4 Things Founders Must Check Before Granting Stock Options to Early Team Members

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Three conditions must be met for a stock option grant resolution to have legal effect: the company's articles of incorporation must authorize stock option grants, a shareholders' meeting special resolution must be passed, and the grant must stay within the statutory limit. Miss any one of these and the grant resolution itself may be void.

The Commercial Act prohibits granting stock options to shareholders holding 10% or more of voting shares, those who exercise de facto control, and their spouses or lineal relatives. Early-stage teams that bring on a founder's family member or a major shareholder's relative as a registered director may run into this restriction.

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Once the procedure is valid, the next issue is the exercise price. Commercial Act Article 340-2 requires that for new-share issuance, the exercise price must be at least the higher of the fair market value on the grant date or the par value of the shares. For treasury-share transfers, the exercise price must be at least fair market value.

In the early days before any funding round, fair market value is ambiguous. Setting a low exercise price on the assumption that par value equals fair market value can backfire: once a funding round closes and the share price rises, the employee's gain at exercise grows — and so does the tax bill. Documenting how fair market value was determined at grant time is the best way to avoid disputes later.

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The default rule for taxing stock option gains is ordinary income at exercise. The moment an employee exercises and receives shares, the spread between the fair market value and the exercise price is added to their earned income for that year. Because the tax obligation arises before any cash changes hands, founders who do not explain this structure upfront will face conflict when exercise day arrives.

For companies that maintain venture-company certification, the Special Tax Treatment Control Act offers three pathways. The tax-exemption benefit (Article 16-2) waives earned-income tax on exercise gains up to ₩200 million per year — and no more than ₩500 million cumulative over the two years ending on the exercise date — when options were granted before December 31, 2027. Gains above those thresholds are taxed as ordinary earned income.

All three benefits are elective. The deferred-tax treatment (Article 16-4) is particularly attractive for employees in the top bracket (45%), since it defers the earned-income tax at exercise entirely and replaces it with capital-gains tax on SME shares when the stock is sold. If venture-company certification lapses by the time the option is exercised, the benefit eligibility can change, so certification status must be monitored continuously.

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Even with a solid grasp of the tax structure, an employee's window to exercise closes the moment they leave. If the option agreement includes a clause such as 'must exercise within three months of separation,' courts treat that clause as valid. A voluntary resignee who fails to exercise within that window forfeits the right.

The Enforcement Decree of the Act on Special Measures for the Promotion of Venture Businesses provides separate protection for employees who leave through no fault of their own. When separation results from death, mandatory retirement, or a layoff — cases where the employee bears no responsibility — the company is required to provide an additional exercise window of at least three months from the separation date. The company cannot unilaterally strip this right.

The Venture Business Act enforcement decree also sets a mandatory service requirement: an employee must have been in service for at least two years from the date of the shareholder resolution before they can exercise. An employee who leaves before the two-year mark is generally not eligible to exercise. The exception is involuntary separation — in such cases the two-year requirement is waived. If the agreement does not specify how each type of departure is handled, any dispute becomes an interpretive fight.