Cases and legal principles regarding the ATS under Chinese Company Law

In the past, Korean commercial Act has prohibited the acquisition of treasury stock in principle and allowed it in exceptional cases. However, in the case of listed companies, the old Securities and Exchange Act allowed it in principle and restricted it in exceptional cases, contrary to the position of the Commercial Code. However, with the enactment of the Capital Market Act in 2009, the old Securities and Exchange Act was repealed and the regulations for listed companies were incorporated into the Commercial Act, and with the amendment of the Commercial Act in 2011, all companies, including listed and unlisted companies, are allowed to acquire treasury stock in principle. This is because it has been recognized that the positive effects of acquiring treasury stock, such as stabilizing management control and efficiently managing stock prices, outweigh the effects of prohibiting it on the grounds that it violates the principle of capital adequacy. Specifically, Article 341 of the Korean Commercial Act provides the principle that all companies may acquire treasury shares within the scope of distributable profits, and Article 341-2 provides for the acquisition of treasury shares for specific purposes. Therefore, in principle, all companies can acquire treasury shares if they have distributable profits, and even if they do not have distributable profits, they can acquire treasury shares for specific purposes, such as 1. in the event of a merger or transfer of the entire business of another company, 2. in the event that it is necessary to fulfill the purpose of executing the rights of the company, 3. in the event that it is necessary to dispose of a single share, or 4. in the event that a shareholder exercises the right to purchase shares. In this regard, China has not changed much since the 1993 Company Law prohibited the acquisition of treasury shares in principle and allowed the acquisition of treasury shares only in exceptional cases. However, since 1993, China's company law has undergone some changes through amendments in 2005 and 2018, and the most recent amendment in 2023. However, no fundamental changes have been made. However, as in the case of Korea, there are now many voices in China that argue that the acquisition of treasury shares should be allowed. In other words, prohibiting the acquisition of treasury shares excessively restricts the interests of shareholders as well as the company, so the reasons for the acquisition of treasury shares should be expanded to include financial resources and specific purposes, as is the position of the Korean Commercial Act. Therefore, in this article, we will first look at the history of the acquisition of treasury shares under the Chinese Company Law to understand the specifics of the acquisition system, and then examine actual cases through case law. This article will conclude with a discussion of the current state of the law on treasury stock acquisition in China and suggestions for improvement.