Hello, this is Attorney Kim Kwang-sik of Cheongchul Law Firm.

Stock options are a representative compensation tool used to attract top talent and allow them to share in long-term increases in corporate value. However, even when called the same “stock option,” the applicable laws, procedures, eligible recipients, limits, and exercise price regulations all differ depending on whether the company is an unlisted company, a listed company, or a venture company that can use special provisions under the Venture Business Act.

In practice, many companies draft articles of incorporation, shareholders’ meeting minutes, board minutes, and individual grant agreements without clearly distinguishing these differences. But if the wrong legal framework is chosen or mandatory requirements are omitted, problems can arise in the validity of stock options, accounting and tax treatment, and disclosure/reporting compliance. Today, we will distinguish and organize the stock option requirements for unlisted and listed companies under the Commercial Act, as well as venture companies under the Venture Business Act, and review key practical points that companies should pay special attention to.

[Question]

Under what requirements can unlisted companies, listed companies, and venture companies under the Venture Business Act each grant stock options? What should companies pay particular attention to in practice?

[Answer]

1. Legal basis for stock options

General unlisted companies are designed mainly around Articles 340-2 through 340-4 of the Commercial Act, while listed companies must additionally review Article 542-3 of the Commercial Act and its Enforcement Decree, together with the reporting and disclosure framework under the Capital Markets Act.

By contrast, separate special provisions exist for venture companies. In particular, practical guidance materials from the Ministry of SMEs and Startups explain the stock option system under the Venture Business Act on the premise of “unlisted venture companies,” and are based on a structure in which the Venture Business Act takes precedence over the Commercial Act. Therefore, for an unlisted venture company that has obtained venture company certification, it is generally safer to design its articles of incorporation and resolution structure in accordance with the Venture Business Act framework.

Ultimately, a company must first determine whether it is a general unlisted company, a listed company, or an unlisted venture company eligible to use special provisions under the Venture Business Act. If this initial step is unclear, the subsequent articles provisions, resolution requirements, eligible recipients, limits, and reporting procedures may all become misaligned.

2. Stock option requirements for unlisted companies under the Commercial Act

An unlisted company may grant stock options by providing a basis in its articles of incorporation and passing a special resolution of the shareholders’ meeting under Article 434 of the Commercial Act. Eligible recipients are directors, executive officers, auditors, or employees who have contributed or can contribute to the company’s establishment, management, and technological innovation.

However, stock options cannot be freely granted to all officers/employees or stakeholders. They may not be granted to shareholders holding 10% or more of issued shares (excluding non-voting shares), persons who effectively exercise influence over major management matters, and their spouses and lineal ascendants/descendants.

There is also a grant limit. Under the Commercial Act, new shares or treasury shares that an unlisted company may issue or transfer upon exercise of stock options may not exceed 10% of total issued shares. In addition, if exercised through new share issuance, the exercise price must be at least the higher of the fair value of the shares and par value as of the grant date; if exercised through transfer of treasury shares, it must be at least the fair value as of the grant date.

The articles of incorporation must include mandatory items in advance, such as the possibility of granting stock options, eligibility requirements, exercise period, and grounds for cancellation. The special shareholders’ resolution must specify the recipient’s name, grant method, exercise price and adjustment, exercise period, and number of shares per individual. After that, the company must prepare individual grant agreements within a considerable period and keep them at the head office so shareholders can inspect them.

Exercise requirements are also important. Stock options granted by an unlisted company may be exercised only after at least two years of service from the date of the shareholders’ resolution, are generally non-transferable, and may be exercised by heirs only in the event of death.

3. Stock option requirements for listed companies under the Commercial Act

Listed companies basically follow the general stock option system under the Commercial Act, with additional special rules for listed companies. The biggest difference is that eligible recipients can be broader. A listed company may grant stock options not only to its own officers and employees but also to directors, executive officers, auditors, or employees of “affiliated companies” prescribed by Presidential Decree.

However, “affiliated companies” here does not mean all affiliate companies at will. The Enforcement Decree limits the scope to certain foreign corporations or unlisted subsidiaries/sub-subsidiaries within financial holding company structures, so it is risky to assume grants can naturally be made to officers and employees of ordinary domestic affiliates as well.

