With South Korea's stock market entering an era of “KOSPI 5,000” and “KOSDAQ 1,000”, a third revision to the Commercial Act, seen as the strongest catalyst for boosting corporate value, is nearing. Business groups say it could raise uncertainty in corporate management and are calling for institutional supplements and improvements to breach-of-trust provisions.

The revision is likely to pass the National Assembly plenary session as early as early February after review by the parliamentary Legislation and Judiciary Committee, the financial investment industry said on Monday. The committee was originally set to discuss it last week, but the meeting was called off due to various political issues.

The first revision previously expanded directors’ duty of loyalty from the company to shareholders. It codified that boards must consider the interests of general shareholders as well as controlling shareholders.

The second revision introduced a “3 percent rule” limiting voting rights of controlling shareholders to 3 percent in selecting audit committee members. It also mandated cumulative voting to protect minority shareholders, laying the groundwork for improving corporate governance.

The third revision goes a step further by mandating the cancellation of treasury shares. If a company newly acquires treasury shares, it must cancel them within 1 year, while existing treasury shares must be cancelled within 1 year after a 6-month grace period.

It also includes provisions to, in principle, ban duplicate listings, or to mandate shareholder-protection devices.

Business groups say they agree with the purpose of the third revision but are urging supplementary measures that reflect on-the-ground realities.

Eight business organisations, including the Korea Chamber of Commerce and Industry, the Federation of Korean Industries, the Korea International Trade Association, the Korea Federation of SMEs, the Korea Employers Federation, the Korea Enterprises Federation, the Korea Listed Companies Association and the KOSDAQ Listed Companies Association, proposed an exception clause. They said that if companies are required to cancel all treasury shares, including those unavoidably acquired in restructuring processes such as mergers, corporate restructuring and entry into new businesses could be delayed.

They also requested that, given the large scale of existing treasury shareholdings, the grace period for cancellation be extended to 1 year and that companies be allowed to dispose of the shares as well as cancel them.

The business community in particular urged improvements to breach-of-trust rules, saying judicial risks have increased after the expansion of directors’ duty of loyalty while progress on such reforms has been sluggish. They called for codifying the business judgment rule so that normal management activity does not become subject to criminal punishment.

President Lee Jae-myung (이재명) is showing strong will to push through the third revision. Lee said on his social media account X, formerly Twitter, on Jan. 25, “They resisted in a panic as if companies and the country would be ruined over the Commercial Act revision for normalisation, but once it was revised, did it not make companies, the state and society all better?”

He added that it was regrettable that some view the market negatively depending on political leanings despite the era of KOSPI 5,000.

At a luncheon on Jan. 22 with the Democratic Party's special committee for KOSPI 5,000, he called for swift handling, saying, “The sooner the better, so process it quickly.”

He also called for faster action on the “abolition of breach-of-trust provisions” that business groups are concerned about. The aim is to prevent corporate management activity from shrinking and to encourage bold investment.

The brokerage industry is viewing the market impact of the third revision positively.

Jong-young Kim (김종영), a researcher at NH Investment & Securities, said mandatory cancellation of treasury shares would reduce the number of shares outstanding for KOSPI-listed firms by an average of 1 percent a year. He said this would lead to higher earnings per share and become a clear factor for a re-rating of KOSPI valuations.

In practice, cancelling treasury shares is the most direct and powerful means of supporting share prices. Domestic companies have faced criticism for abusing treasury shares as a tool to defend management control or using “treasury-share magic” to strengthen controlling shareholders’ control during conversions to holding companies.

Ki-hyeong Oh (오기형), head of the KOSPI 5,000 special committee, said institutional reforms to strengthen the fundamental health of the capital market cannot stop. He said the third revision would be a cornerstone for opening an era of KOSPI 6,000 and 7,000 beyond KOSPI 5,000.