The Ministry of Commerce, Industry & Energy announced its draft amendment to the Presidential Decree of the Special Law for Promoting Venture Companies. The draft aims to reduce the minimum exercise price of stock options granted to employees, officers and other eligible persons of venture companies.

According to the ministry's draft, the minimum stock option exercise price for venture companies will be calculated upon the market price of shares at the time of the exercise of the option, applying the calculation method of the Inheritance and Gift Tax Law.

It has been necessary to set the minimum exercise price of venture companies according to the formula of the Securities Exchange Act. This has caused some confusion since the Securities Exchange Act is designed for shares that are traded on the Korea Stock Exchange whereas many venture companies shares are not traded publicly.

Korea has three different laws governing stock option grants:

  • the Securities Exchange Act for companies listed or registered with the Korea Stock Exchange;
  • the Venture Company Law for venture companies; and
  • the Commercial Code for all other companies.

These laws provide regulations on matters concerning the granting of stock options. For example, a venture company may grant stock options worth up to 50% of its total issued and outstanding shares. The rate is lowered to 15% under the Stock Exchange Act and 10% under the Commercial Code.

A small or medium-sized company will be classified as a venture company and eligible for tax and various other benefits and supports if (i) it is not classified as an ineligible business and (ii) it satisfies any of the eligibility requirements under the Venture Company Law. In order to be eligible a company must prove the following:

  • that it invests at least 5% of its annual turnover in research and development;
  • that at least 10% of its equity is held by certain eligible venture capital companies; and
  • that it commercializes patents and other new technology.

For further information on this topic please contact Hee Chul Kang at Woo, Yun, Kang, Jeong & Han by telephone (+822 528 5200) or by fax (+822 528 5200) or by e-mail ([email protected]).

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