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Startups and private companies often design stock option plans to attract and retain key talent. However, even under the same name, stock options have different applicable laws and procedures depending on the company type — private, listed, or venture. Granting them without understanding these differences can render the entire grant invalid.

[Table of Contents]

1. Starting Point: Identifying the Company Type

2. Private Companies — Articles + Special Shareholder Resolution + 10% Cap

3. Listed Companies — Disclosure Duties + Grant Cap Regulations

4. Risks of Improper Design

5. Pre-Design Review with Cheongchul Law Firm

Starting Point: Identifying the Company Type

Stock options grant employees the right to purchase company shares at a fixed price as a form of compensation. However, the applicable laws differ based on the company type — private, listed, or venture (Commercial Act, Capital Markets Act, Special Act on Promotion of Venture Businesses, etc.).

Misclassifying the company type can lead to issues with eligibility, caps, and exercise price standards. Therefore, the starting point of stock option design is to verify the company type accurately.

Private Companies — Articles + Special Shareholder Resolution + 10% Cap

Under the Korean Commercial Act, private companies must satisfy the following requirements to grant stock options:

• Articles of Incorporation Basis: Stock option provisions must be specified in the articles

• Special Shareholder Resolution: Eligibility, caps, and exercise prices must be set by special shareholder resolution

• 10% Cap: Grants and transfers cannot exceed 10% of total issued shares

Stock options cannot be granted unilaterally by management. Articles of incorporation and shareholder meeting procedures must be properly observed. Missing this foundation may invalidate the option grant entirely.

Listed Companies — Disclosure Duties + Grant Cap Regulations

Listed companies, in addition to private company requirements, are subject to disclosure and reporting duties under the Capital Markets Act. Separate regulations on grant eligibility and caps (enhanced board resolution requirements, minority shareholder protection rules) make listed companies subject to stricter rules.

Since listed companies must explain themselves to investors and the market, stock options become an area where disclosure risk must be managed alongside HR compensation considerations.

Risks of Improper Design

Designing stock options without matching the company type can lead to:

• Grant validity disputes — employees may be denied rights at exercise

• Director/company liability for damages from missing shareholder resolution

• Partial or full invalidation of grants exceeding caps

• Listed companies face fines and sanctions for disclosure violations

An improper initial design can lead to talent loss, disputes, and depressed corporate valuation.

Pre-Design Review with Cheongchul Law Firm

Stock options are not a "granting issue" but rather a "company-type-specific design issue". Cheongchul Law Firm provides comprehensive support across all company types — private, listed, and venture — including stock option design, articles revision, shareholder meeting procedure review, and disclosure risk management.

Getting the design right at the start prevents future disputes. If you need stock option design support, contact Cheongchul Law Firm.

This article is for informational purposes only. Specific cases may yield different outcomes. Consult a qualified attorney for accurate legal advice.