Acquisition of shares

Acquisition of shares (주식의 취득) takes place in various occasions. In general, anyone may purchase or sell the share except the issuing company. This article refers to the case where a company acquires its own shares.

In Korea, a listed company has been allowed to purchase its own shares with retained profits by means of trust fund since 1992, and on its own account since 1994, respectively. Generally speaking, the listed companies prefer the acquisition of their own shares to dividend payment so as to stabilize the share prices undervalued at the market, to preserve the dominance power of the largest shareholder, and to consume the cash reserves retained inside the company.

On May 2, 2012, it made big news that Samsung Everland, Samsung group’s theme park affiliate and de facto holding company of the group, would acquire its own thousand shares up to 400 thousand shares totaling 730 billion won from other shareholders. Most of all, owing to the Act on the Structural Improvement of the Financial Industry (금융산업의 구조개선에 관한 법률), Samsung Card was forced to sell its Samsung Everland shares by April 2012. And the Korea Student Aid Foundation planned to sell its 4.25 percent stake in Samsung Everland, which had been donated by Samsung Electronics Chairman Lee Kun-Hee in 2006 in the midst of court debates concerning the improperly issued and acquired Samsung Everland Convertible Bonds.

In accordnace with newly revised provision of the Commmercial Act, which came into force on April 15, 2012, Everland has been allowed to acquire its own share with its retained earnings. The terms and conditions of such acquistion shall be same and unbiast to all shareholders under the new provisions of the Commercial Act.

Key words
acquisition of shares, shareholders meeting, board meeting, dividend of profits,

Acquisition of company's own shares was previously prohibited in principle
Previously, the Commercial Act restricted a company's acquisition of its own shares in a strictly limited basis. It was because a company's acquisition of its own shares would result in repayment of invested monies, and violate the principle of shareholder equality.

Previous Article 341 (Acquisition of Company’s Own Shares) of the Commercial Act
 * A company may not acquire its own shares on its own account, except in the following cases: 
 * 1. In case of the retirement of shares;
 * 2. In case of the merger of companies or of the acquisition of the entire business of another company;
 * 3. Where it is necessary to do so for achieving the objective in the course of exercising the rights of the company;
 * 4. Where it is necessary to deal with the fractional shares; and
 * 5. In case of the exercise of appraisal rights by the shareholder.

Now it has been allowed on certain conditions
Under the Capital Markets Act, a listed company has been allowed to acquire its own shares as a protective measure against hostile M&A or an efficient management tool for share prices. The latest amendment to the Commercial Act follows this trend that a company's acquisition of its own shares substantially amount to dividend of profits to shareholders, and equal treatment of all shareholders would not violate the principle of shareholder equality, and further such acquisition funded by retained earnings to be distributed to shareholders would not harm the interests of creditors.

New Article 341 (Acquisition of Company’s Own Shares)
 * ① 회사는 다음의 방법에 따라 자기의 명의와 계산으로 자기의 주식을 취득할 수 있다. 다만, 그 취득가액의 총액은 직전 결산기의 대차대조표상의 순자산액에서 제462조제1항 각 호의 금액을 뺀 금액을 초과하지 못한다.
 * 1. 거래소에서 시세(時勢)가 있는 주식의 경우에는 거래소에서 취득하는 방법
 * 2. 제345조제1항의 주식의 상환에 관한 종류주식의 경우 외에 각 주주가 가진 주식 수에 따라 균등한 조건으로 취득하는 것으로서 대통령령 으로 정하는 방법
 * ② 제1항에 따라 자기주식을 취득하려는 회사는 미리 주주총회의 결의로 다음 각 호의 사항을 결정하여야 한다. 다만, 이사회의 결의로 이익배당을 할 수 있다고 정관으로 정하고 있는 경우에는 이사회의 결의로써 주주총회의 결의를 갈음할 수 있다.
 * 1. 취득할 수 있는 주식의 종류 및 수
 * 2. 취득가액의 총액의 한도
 * 3. 1년을 초과하지 아니하는 범위에서 자기주식을 취득할 수 있는 기간
 * ③ 회사는 해당 영업연도의 결산기에 대차대조표상의 순자산액이 제462조제1항 각 호의 금액의 합계액에 미치지 못할 우려가 있는 경우에는 제1항에 따른 주식의 취득을 하여서는 아니 된다.
 * ④ 해당 영업연도의 결산기에 대차대조표상의 순자산액이 제462조제1항 각 호의 금액의 합계액에 미치지 못함에도 불구하고 회사가 제1항에 따라 주식을 취득한 경우 이사는 회사에 대하여 연대하여 그 미치지 못한 금액을 배상할 책임이 있다. 다만, 이사가 제3항의 우려가 없다고 판단하는 때에 주의를 게을리하지 아니하였음을 증명한 경우에는 그러하지 아니하다.
 * [전문개정 2011.4.14]

New Article 341-2 (Acquisition of Company's Own Shares for Special Purposes)
 * 회사는 다음 각 호의 어느 하나에 해당하는 경우에는 제341조에도 불구하고 자기의 주식을 취득할 수 있다.
 * 1. 회사의 합병 또는 다른 회사의 영업전부의 양수로 인한 경우
 * 2. 회사의 권리를 실행함에 있어 그 목적을 달성하기 위하여 필요한 경우
 * 3. 단주(端株)의 처리를 위하여 필요한 경우
 * 4. 주주가 주식매수청구권을 행사한 경우
 * [전문개정 2011.4.14]

New Article 341-3 (Creation of Pledge on Company’s Own Shares)
 * 회사는 발행주식총수의 20분의 1을 초과하여 자기의 주식을 질권의 목적으로 받지 못한다. 다만, 제341조의2제1호 및 제2호의 경우에는 그 한도를 초과하여 질권의 목적으로 할 수 있다.
 * [전문개정 2011.4.14]

New Article 342 (Disposition of Company’s Own Shares)
 * 회사가 보유하는 자기의 주식을 처분하는 경우에 다음 각 호의 사항으로서 정관에 규정이 없는 것은 이사회가 결정한다.
 * 1. 처분할 주식의 종류와 수
 * 2. 처분할 주식의 처분가액과 납입기일
 * 3. 주식을 처분할 상대방 및 처분방법
 * [전문개정 2011.4.14]

The following provisions are kept intact
Article 342-2 (Acquisition of Parent Company’s Shares by Subsidiary Company)
 * (1) In case where a company (hereafter referred to as the “parent company”) holds more than 50/100 of the total issued and outstanding shares in another company (hereafter referred to as the “subsidiary company”), the subsidiary company may not acquire shares in the parent company, except in the following cases: 
 * 1. In case of the all-inclusive exchange and all-inclusive transfer of stocks, the merger of companies or the acquisition of the entire business of another company; and
 * 2. Where it is necessary to do so for achieving the objective in the course of exercising the rights of the company.
 * (2) In case of paragraph (1), the subsidiary company shall dispose of the shares of the parent company within six months after it has acquired them.
 * (3) If a parent company and its subsidiary company in aggregate hold, or a subsidiary company by itself holds, more than 50/100 of the total issued and outstanding shares in another company, such another company shall be deemed as a subsidiary company of the parent company for the purpose of the application of this Act. 
 * [This Article Newly Inserted by Act No. 3724, Apr. 10, 1984]

Article 342-3 (Acquisition of Another Company’s Shares)
 * If a company acquires more than 10/100 of the total issued and outstanding shares in another company, it shall without delay notify such another company thereof.
 * [This Article Newly Inserted by Act No. 5053, Dec. 29, 1995]