Voluntarily resigning, would stock options be exercisable?

Law firm Veat received a request from venture company A (hereinafter referred to as the "client") to review the inquiry regarding stock options related to the involuntary resignation of an executive.

The stock option grant contract between the client and the affiliated executive stipulated that stock options could not be exercised if the employee served or worked for less than 2 years or if there was an involuntary resignation.

Accordingly, Law firm Veat provided a review opinion considering the client and the executive’s stock option contract terms and specific details based on a comprehensive review of Supreme Court precedents, the Venture Business Act, and other related laws.

Stock Options, Legal Interpretation of the Commercial Code and Venture Business Act

Exercising stock options means the company grants employees the right to purchase a certain quantity of shares at a predetermined price. Stock options serve as a long-term incentive for employees, allowing them to benefit from the company’s stock price increase. It refers to the act of employees actually purchasing the company's shares at the agreed-upon price (exercise price) using this right.

Article 340-4 paragraph 1 of the Commercial Code stipulates that employees must serve or work for more than 2 years from the date of the resolution of the general shareholders' meeting to exercise stock options, and there is a Supreme Court ruling that this requirement must also be met in the case of involuntary resignation or retirement. The Supreme Court clarified this in its judgment dated March 4, 2011, in case No. 2010da85027, further emphasizing that stock options are used as a means of compensating for long-term contributions.

However, the 「Special Act on Promotion of Venture Businesses」(hereinafter referred to as the "Venture Business Act") has different exception provisions from the Commercial Code. According to Article 16-5 paragraph 1 of the Venture Business Act, if the person who received the stock options dies or resigns or retires due to reasons not attributable to their own responsibility, they can be exempted from the requirement of serving or working for more than 2 years. This provision is also stipulated in Article 11-4 of the Enforcement Decree of the same Act.

Therefore, since the Commercial Code and the Venture Business Act have different regulations on stock option exercise requirements, they can have a significant impact on the specificity of the contract between the client and the executive, and the contract terms must sufficiently reflect these differences.

Law firm Veat comprehensively analyzed the Commercial Code, the Venture Business Act, and related precedents from the Supreme Court and High Courts in the client’s complex situation and presented the optimal solution tailored to the client’s situation. In particular, it paid attention to the differences between the Commercial Code and the Venture Business Act and provided advice to prevent potential legal issues that may arise when operating stock options in the future, assessing whether the client's stock option grant contract was drafted in accordance with the relevant laws.

Law firm Veat provides optimal legal advice to clients based on a high understanding of the Commercial Code, the Venture Business Act, and other related laws. We are helping startups and venture companies to proactively resolve various legal issues so they can operate stably.

If you need legal advice related to stock options, the Commercial Code, and the Venture Business Act, please contact Law firm Veat.

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Law firm Veat