Stock Option Regulations and Taxation 1. Overview of Stock Option System A stock option grants officers or employees the right to purchase shares of the company in the future at a predetermined price. Typically, this process involves three stages: (1) Granting: The company enters into a stock option agreement with its officers or employees, specifying the grant conditions, eligibility criteria, vesting requirements, and exercise terms. (2) Vesting: Upon satisfaction of the prescribed conditions, the grantee becomes entitled to exercise the option within a certain period. (3) Exercising: At the grantee’s discretion, the stock option is exercised, and shares are acquired. Stock options are commonly used as a form of compensation, incentive, or motivation for employees who have contributed or are expected to contribute to the company’s growth. Depending on the applicable laws, stock options are categorized into (i) general stock options governed by the Korean Commercial Act (“KCC”), and (ii) qualified stock options for venture companies governed by the Special Act on the Promotion of Venture Businesses (“Venture Business Act”). 2. General Stock Options vs. Venture Company Stock Options General stock options are granted and exercised by ordinary corporations pursuant to the KCC, the company’s articles of incorporation, and relevant agreements (Articles 340-2 to 340-4 of the KCC). Venture company stock options are granted and exercised by venture companies in accordance with the Venture Business Act, their articles of incorporation, and relevant agreements (Articles 16-3 to 16-6 of the Venture Business Act). 3. Vesting, Exercise, and Expiry While general and venture stock options share similar structures, they differ in certain respects, including eligibility, methods of grant, limits on the number of options granted, exercise price, grant procedures, conditions for exercise, continuous service requirement, and the grounds for cancellation or expiration. Venture stock options may be granted not only to officers and employees but also to outside experts. Moreover, exceptions may apply to the two-year continuous service requirement ordinarily imposed before exercising an option. 4. Taxation and Preferential Tax Treatment The gain realized upon exercise of a stock option (defined as the difference between the market value of the shares at the time of exercise and the exercise price) is treated as earned income and subject to taxation. If the shares are actively traded on a market, the transaction price may be recognized as the market value (Article 89 of the Enforcement Decree of the Corporate Tax Act). For venture companies whose shares are not actively traded, valuation is generally made through a supplementary valuation method (Article 63 of the Inheritance and Gift Tax Act). The issue price of shares in a simple paid-in capital increase does not constitute market value (National Tax Service rulings and guidance). Venture company stock options may benefit from various tax incentives under the Restriction of Special Taxation Act, including special tax exemption (Article 16-2), special installment payment (Article 16-3), and special tax treatment upon transfer (Article 16-4). 5. Cases and Key Considerations (a) Meeting the Service Requirement upon Auditor Appointment by Resolution In a Supreme Court en banc decision (Decision 2016Da251215, March 23, 2017), the Court held that once a person is elected and accepts the appointment as a director or auditor at a shareholders’ meeting, the position is acquired regardless of whether a separate employment agreement with the representative director has been executed. Accordingly, if the shareholders’ meeting validly resolved to appoint the plaintiff as auditor, the plaintiff shall be deemed to have served the requisite two years to satisfy the stock option exercise condition. (b) Exception to the Continuous Service Requirement Under Article 16-3(6) of the Venture Business Act, unless otherwise provided by the relevant Ministerial Decree, stock options may be exercised only if the grantee has served as an officer or employee for at least two years from the date of the shareholders’ resolution granting the option. However, Article 4-4(2) of the Enforcement Rules of the Venture Business Act provides an exception, requiring the venture company to allow the exercise of stock options within the exercise period if the grantee dies, retires upon reaching the mandatory retirement age, or retires or resigns for reasons not attributable to him or her. In the case where a director is not reappointed at a shareholders’ meeting, the court has held that, in view of all circumstances, this does not necessarily constitute termination for reasons attributable to the individual. In precedents, the courts have interpreted “reasons attributable to the grantee” as those that, in light of social norms, make it unreasonable to expect the company to maintain the fiduciary relationship. Even if the grantee was involuntarily removed, the termination may still be deemed “attributable” if such reasons existed. (c) Share Transfer Following Stock Option Exercise For listed companies, following the exercise of stock options, share transfers must be effected through electronic registration under the Act on Electronic Registration of Stocks, Bonds, etc. (“Electronic Securities Act”). Direct issuance or delivery of share certificates by the company is not permitted (Supreme Court Decision 2020Da273403, July 25, 2024). As the Electronic Securities Act is relatively new, particular care should be exercised in legal claims involving the issuance or transfer of share certificates.   *       *       *   Sojong Partners has extensive experience advising clients on the establishment and ongoing legal compliance of all types of entities in Korea. We have assisted numerous foreign corporations and individuals through every stage of the incorporation process, tailoring our services to address each client’s unique circumstances and legal requirements. For further information or to discuss your business plans in Korea, please contact us.  

