Hello, this is Attorney Kim Kwang-sik from the law firm Cheongchul.

Recently, there has been a trend among listed companies to introduce and expand RSUs (Restricted Stock Units, commonly referred to as 'transfer-restricted stock receipt rights') as a performance compensation method. RSUs are useful because they allow compensation linked to employees' long-term performance and the company's value, but in reality, the key factors are the timing of rights vesting, settlement methods, and the underlying corporate law resolution and document structures. In particular, the third amendment to the Commercial Act, which passed the National Assembly on February 25, 2026 (strengthening the mandatory retirement and holding/disposal procedures for treasury stock), fundamentally changes the existing practice of holding treasury stock for a long duration and using it when necessary, meaning that companies intending to settle RSUs with treasury stock may have different standards for system design.

[Question]

How do RSUs differ from stock options, and what does it specifically mean for a company to “grant” RSUs? Furthermore, when the amended Commercial Act focused on mandatory retirement for treasury stocks is implemented, what issues may arise first in the process of managing RSUs and treasury stocks?

[Answer]

1.  The starting point of RSUs is not 'stocks' but 'the right to receive stocks.'

RSUs do not transfer shares immediately at the granting stage; instead, they often begin with an agreement that the company will provide shares or settle equivalent value when certain conditions (such as employment duration, performance, compliance, etc.) are met. Therefore, in practice, determining 'when rights vest' and 'how to fulfill the vested rights (settlement)' is the most crucial aspect. If this distinction is unclear, disputes can easily arise regarding whether rights accelerate, suspend, or expire when personnel events like resignation, transfer, disciplinary action, or leave occur.

2.   The necessary corporate procedures differ based on the settlement method (new shares, treasury shares, cash).

RSUs can be settled through the issuance of new shares, provided to employees using the company’s treasury stock, or designed to settle in cash in some cases. The issuance of new shares for settlement raises dilution concerns, and the justification for the issue price and allocation, as well as the resolution structure (board of directors, shareholders' meeting, etc.), are critical from the shareholders' perspective. In contrast, settling through treasury share allocation reduces dilution disputes relatively, but one must assume that treasury stock holding and disposal are now subject to legal controls. Cash settlements steer clear of the regulation regarding the disposal of treasury shares but may raise issues concerning cash outflows and whether the compensation system essentially operates like wages (performances bonuses). Ultimately, the company should clarify at the agreement stage the 'basic settlement method' and 'alternative settlement in unavoidable circumstances' (e.g., legal changes, transactional restrictions, funding shortages).

3.   The essence of the amended Commercial Act is the structure of 'retirement as the principle, holding and disposal as exceptions.'

The third amendment to the Commercial Act stipulates that companies, in principle, must retire treasury stock acquired within one year through a board resolution, and that exceptions requiring holding or disposal should create a 'treasury stock holding and disposal plan' to obtain shareholders’ meeting approval. This plan must specify key items such as purpose, types and quantity, holding period, and timing of disposal, and the shareholders' meeting approval is designed to be renewed annually rather than being a one-time event. Additionally, the regulations for disposing of treasury stock apply similarly to new issue regulations, which may raise the demands for the consistency and fairness of procedures.

4.   RSUs and the mandatory retirement system for treasury stocks

RSUs typically assume long-term vesting schedules of 3 to 4 years or more, but the amended Commercial Act imposes a strong baseline on treasury stocks with 'mandatory retirement within one year' after acquisition. Therefore, maintaining a practice of buying treasury shares in advance to accumulate them as a pool with RSU resources becomes challenging, necessitating checks on whether ① real disposal (allocation to employees) can be completed within one year, and ② if not, whether the company is ready to seek shareholder meeting approval for continuing to hold treasury stock with a specific purpose and scale. Additionally, since the amount ultimately paid with RSUs may vary based on performance and employment conditions, how to align the request for 'specificity' in the plan with the 'variability' of the system also poses practical challenges. Finally, if an RSU agreement is executed but the company fails to establish, approve, or renew the plan on time, leading to delays in the allocation of treasury stock, the existence of a clause for alternative settlement (new shares/cash) and criteria for conversion or assessment principles may immediately spark disputes.

Once the enforcement of mandatory retirement and strengthened holding/disposal procedures for treasury shares is in place, companies intending to settle RSUs with treasury stocks must align their RSU plans (internal regulations), individual agreements, treasury stock holding/disposal plans, and the structure of resolutions from shareholder meetings/board meetings into a cohesive roadmap. The key issue is likely not just declaring that 'it can be given in treasury stock' but whether it can continually obtain approval for plans and disposal timing every year even based on long-term vesting schedules, and whether safety measures including alternative settlements have been embedded in the contracts and resolutions.

The law firm Cheongchul provides practical, tailored advice according to company situations regarding the design of equity-based compensation systems such as RSUs and stock options, the restructuring of executive compensation and the framework for shareholder meetings/board resolutions, and the establishment of treasury stock holding and disposal plans, including inspection of disclosure/reporting systems. If you need to review the introduction or revision of RSUs, as well as the arrangement of treasury stock retirement, holding, and disposal policies, please contact the law firm Cheongchul, and we will systematically outline the necessary steps and directions suited to your specific situation.