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For startups and venture companies, stock options (ESOP) are one of the most powerful tools for attracting talent and rewarding performance. Yet even among unlisted companies, the design freedom differs substantially between an ordinary unlisted company under the Commercial Act and a venture company certified under the Venture Business Act.

In particular, when the venture company exceptions apply, the grant ceiling, the eligible grantees, and the exercise price calculation all expand significantly. However, "more flexible" does not mean "unrestricted" — misapplying the requirements can actually amplify legal risk.

[Table of Contents]

1. How venture companies and ordinary unlisted companies are regulated differently

2. Granting options to outside experts — a venture-only exception

3. The 50% grant ceiling vs. the 10% rule for unlisted companies

4. Exercise price below market value — the new-share issuance exception

5. Design checkpoints you must confirm before granting

How venture companies and ordinary unlisted companies are regulated differently

Stock options of an ordinary unlisted company are governed by Article 340-2 et seq. of the Commercial Act, while a company certified as a venture business under the Special Act on the Promotion of Venture Businesses ("Venture Business Act"), Article 16-3 et seq. is also subject to additional special provisions.

Many people assume "a venture company is just an unlisted company, so the rules must be the same." In reality, the applicable provisions themselves differ, producing differences in eligible grantees, grant ceiling, and exercise price. Before designing any stock option program, you must first verify (i) whether the company holds a valid venture business certification and (ii) whether the special-rule requirements are met.

Granting options to outside experts — a venture-only exception

Under the Commercial Act, an ordinary unlisted company may, in principle, grant stock options only to its directors and employees. The Venture Business Act, by contrast, allows grants to qualified outside experts and to employees of acquired companies within a defined corporate group.

For example, a venture company may grant options to outside personnel who play a critical role in technology development, management advisory, or fundraising. That said, the scope of "outside expert" is defined by the Enforcement Decree of the Venture Business Act and may not be expanded at the company's discretion. Grants to ineligible persons can be invalid and become a source of disputes.

The 50% grant ceiling vs. the 10% rule for unlisted companies

The most striking difference is the grant ceiling. Whereas an ordinary unlisted company is generally limited to 10% of issued shares, a venture company may, in principle, grant up to 50% of issued shares.

The exception is designed so that early-stage startups with limited cash can offer meaningful equity incentives to key talent. A wider ceiling, however, does not mean a free pass — articles of incorporation authorization, special shareholder resolutions, and registration formalities still apply.

Exercise price below market value — the new-share issuance exception

The exercise-price rules also include a venture-only exception. An ordinary unlisted company issuing options through new-share issuance must set the exercise price at or above market value. A venture company, however, may consider granting at below market value if certain statutory requirements are met.

This makes the option significantly more attractive as a recruitment and retention tool. Note that below-market grants are tightly linked to tax deductibility limits on the discount and the timing of taxation for the grantee, so legal and tax review must proceed in parallel to avoid surprises later.

Design checkpoints you must confirm before granting

For venture stock options, the question is not "how much can we grant" but "did we design within the requirements." The most common failure points in practice are:

• Validity period of venture certification — certification must be renewed; grants made after expiry revert to the ordinary unlisted-company regime.

• Outside expert eligibility — granting to mere advisors or one-off contractors invites eligibility challenges.

• Special shareholder resolution and registration — a wider ceiling does not lighten procedural duties.

• Accounting and tax treatment — below-market grants and use of the 50% ceiling require coordinated planning on expense recognition and grantee taxation.

• Anticipating exercise-stage disputes — vesting, service conditions, and forfeiture triggers must be locked in at grant; otherwise, disputes routinely arise on resignation, departure, or M&A.

Cheongchul Law Firm has extensive experience advising startups and venture companies on stock option design and exercise-stage disputes. If you need integrated counsel covering articles of incorporation, shareholder resolutions, grant agreements, outside-expert eligibility, and dispute response, please contact our Corporate Practice Group.

This article is provided for general legal information only. For advice on a specific matter, please consult an attorney.