Liquidation Procedure in Korea I. Overview When a company in Korea decides to cease operations, it must undergo a formal liquidation procedure pursuant to the Korean Commercial Code and other applicable laws. Liquidation ensures that the company’s business affairs are properly wound up, its outstanding debts are settled, and any remaining assets are distributed to shareholders. Below is a general overview of the procedure. II. Resolution for Dissolution and Appointment of Liquidator The process begins with a special resolution of shareholders at a general meeting, where the company resolves to dissolve and appoints a liquidator. In most cases, a director is appointed as the liquidator, but any qualified person may assume the role. From this point onward, the liquidator oversees the company’s affairs until completion of the liquidation. III. Registration of Dissolution Following the resolution, the company must register its dissolution and the appointment of the liquidator with the competent court registry. This registration legally completes the dissolution process and provides public notice that the company is now in liquidation. IV. Notification to Creditors The liquidator is required to give public notice to creditors to present their claims within a statutory period of at least two months. Known creditors must also be individually notified. No distributions to shareholders may be made until creditors have had sufficient opportunity to file claims and all creditor protections are satisfied. V. Settlement of Debts and Liquidation of Assets During the claim period and thereafter, the liquidator will:   • Investigate and realize the company’s assets   • Resolve pending business affairs   • Collect receivables   • Pay debts in accordance with statutory priorities Once all liabilities are discharged, any surplus assets are distributed among shareholders on a pro-rata basis. VI. Tax and Regulatory Filings As part of the liquidation, the liquidator must file required corporate income tax returns and, where applicable, VAT and other regulatory filings. In the case of foreign-invested companies, the cancellation of the foreign investment registration under the Foreign Investment Promotion Act must also be completed. VII. Final Meeting and Completion of Liquidation After completing the above steps, a final general meeting of shareholders is convened to approve the liquidator’s report and settlement of accounts. Following this approval, the liquidator registers the completion of liquidation with the competent court registry. Company records must be preserved for the statutory retention period (10 years for key documents, 5 years for transactional documents). VIII. Practical Timeline The actual duration of liquidation depends on the complexity of the company’s affairs. Straightforward cases may be completed within several months, while more complex liquidations may take longer. The process typically spans from the initial resolution and registration of dissolution through creditor notification, settlement of debts, tax filings, and the final registration of liquidation.   *       *       *   Sojong Partners has extensive experience advising clients on the liquidation and dissolution of companies in Korea. We have assisted a wide range of foreign and domestic enterprises through each phase of the liquidation process, providing tailored legal solutions that address the unique circumstances and needs of each client. This overview is provided for general informational purposes only and does not constitute legal advice. For more information or to discuss your company’s liquidation in Korea, please feel free to contact us.  