Listed companies also have separately prescribed prohibited recipients. In principle, stock options may not be granted to the largest shareholder and its specially related persons, or major shareholders and their specially related persons. Also, while the statutory total limit is recognized up to 20% of total issued shares, the actual limit under the Enforcement Decree is restricted to 15% of total issued shares.

A notable feature is that listed companies may grant stock options by board resolution alone within a certain range. If there is a basis in the articles of incorporation, the board may grant within 10% of total issued shares; however, the actual limit under the Enforcement Decree is 1% if paid-in capital at the end of the latest fiscal year is KRW 300 billion or more, and 3% if below KRW 300 billion. Approval must then be obtained at the first shareholders’ meeting convened after the grant.

There is one more practical point often overlooked. In listed companies, board-level grants are available to “executive officers, auditors, and employees of the relevant company,” and directors, executive officers, auditors, and employees of affiliated companies. In other words, if the company intends to grant options to its own “directors,” it must separately examine whether a board-only grant is permissible; in practice, it is generally safer to keep the special shareholders’ resolution route in mind.

As a rule, exercise requirements are at least two years of service from the date of the shareholders’ or board resolution. However, the Enforcement Decree provides exceptions such as death or retirement/resignation without the individual’s fault, and if the exercise deadline is set as the date of retirement/resignation, an additional exercise period of at least three months must be granted to retirees who left without fault.

In addition, listed companies must report grants to the Financial Services Commission and the exchange, and related details are subject to public disclosure. Therefore, stock options in listed companies should be prepared on the premise that they are not merely HR compensation issues but also disclosure and investor communication matters.

4. Stock option requirements for venture companies under the Venture Business Act

The stock option system under the Venture Business Act is designed on the premise of much broader usability than for general companies. A venture company in the form of a stock company may grant stock options based on its articles of incorporation and a special shareholders’ resolution, and such resolution follows the special resolution method of Article 434 of the Commercial Act.

Eligible recipients fall into three categories. First, officers and employees of the venture company itself. Second, officers and employees of an acquiring company in which the venture company holds more than 30% of total issued shares. Third, outside experts with expertise needed by the company. The scope of outside experts is prescribed by the Enforcement Decree and may include: persons with at least 10 years of practical experience; persons with a doctoral degree, or at least 5 years of practical experience after obtaining a master’s degree; holders of professional qualifications such as attorneys, CPAs, and professional engineers; officers/employees of certain foreign corporations or researchers at foreign institutes; and personnel of research institutions including national/public research institutions.

Grant methods are also expressly organized. Venture companies may structure stock options as subscription-right type (new shares), treasury-share purchase type, or cash/treasury-share settlement type paying the difference between market price at exercise and the exercise price.

The grant limit is very broad. Under the Venture Business Act, shares that may be granted as stock options are in principle allowed up to 50% of total issued shares. However, where granted to outside experts, they may not exceed 10% of total issued shares.

Exercise prices are also more flexible than under the general Commercial Act framework. In principle, for new share issuance, the price must be at least the higher of market price and par value on the grant date; for treasury-share transfer or difference-settlement type, it must be at least market price on the grant date. However, where granted via new share issuance to the venture company’s own officers/employees or those of an acquiring company above a certain shareholding threshold, grants below market price are allowed if Enforcement Decree requirements are met, though still not below par value. As of 2026, this discounted-grant special provision requires that the aggregate discount amount calculated per person be KRW 2 billion or less.

The resolution structure must also be reviewed carefully. Mandatory items must be included in the articles of incorporation and special shareholders’ resolution, and for certain legally prescribed ranges of grants to outside experts, the special shareholders’ resolution may delegate to the board the determination of recipient names and shares per individual. Even in that case, approval must be obtained at the first shareholders’ meeting convened after the grant.

Exercise requirements are also differentiated. For general officers/employees and officers/employees of acquiring companies, exercise is in principle allowed only after at least two years of service from the resolution date or the delegated board decision date. For outside experts, in addition, exercise is allowed only if they have entered into and performed a service agreement related to the stock option grant. Exceptions are recognized for death or retirement/resignation without the individual’s fault, and if the exercise deadline is set as the date of retirement/resignation, a minimum additional three-month exercise period must be given to retirees who left without fault.

