To the CEO and the Judge — time to brush up on accounting!
Lotte Holdings CEO changes stance at National Assembly, speaks positively about treasury share cancellation
A large segment of the legal community arbitrarily dismisses the principle that
judicial rulings must be reconciled with established financial accounting practices
The deficiency in financial literacy among judges leads to frequent judicial errors and inconsistent court rulings
The Supreme Court's stance to ignore the true nature of treasury shares as
shareholder equity, artificially assigns it the attribute of "transferability" based on local tax law
The Korea Exchange’s current market cap calculation method is flawed;
mandatary deduction of treasury shares is required to align with global standards
During the National Assembly's Strategy and Finance Committee session on October 13, MP OH Ki Hyung, Chair of the KOSPI 5000 Special Committee, led a notably constructive audit focused on corporate governance and transparency. Unlike sessions marked by political theatrics by other MPs, this audit was praised for its fact-based and composed questioning. A key moment came when MP Oh asked; “let me ask the witness: Are treasury shares considered company assets?”
“We consider treasury shares to be company assets... There are various ways to interpret assets, and since we can utilize them, we view them as such...” commented GOH Jung-Uk, CEO of Lotte Corp.
Source: MP OH Ki Hyung's Office
However, when Oh pointed out that treasury shares are contra-equity accounts, GOH reversed his stance, stating: “according to accounting standards, treasury shares are listed as a deduction from shareholders equity.” This marked a 180-degree shift in the CEO’s position. (Video:https://www.youtube.com/watch?v=djzl25TlniI%20)
Goh, a former CEO of Lotte Capital, demonstrated a clear understanding of treasury share accounting treatment. Although his initial testimony suggested treasury shares were company assets, he corrected himself, acknowledging that: “treasury shares are listed as a deduction from shareholders equity under accounting standards.”
Meanwhile, SHIN Dong-Bin, Chairman and Executive Director of Lotte Corp, who earned his MBA from Columbia University, would have learned in his financial accounting class that treasury shares are contra-equity accounts. In some U.S. states like California and Washington, treasury shares are not permitted — they must be cancelled immediately upon buybacks. (“Shares that have been issued and thereafter reacquired by the corporation are cancelled and restored to the status of authorized but unissued shares.” - California Corporations Code)
Despite clear accounting standards, many chairpersons, CEOs, and CFOs at large Korean chaebols continue arguing that treasury shares are current assets - listed just below cash and cash equivalent on the balance sheet and freely sellable simply with the board approval. Essential introductory financial accounting training for these directors and stakeholders is crucial for improving corporate governance.
On October 21, 2025, MP Oh lodged amendments to the Income Tax Act and Corporate Tax Act to explicitly classify treasury share repurchases as contra-equity accounts (rather than treat them as assets). This legislative move, that needs an approval at the main Assembly, aims to resolve a longstanding inconsistency: while K-IFRS treats treasury shares as a deduction from shareholders equity, the Corporate Tax Act has historically regarded them as assets. This misalignment between accounting standards and tax law has led to confusion in legal interpretations, most notably in high-profile cases such as the 2015 Samsung C&T–Cheil Industries merger, where rulings on treasury shares diverged from both common sense and global standards.
While accounting standards are designed to reflect the economic substance of transactions through transparent disclosure, this does not grant license for legal or normative interpretations to diverge arbitrarily from that substance. Any legal interpretation that differs from the accounting standard must be supported by clear, objective, and defensible reasoning. Without such justification, interpretations risk undermining the integrity of financial reporting and corporate governance.
Despite accounting standards clearly classifying treasury shares as contra-equity accounts, the Korean Supreme Court continues to treat treasury shares as assets, based on the notion of their "asset transferability." However, once shares are repurchased, shareholder rights - such as voting, dividends, and subscription entitlements - are extinguished. Legally, a right that no longer exists cannot be transferred. The Supreme Court’s interpretation, which assumes asset transferability where none exists, reflects a forced and flawed legal construction that diverges from economic substances.