Establishing a Business Entity in Korea I. Overview Foreign investors entering the Korean market have several options for establishing a local business entity under the Korean Commercial Code. Among such entity types, a chusikhoesa (similar to a corporation) and a yuhanhoesa (similar to a limited liability company) are by far the most common. Each structure offers distinct advantages depending on the investor’s long-term objectives, level of capital commitment, and governance preferences. The popularity of the chusikhoesa arises from its suitability for companies anticipating significant growth, fundraising through the issuance of shares or bonds, or eventual listing on a securities exchange. By contrast, the yuhanhoesa has become increasingly favored in recent years among investors seeking streamlined governance, no public disclosure requirements (except for certain large companies), and greater flexibility in structuring member participation. Determining the appropriate choice requires careful consideration of business strategy, ownership structure, and regulatory compliance issues. II. Key Differences: Structure, Governance, And Disclosure Both chusikhoesa and yuhanhoesa are corporate entities with limited liability, meaning shareholders or members are only liable up to their contributions. They are subject to the same corporate tax system, which applies a progressive rate structure - tax rates increase in steps as income rises. Furthermore, the Korean corporate tax system includes a local income tax surcharge that increases the total tax burden on companies. Where the two forms diverge is in terms of governance, disclosure, and potential for growth. The chusikhoesa must have at least one director, although larger companies often have multiple directors. If the company’s capital exceeds KRW 1 billion, it must appoint a statutory auditor or establish an audit committee to oversee financial reporting. Publicly traded companies with significant assets have stricter rules for audit committees. The chusikhoesa is required to prepare and disclose financial information under formal regulatory standards. This type of company can raise capital flexibly by issuing different classes of shares, including preference shares, as well as bonds and other debt securities. Its shares can be freely transferred and listed on a stock exchange, making it suitable for larger companies or those planning to go public. On the other hand, the yuhanhoesa cannot issue publicly traded shares or bonds, and its membership is limited to 50 members. This means it cannot go public or have a broad investor base. However, it requires only one director and no statutory auditor. There are generally no public disclosure requirements, giving members more freedom in structuring voting rights and ownership. This simpler governance and greater privacy are attractive to small and medium-sized companies, family businesses, or subsidiaries. In essence, companies targeting rapid growth, fundraising, or public listing usually choose the chusikhoesa, while those preferring simpler management, confidentiality, and flexibility often opt for the yuhanhoesa. III. Formation Process: Steps And Legal Requirements Despite their differences, the formation procedure for both the chusikhoesa and yuhanhoesa follows similar stages. Under the Foreign Investment Promotion Act in Korea, any foreign investor planning to invest more than KRW 100 million is required to file a foreign investment report with the competent government authority or a designated foreign exchange bank prior to incorporation or investment. Documentary requirements differ depending on whether the investor is an individual or an entity, but generally include a certificate of incorporation, certificate of good standing, and proof of nationality, all of which must be notarized and apostilled for use in Korea. If incorporation is being handled through a legal representative, a power of attorney is also required. Following the investment report, the investor must remit the investment amount to a designated foreign exchange bank in Korea, which issues a certificate of payment. While the statutory minimum can be as low as KRW 100, an initial capital of at least KRW 1–10 million is generally advised for practical reasons—such as covering setup and operational costs—as well as for visa eligibility and industry-specific requirements. An inaugural general meeting of shareholders (in the case of a chusikhoesa) or members (in the case of a yuhanhoesa) is then convened. At this meeting, directors are appointed, articles of incorporation are formally adopted, and a representative director may be elected. Once duly formed, the company must register with (i) the corporate registry office; (ii) the designated foreign exchange bank as a foreign-invested company; and (iii) the competent tax office. The company must also register its official company seal, which functions similarly to a signature and is required for executing binding documents. Under ordinary circumstances, the incorporation process takes approximately seven to ten business days once all necessary documentation has been prepared. Delays may arise, however, when notarization and apostille requirements are not satisfied or when local procedural customs are not observed. IV. Strategic Considerations For Investors The choice between the chusikhoesa and the yuhanhoesa ultimately depends on the strategic objectives of the investor. Large corporations with a view toward long-term growth, capital raising, and potential listing will find the chusikhoesa most suitable. On the other hand, investors seeking a more efficient and confidential vehicle, without the burden of public disclosures or multiple-director requirements, will find the yuhanhoesa particularly attractive. This article is provided for general informational purposes only and does not constitute legal advice. Laws and regulations are subject to change and their application may vary depending on individual circumstances. You should consult with a qualified attorney about your particular situation before making any decisions or taking any action.    *       *       * Sojong Partners has extensive experience advising clients on the establishment and ongoing legal compliance of all types of entities in Korea. We have assisted numerous foreign corporations and individuals through every stage of the incorporation process, tailoring our services to address each client’s unique circumstances and legal requirements. For further information or to discuss your business plans in Korea, please contact us.