Stock options under the Venture Business Act are non-transferable, and only heirs may succeed in the event of death. In addition, venture companies must report grants, cancellations, and withdrawals of stock options to the Minister of SMEs and Startups, and Commercial Act provisions apply supplementarily to contract preparation, retention at the head office, and operation of cancellation grounds.

5. Practical precautions companies must check

First, review the articles of incorporation again. Stock options are not a system that “works as long as the contract is well drafted.” If mandatory items are missing from the articles, the entire structure may be undermined even if shareholders’ or board resolutions are later adopted. In particular, venture companies need to design their articles separately to reflect grant recipients, methods, and cancellation structure under the Venture Business Act, rather than simply copying Commercial Act wording.

Second, before checking “to whom you can grant,” first check “to whom you cannot grant.” For unlisted companies, issues arise with 10%+ shareholders, de facto influencers, and their spouses/lineal ascendants/descendants; for listed companies and venture companies, restrictions on largest shareholders, major shareholders, and specially related persons may also apply. In practice, it is safer to first verify the cap table, status of specially related persons, and joint-holding structures under existing investment agreements.

Third, listed companies must interpret “affiliated company” and “board-grant eligible recipients” narrowly. The scope of affiliated companies is limited to certain types prescribed by the Enforcement Decree, and board grants to directors of the same company require separate textual review of the relevant provisions. If HR or management support teams push forward on the assumption that “they are affiliate employees, so it’s allowed,” the resolution structure may be designed incorrectly.

Fourth, manage limits and valuation together. You must distinguish: 10% for general unlisted companies, effective 15% for listed companies, and in principle 50% for venture companies (but 10% for outside experts). Exercise price determination also cannot be arbitrary. In particular, for unlisted venture companies, the Enforcement Decree adopts valuation methods under the Inheritance and Gift Tax Act, so it is important to preserve valuation data and calculation grounds in advance.

Fifth, grant agreements should most carefully draft exercise periods and retirement handling provisions. In actual disputes, issues more often arise not from the grant itself but from post-retirement exercisability, shortened exercise periods, cancellation grounds, and whether the company will choose new share issuance or delivery of treasury shares. Recent case law also recognizes room to adjust exercise periods, etc., in individual agreements after shareholders’ resolution, so companies should design documents so that articles, resolutions, and contracts do not conflict.

Sixth, do not miss the reporting and disclosure calendar. Listed companies are linked to reporting/disclosure to the Financial Services Commission and exchange, while venture companies separately require reporting to the Ministry of SMEs and Startups. If minutes, articles, and—where delegation exists—board minutes are not promptly organized, ex post responses become cumbersome.

Seventh, tax communication should be designed separately. For officers/employees of venture companies, etc., non-taxation of exercise gains and payment special cases under the current Restriction of Special Taxation Act may become issues, and these benefits do not apply equally to all recipients. For example, stock options granted to outside experts generally cannot be expected to receive the same level of tax benefits. Therefore, it is advisable to prepare a package from the grant stage, including tax guidance materials, withholding/reporting processes, and communication at the time of exercise.

Although they share the same name, stock options differ greatly in applicable laws and design methods among unlisted companies, listed companies, and venture companies. In particular, listed companies must also consider disclosures and investor response, while unlisted venture companies must separately align their articles/resolution/reporting systems on the premise of special provisions under the Venture Business Act.

In practice, stock options are often treated lightly as a “standard compensation tool for talent attraction,” but most real disputes begin with a single phrase in the articles, a single exercise-period clause, or a single eligibility determination for a recipient. Therefore, from the pre-grant stage, companies need an approach that classifies company type accurately and reviews recipient eligibility and limits, exercise price, handling at retirement, reporting/disclosure, and tax effects all at once.

Cheongchul Law Firm designs stock option systems by comprehensively considering a company’s growth stage, governance structure, investment agreements, and HR compensation system. If you need to introduce stock options, revise your articles of incorporation, review existing grant agreements, or redesign the system before and after listing, we recommend allowing sufficient time in advance to review the structure with experts.