Treasury shares inherently carry no voting rights. However, during the Samsung C&T - Cheil Ind. merger, KCC acquired 5.8% of Samsung C&T’s treasury shares for Won674.3 billion, effectively reviving voting rights through third-party disposal. Similarly, on August 14, 2025, Lotte Corp. disclosed that it was considering selling 15% of its issued shares held as treasury shares to controlling shareholders and related parties, raising concerns about minority shareholder rights. Some chaebol lobbying agencies and local scholars argue that treasury shares should be treated as assets, usable for various strategic purposes including defensive control. Controlling families can maintain control only by delivering outstanding business performance and prioritizing minority shareholder rights to achieve and sustain superior valuation and market capitalization
At the recent KCGF September 19 seminar titled “Legal Issues in Treasury Share-Linked Exchangeable Bonds – with Focus on the Taekwang Ind. Case”, Professor SONG Ok-ryul of Seoul National University Law School addressed widespread misconceptions about treasury shares in Korea. Dr Song, one of the most highly regarded commercial law researchers in Korea, highlighted that Taekwang Ind.’s 24% treasury shareholding (as a % of issued shares) exemplifies the misunderstanding that treasury shares are current assets. Contrary to this belief, Dr Song emphasized that “treasury shares are not current assets that can be freely monetized by management.” This view aligns with global accounting standards, which treat share repurchase as a form of dividend distribution, and require that any disposal of treasury shares meet the legal conditions akin to issuing new shares. If the recently proposed tax law amendments pass the National Assembly, it is expected that judicial bodies will begin issuing rulings on treasury shares grounded in a better understanding of accounting standards. This shift would reinforce the principle outlined in the revised Commercial Act, which states: “directors must protect the interests of all shareholders and treat them equitably in their duties.” Aligning legal interpretations with accounting principles is essential to ensure proper corporate governance, accurate financial reporting, and the protection of shareholder rights.
The Korea Exchange (KRX) is aware that its current methodology for calculating market capitalization is misaligned with global standards, yet no corrective action has been taken. This discrepancy affects not only domestic financial data but also global platforms such as Bloomberg. The key issue is the treatment of treasury shares. According to accounting and corporate governance standards, treasury shares should be automatically excluded from market capitalization. When a company buys back its own shares, both its shareholder equity and the number of outstanding shares decrease. Should the pending tax law revisions be ratified by the National Assembly, it is inevitable that KRX update its methodology to reflect the principle that treasury shares represent a reduction in shareholder equity. Doing so would upgrade Korea’s capital markets, and enhance governance standards.
November 12th, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee
To the CEO and the Judge — time to brush up on accounting!
Lotte Holdings CEO changes stance at National Assembly, speaks positively about treasury share cancellation
A large segment of the legal community arbitrarily dismisses the principle that
judicial rulings must be reconciled with established financial accounting practices
The deficiency in financial literacy among judges leads to frequent judicial errors and inconsistent court rulings
The Supreme Court's stance to ignore the true nature of treasury shares as
shareholder equity, artificially assigns it the attribute of "transferability" based on local tax law
The Korea Exchange’s current market cap calculation method is flawed;
mandatary deduction of treasury shares is required to align with global standards
During the National Assembly's Strategy and Finance Committee session on October 13, MP OH Ki Hyung, Chair of the KOSPI 5000 Special Committee, led a notably constructive audit focused on corporate governance and transparency. Unlike sessions marked by political theatrics by other MPs, this audit was praised for its fact-based and composed questioning. A key moment came when MP Oh asked; “let me ask the witness: Are treasury shares considered company assets?”
“We consider treasury shares to be company assets... There are various ways to interpret assets, and since we can utilize them, we view them as such...” commented GOH Jung-Uk, CEO of Lotte Corp.
Source: MP OH Ki Hyung's Office
However, when Oh pointed out that treasury shares are contra-equity accounts, GOH reversed his stance, stating: “according to accounting standards, treasury shares are listed as a deduction from shareholders equity.” This marked a 180-degree shift in the CEO’s position. (Video:https://www.youtube.com/watch?v=djzl25TlniI%20)
Goh, a former CEO of Lotte Capital, demonstrated a clear understanding of treasury share accounting treatment. Although his initial testimony suggested treasury shares were company assets, he corrected himself, acknowledging that: “treasury shares are listed as a deduction from shareholders equity under accounting standards.”
