding a combined 3% when appointing directors who will serve as audit committee members. The People Power Party changed its stance on the amendment, enabling the bill to pass the National Assembly through bipartisan agreement. Of the 272 members present, 220 voted in favor, 29 opposed, and 23 abstained.

The main focus now is on the content and timing of supplementary legislation for the Commercial Act amendment. Both parties are expected to elect new leaders in August. The regular session of the National Assembly begins in September, followed by a busy political schedule including the government audit and year-end budget discussions. Supplementary legislation for the Commercial Act has emerged as a key legislative priority.

The Democratic Party's KOSPI 5000 Special Committee plans to hold a public hearing in July on issues not included in the recently passed amendment, such as increasing the number of directors serving as separately elected audit committee members and introducing cumulative voting for director appointments in large listed companies. The committee aims to address these matters as quickly as possible.

The principle of mandatory cancellation of treasury shares, which President Lee Jaemyung pledged as a candidate, is also expected to be discussed through public hearings and addressed during the regular session. A key member of the special committee told Asia Economy, "Since the 2011 amendment to the Commercial Act, the principle of canceling treasury shares has been excessively relaxed, leading to criticism and prompting the Financial Services Commission under the Yoon Sukyeol administration last year to call for improvements," adding, "The specific method will be developed through further discussions."

Jin Sungjun, the Policy Committee Chair of the Democratic Party, is holding a meeting with the vice presidents of six economic organizations at the National Assembly on the 30th to gather opinions from the business community regarding the promotion of the Commercial Act amendment. Attendees of this meeting included Park Iljun, Executive Vice President of the Korea Chamber of Commerce and Industry; Kim Changbeom, Executive Vice President of the Korea Economic Association; Lee Donggeun, Executive Vice President of the Korea Employers Federation; Jang Seokmin, Executive Director of the Korea International Trade Association; Oh Kiwoong, Executive Vice President of the Korea Federation of Small and Medium Business; Lee Hojun, Executive Vice President of the Korea Federation of Medium-sized Enterprises; and Jung Wooyoung, Vice President of the Korea Listed Companies Association. 2025.6.30 Photo by Kim Hyunmin

The People Power Party, while taking a more positive stance on the amendment, plans to focus on reflecting business community concerns and mitigating potential side effects. Jang Donghyuk, the People Power Party's ranking member on the Legislation and Judiciary Committee, said at a party meeting, "We have filtered out as many problematic provisions as possible, such as cumulative voting and separate election of audit committee members, but concerns remain regarding excessive litigation and abuse of the system by speculative forces. We will actively work on codifying the business judgment rule, improving the breach of trust offense, and introducing measures to protect management rights."

The People Power Party has especially emphasized that supplementary legislation to ease the breach of trust offense will be discussed swiftly with the opposition. Related bills have already been proposed by the People Power Party, including the abolition of the special breach of trust offense under the Commercial Act (proposed by Representative Kim Sungwon) and special provisions for corporate breach of trust offenses (proposed by Representative Ko Dongjin). While the Democratic Party has not yet proposed any related bills, it intends to actively negotiate with the opposition to reach an agreement. A key member of the Democratic Party's parliamentary group said, "This will also be addressed in a public hearing," adding, "While individual lawmakers' bills are important, if the parties reach a certain level of agreement, a bill can be drafted immediately."

The special committee also plans to review other pledges from President Lee, such as introducing a mandatory tender offer system for corporate acquisitions and requiring prior court review for mergers between affiliates, in conjunction with discussions on amending the Capital Markets Act.

A key member of the special committee stated, "Regarding these pledges, we plan to address them all together in the context of the Capital Markets Act," adding, "Discussions that have accumulated since last year will be organized at the committee level, and once consensus is reached, we aim to process them during the session through the Political Affairs Committee." Inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets Index and pension fund reforms for retirement pensions have been designated as long-term tasks.