Meanwhile, SHIN Dong-Bin, Chairman and Executive Director of Lotte Corp, who earned his MBA from Columbia University, would have learned in his financial accounting class that treasury shares are contra-equity accounts. In some U.S. states like California and Washington, treasury shares are not permitted — they must be cancelled immediately upon buybacks. (“Shares that have been issued and thereafter reacquired by the corporation are cancelled and restored to the status of authorized but unissued shares.” - California Corporations Code)
Despite clear accounting standards, many chairpersons, CEOs, and CFOs at large Korean chaebols continue arguing that treasury shares are current assets - listed just below cash and cash equivalent on the balance sheet and freely sellable simply with the board approval. Essential introductory financial accounting training for these directors and stakeholders is crucial for improving corporate governance.
On October 21, 2025, MP Oh lodged amendments to the Income Tax Act and Corporate Tax Act to explicitly classify treasury share repurchases as contra-equity accounts (rather than treat them as assets). This legislative move, that needs an approval at the main Assembly, aims to resolve a longstanding inconsistency: while K-IFRS treats treasury shares as a deduction from shareholders equity, the Corporate Tax Act has historically regarded them as assets. This misalignment between accounting standards and tax law has led to confusion in legal interpretations, most notably in high-profile cases such as the 2015 Samsung C&T–Cheil Industries merger, where rulings on treasury shares diverged from both common sense and global standards.
While accounting standards are designed to reflect the economic substance of transactions through transparent disclosure, this does not grant license for legal or normative interpretations to diverge arbitrarily from that substance. Any legal interpretation that differs from the accounting standard must be supported by clear, objective, and defensible reasoning. Without such justification, interpretations risk undermining the integrity of financial reporting and corporate governance.
Despite accounting standards clearly classifying treasury shares as contra-equity accounts, the Korean Supreme Court continues to treat treasury shares as assets, based on the notion of their "asset transferability." However, once shares are repurchased, shareholder rights - such as voting, dividends, and subscription entitlements - are extinguished. Legally, a right that no longer exists cannot be transferred. The Supreme Court’s interpretation, which assumes asset transferability where none exists, reflects a forced and flawed legal construction that diverges from economic substances.
Treasury shares inherently carry no voting rights. However, during the Samsung C&T - Cheil Ind. merger, KCC acquired 5.8% of Samsung C&T’s treasury shares for Won674.3 billion, effectively reviving voting rights through third-party disposal. Similarly, on August 14, 2025, Lotte Corp. disclosed that it was considering selling 15% of its issued shares held as treasury shares to controlling shareholders and related parties, raising concerns about minority shareholder rights. Some chaebol lobbying agencies and local scholars argue that treasury shares should be treated as assets, usable for various strategic purposes including defensive control. Controlling families can maintain control only by delivering outstanding business performance and prioritizing minority shareholder rights to achieve and sustain superior valuation and market capitalization
At the recent KCGF September 19 seminar titled “Legal Issues in Treasury Share-Linked Exchangeable Bonds – with Focus on the Taekwang Ind. Case”, Professor SONG Ok-ryul of Seoul National University Law School addressed widespread misconceptions about treasury shares in Korea. Dr Song, one of the most highly regarded commercial law researchers in Korea, highlighted that Taekwang Ind.’s 24% treasury shareholding (as a % of issued shares) exemplifies the misunderstanding that treasury shares are current assets. Contrary to this belief, Dr Song emphasized that “treasury shares are not current assets that can be freely monetized by management.” This view aligns with global accounting standards, which treat share repurchase as a form of dividend distribution, and require that any disposal of treasury shares meet the legal conditions akin to issuing new shares. If the recently proposed tax law amendments pass the National Assembly, it is expected that judicial bodies will begin issuing rulings on treasury shares grounded in a better understanding of accounting standards. This shift would reinforce the principle outlined in the revised Commercial Act, which states: “directors must protect the interests of all shareholders and treat them equitably in their duties.” Aligning legal interpretations with accounting principles is essential to ensure proper corporate governance, accurate financial reporting, and the protection of shareholder rights.
The Korea Exchange (KRX) is aware that its current methodology for calculating market capitalization is misaligned with global standards, yet no corrective action has been taken. This discrepancy affects not only domestic financial data but also global platforms such as Bloomberg. The key issue is the treatment of treasury shares. According to accounting and corporate governance standards, treasury shares should be automatically excluded from market capitalization. When a company buys back its own shares, both its shareholder equity and the number of outstanding shares decrease. Should the pending tax law revisions be ratified by the National Assembly, it is inevitable that KRX update its methodology to reflect the principle that treasury shares represent a reduction in shareholder equity. Doing so would upgrade Korea’s capital markets, and enhance governance standards.
November 12th, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee