Employee share plans in South Korea: regulatory overview

A Q&A guide to employee share plans law in South Korea.

The Q&A gives a high level overview of the key practical issues including, whether share plans are common and can be offered by foreign parent companies, the structure and rules relating to the different types of share option plan, share purchase plan and phantom share plan, taxation, corporate governance guidelines, consultation duties, exchange control regulations, taxation of internationally mobile employees, prospectus requirements, and necessary regulatory consents and filings.

To compare answers across multiple jurisdictions, visit the Employee Share Plans: Country Q&A tool.

This Q&A is part of the global guide to employee share plans law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employeeshareplans-guide.

Sun-Hee Park, Oh Ryung Lee and Seung Wan Chae, Bae, Kim & Lee LLC
Contents

Employee participation

1. Is it common for employees to be offered participation in an employee share plan?

It is common for South Korean companies (especially listed companies) to offer share plans to their employees. In particular:

  • Companies that intend to go public often adopt share plans for their employees through employee share ownership associations (ESOAs).

  • Small (including start-up companies) and medium-sized venture companies (venture companies) frequently grant share options to their employees as part of the employee's compensation under the Special Act on Promotion of a Venture Company of Korea.

Foreign parent companies with South Korean subsidiaries often adopt employee share plans that allow employees of the local subsidiary to acquire the foreign parent company's shares. Such share plans are regulated by the laws of the jurisdiction in which the foreign parent company is established, and the Korean regulations are not applicable (see Question 2). The answers in this Q&A therefore mainly focus on plans relating to shares in South Korean companies.

 
2. Can employees be offered a share plan where the shares to be acquired are in a foreign parent company?

Employees can be offered a share plan where the shares to be acquired are in a foreign parent company. The grant of a share option in a South Korean company is regulated by the Korean Commercial Code (KCC). However, KCC restrictions do not apply to a share plan adopted by a foreign parent company allowing employees of the local subsidiary to acquire shares of the foreign parent company, although foreign exchange and tax rules and regulations apply (see Question 25).

 

Share option plans

3. What types of share option plan are operated in your jurisdiction?

Share option plan

Main characteristics. A company can grant share options to directors, officers and employees who have contributed or have the potential of contributing to the company's incorporation, management or technological innovation, under a share option plan (which is primarily regulated by the KCC). The scope of qualified persons to whom share options may be granted is wider (than is generally the case in unlisted companies) for:

  • Listed companies, under the KCC.

  • Venture companies under the Special Act on Promotion of a Venture Company of Korea.

  • Certain companies engaging in the manufacture of components or raw materials under the Special Act on Promotion of a Specialised Company for Components and Materials.

The charter documents (articles of incorporation) of a South Korean company must expressly allow for the grant of share options. In general, any grant of share options must be approved by a special resolution adopted at a general shareholders' meeting of the company, subject to certain exceptions. Under the KCC, the default rule requires a special resolution to be adopted by at least a two-thirds affirmative vote of the voting shares present at a shareholders meeting, where the affirmative votes represent at least one-third of the total issued voting shares.

If the holder of a share option exercises the option during the exercise period (see Question 6), the company must do one of the following:

  • Issue new shares.

  • Deliver treasury shares.

  • Pay by cash, or deliver treasury shares, equivalent to the difference between:

    • the market price as of the exercise date; and

    • the fixed exercise price at the time the share option was granted.

Type of company. To offer share options, a company must be a joint stock company (jusik hoesa), which is similar to a corporation in the US.

Popularity. Listed companies and venture companies commonly offer share option plans.

Different types of options. Although it is not entirely clear under South Korean law, arguably a company can grant different types of options so that employees acquire different classes of share, or different types of shares (for example, newly issued shares and treasury shares).

ESOA share option plan

Main characteristics. Under the Worker's Welfare Basic Law (Welfare Law), employees of a joint stock company (together with employees of certain related companies) can establish an ESOA. As with a share option plan, the articles of incorporation of a company must expressly allow the grant share of options to members of the ESOA. In addition, in general, the grant must be approved by a resolution adopted at a general shareholders' meeting. If an option is exercised during the exercise period (see Question 6), the company must issue new shares or deliver treasury shares. Unlike a share option plan, cash settlement is not allowed under an ESOA share option plan.

Under the Welfare Law, an ESOA must deposit the shares of the company held by it or its members with one of the trustees designated under the Welfare Law, and the shares are subject to at least a one-year lock up period commencing on the date of deposit. The length of the mandatory lock-up period varies depending on the source of funds to acquire the shares (for example, whether the funds are granted to an ESOA by the company, or whether the funds are contributed by the employees).

Type of company. As with a share option plan, the company must be a joint stock company.

Popularity. The ESOA share option plan was introduced in 2004 and is not as common as the share option plan.

Different types of options. This is the same as for a share option plan.

Grant

4. What rules apply to the grant of employee share option plans?

Share option plan

Discretionary/all-employee. Options must be granted only to qualified employees, but on a discretionary basis (see Question 3).

Non-employee participation. Options can be granted to non-employee directors and officers who have contributed or have the potential to contribute to the incorporation, management or technological innovation of the company. In general, non-employee consultants are not eligible to receive share options. However, a venture company under the Special Act on Promotion of a Venture Company of Korea or component manufacturing company under the Special Act on Promotion of a Specialised Company for Components and Materials can grant share options to a certain non-employee consultants (for example, attorneys, accountants, researchers and so on). In addition, a listed company can grant share options to directors, officers and employees of certain related companies (for example, an overseas subsidiary).

Maximum value of shares. In general, the maximum number of shares that can be subject to a share option plan is 10% of the total issued and outstanding shares of a company, this limit is higher for listed companies (15%) and venture companies under the Special Act on Promotion of a Venture Company of Korea (50%). There is no limit on the maximum number of shares that can be granted to an individual employee subject to share options.

Market value. The exercise price of a share option must be the market price of the underlying shares on the date the option is granted. If new shares are issued in connection with the exercise of a share option, the exercise price may not be less than the par value of these shares.

ESOA share option plan

Discretionary/all-employee. In general, options must be granted to all members of an ESOA. However, a company can elect not to grant options to employees who have been employed by the company for less than one year. Although employees can elect to join or to leave an ESOA at their discretion, the Welfare Law prohibits certain employees (for example, an employee holding 1% or more shares of the company) from joining the ESOA. Accordingly, such prohibited employees are not eligible to receive options under an ESOA share option plan.

Non-employee participation. Non-employee directors or consultants are not eligible for an ESOA share option plan.

Maximum value of shares. The maximum number of shares that can be subject to an ESOA share option plan is 20% of the total issued and outstanding shares of the company. There is no limit on the maximum number of shares that can be granted to an individual employee subject to share options.

Market value. The exercise price of a share option must be no less than 70% of the market price of the shares at the date the option is granted. If new shares are issued in connection with the exercise of a share option, the exercise price cannot be less than the par value of the shares.

 
5. What are the tax/social security implications of the grant of the option?

There are no tax/social security implications with respect to the grant of an option.

Vesting

6. Can the company specify that the options are only exercisable if certain performance or time-based vesting conditions are met?

Share option plan

A company may determine an exercise period during which share options can be exercised. However, the holder of a share option can exercise the option only after working for the company for at least two years from the date the option is granted.

South Korean law does not address whether the exercise of option can be linked to performance-based conditions. However, under the KCC, the board of directors can specify conditions under which share options may be revoked, subject to the articles of incorporation of the company. Arguably, such conditions for revocation can be linked to an employee's performance.

ESOA share option plan

A company may determine an exercise period during which share options can be exercised. The exercise period must commence no earlier than three months from the date the option is granted.

As with a share option plan, under the Welfare Law, the board of directors can specify the conditions under which share options may be revoked, subject to the articles of incorporation of the company. Arguably, such conditions for revocation can be linked to an employee's performance.

 
7. What are the tax/social security implications when the performance or time-based vesting conditions are met?

There are no tax/social security implications when the performance or time-based vesting conditions are met.

Exercise

8. What are the tax/social security implications of the exercise of the option?

Share option plan

Tax. An individual is subject to income tax on the spread, that is, the difference between both:

  • The fair market value price of the shares on the exercise date.

  • The exercise price of the shares.

The spread is treated as salary and taxed at the employee's marginal rate of income tax. Korean individual income tax rates range from 6.6% to 41.8%.

If an individual incurs gains from the exercise of options in a venture business that meets certain requirements prior to 31 December 2015 (excluding instances where the difference between the exercise price and fair market value is received as cash consideration), that individual may pay income taxes in three-year instalments.

The employer must:

  • Withhold income tax at the time the option is exercised.

  • File a report related to withheld income tax and certain other related documents with the South Korean tax authorities and pay such taxes by the 10th day of the month following the withholding date.

  • Issue a tax payment receipt to its employees.

With respect to gains incurred by an employee prior to 31 December 2015 from the exercise of options in a venture business that meets certain requirements (excluding instances where the difference between the exercise price and fair market value is received as cash consideration), the employer is not required to withhold income tax.

Social security. The employee must make the following social security payments in relation to the spread:

  • National pension. The employer contributes 4.5% and the employee contributes 4.5%. The maximum contribution for each of the employer and employee is KRW183,600 per month.

  • National health insurance. An employer contributes 3.2338% and an employee contributes 3.2338%. The maximum contribution allowed for each of the employer and employee is KRW2,525,580 per month.

  • Unemployment insurance. An employer contributes 0.9% to 1.5% (depending on the industry and number of employees) and an employee contributes 0.65%. There is no maximum contribution amount.

  • Workers' compensation. An employer contributes 0.6% to 34.0% (depending on the industry). There is no maximum contribution amount.

The employer must withhold the employee's contribution and pay this and the employer's contribution to the authorities on a monthly basis.

ESOA share option plan

The rules for a share option plan apply to an ESOA share option plan (see above), with the following exceptions:

  • Up to KRW4 million of the amount contributed by a member to its ESOA is deducted from such member's earned income for calculating income tax.

  • The spread is calculated as the difference between:

    • 70% of the fair market value price of the share on the exercise date; and

    • the exercise price for the shares acquired through contribution amounts to the ESOA in excess of KRW4 million.

This means that for shares acquired through contribution amounts to the ESOA under KRW4 million, the spread is not included in taxable income.

In addition, the shares acquired by a member of an ESOA through its contributions to the ESOA (up to KRW4 million) are considered to be individual income when the member withdraws the shares from the trustee. The amount recognised as the member's income is the lesser of either:

  • The exercise price for the shares.

  • The fair market value price of the shares at the time of withdrawal.

If the shares are withdrawn two years (or later) after the expiration of the applicable lock-up period, a certain portion of the shares (depending on the deposit period with the trustee) will not be included when calculating individual income for tax purposes.

Sale

9. What are the tax and social security implications when shares acquired on exercise of the option are sold?

Share option plan and ESOA share option plan

Tax. Employees are subject to capital gains tax on the capital gain realised from the sale of shares. The capital gain is calculated as the difference between:

  • The price at which the shares acquired through the exercise of an option is sold.

  • The fair market value price of the shares at the time the option was exercised.

However, capital gains from the sale of shares of a listed South Korean company are not subject to capital gains tax, unless the individual is a major shareholder of the company. A major shareholder is a shareholder holding, together with related persons.

  • At least 2% of the total shares of the company (4% in the case of shares listed on the KOSDAQ or KONEX Division of the Korea Exchange).

  • Shares with an aggregate value of at least KRW5 billion (KRW4 billion for shares listed on the KOSDAQ Division of the Korea Exchange and KRW1 billion for shares listed on the KONEX Division), each determined as of the end of the fiscal year immediately preceding the fiscal year in which the shares are sold.

Capital gains from the sale of shares of a non-listed Korean company are subject to the following tax rates:

  • 33%, if the shares were held by a major shareholder for less than one year.

  • 11%, if the shares are of a small or medium-sized company.

  • 22%, in all other cases.

A capital gains tax exclusion is available for up to KRW2.5 million per year. Employees are required to report and pay income taxes on capital gains within two months from the end of the quarter in which the share transfer took place. Companies are not required to withhold capital gains tax arising from the sale of shares by an employee. Any tax filing or tax payment obligation in relation to the sale of the shares is solely the responsibility of the employee.

In addition, a securities transaction tax of 0.5% applies to any sale of shares not sold through the Korea Exchange. Under such circumstances, securities transaction tax should be reported and paid within two months from the end of the quarter in which the share transfer took place.

Social security. Capital gains are not subject to any related social security payments.

ESOA share option plan

The rules applicable to a share option plan (see above) also apply to an ESOA share option plan, except that capital gain is calculated as the difference between:

  • The price at which the share acquired through the exercise of an option is sold.

  • The higher of either:

    • the actual purchase price of the shares when acquired;

    • 70% of the fair market value price of the shares when acquired.

 

Share acquisition or purchase plans

10. What types of share acquisition or purchase plan are operated in your jurisdiction?

Share grant

Main characteristics. Although share acquisitions or purchase plans are not expressly provided for under Korean law, a company may award treasury shares (that is, shares not newly issued and owned by the company) to directors or employees as part of their compensation.

Although a company can, subject to certain requirements under the KCC, issue new shares (or sell its treasury shares) to its directors or employees in exchange for certain consideration, this would be very unusual in the context of an employee participation plan or share acquisition plan.

Type of company. The grant of treasury shares is available if the company is a joint stock company or a closely-held limited company (yuhan hoesa).

Under the KCC, if a company is formed as a general partnership (hapmyeong hoesa) or a limited partnership (hapja hoesa), the grant of new contribution units (that is, shares) to employees may be permissible. However, in such case, the employee will become a partner in the company and may not enjoy limited liability.

Popularity. It is not common for a company to grant treasury shares to its employees.

ESOA share plan

Main characteristics. If a company with shares listed (or planning to list its shares) on the Share Market Division of the Korea Exchange, intends to make a public offering, up to 20% of the offering must be allocated to members of the company's ESOA.

If an unlisted company, or a company with shares listed on the KOSDAQ Division of the Korea Exchange, intends to make a public offering or issue new shares through a capital increase, the company can allocate up to 20% of the public offering (or new shares, as the case may be) to members of the company's ESOA.

As with the ESOA share option plan, the shares acquired through the ESOA share plan must be locked up for at least one year.

Type of company. Only a joint stock company can have an ESOA.

Popularity. ESOA share plans are common for listed companies. For example, one survey shows that, as of December 2011, over 80% of listed companies in South Korea had established an ESOA.

Acquisition or purchase

11. What rules apply to the initial acquisition or purchase of shares?

Share grant

Discretionary/all-employee. The grant of treasury shares can be made on a discretionary basis to directors or employees as part of their compensation.

Non-employee participation. A company can grant its treasury shares to non-employee directors and consultants as part of their compensation.

Maximum value of shares. Although there are no restrictions on the maximum number of shares that can be subject to a share grant, the acquisition of treasury shares by a joint stock company and closely-held limited company is restricted under the KCC. Accordingly, the number of treasury shares that can be used in connection with a share grant plan may be limited.

Payment for shares and price. There are no restrictions related to share price or consideration. However, a grant of treasury shares should be made as compensation for work performed by the applicable director, employee or non-employee director/consultant. If a company grants treasury shares to a director, employee or non-employee director/consultant whose contribution is deemed less valuable than the value of the treasury shares, the board of directors of the company may be in breach of fiduciary duties, unless the grant had a reasonable justification.

ESOA share plan

Discretionary/all-employee. The allocation of shares under an ESOA share plan must be offered to all members of the ESOA.

Non-employee participation. Non-employee directors or consultants cannot join an ESOA, and therefore are not eligible for shares under an ESOA share plan.

Maximum value of shares. The maximum number of shares that can be subject to an ESOA Share Plan is 20% of the publicly offered shares (or newly issued shares, as the case may be). There is no per-employee limit on the maximum number of shares granted to an employee.

Payment for shares and price. Members of an ESOA are required to pay both:

  • A pre-determined public offer price in the case of a public offering.

  • A pre-determined share issuance price in the case of a new share issuance.

 
12. What are the tax/social security implications of the acquisition or purchase of shares?

Share grant

An individual granted treasury shares from a company is subject to income tax on the fair market value price of the treasury shares, as the grant is made for no consideration. The individual is also subject to payments related to various social security programmes (see Question 8).

ESOA share plan

The tax rules in relation to the ESOA share option plan apply to the ESOA share plan (see Question 8), except that the spread is calculated as the difference between:

  • The exercise price for the shares.

  • The lesser of either:

    • 70% of the fair market value price of the share on the exercise date;

    • the par value of the shares.

Vesting

13. Can the company award the shares subject to restrictions that are only removed when performance or time-based vesting conditions are met?

Share grant

The company can award the shares subject to restrictions in an agreement between the company and the individual governing the grant of the shares.

ESOA share plan

Although the agreement between the company and the relevant employees governing the grant of shares may contain conditions, this would be rare as the allocation of shares under the ESOA would be made in connection with a public offering or capital increase (that is, a new share issuance).

 
14. What are the tax and social security implications when the performance or time-based vesting conditions are met?

Share grant/ESOA share plan

There are no tax and social security implications with respect to vesting.

Sale

15. What are the tax and social security implications when the shares are sold?

Share grant/ESOA share plan

Individuals are subject to the capital gains tax on the capital gain realised from the sale of shares. See Question 9.

 

Phantom or cash-settled share plans

16. What types of phantom or cash-settled share plan are operated in your jurisdiction?

Cash settlement share option

A share option plan under the KCC can operate as a phantom option plan if the company is required to pay cash on exercise of the option equal to the difference between:

  • The market price of the shares on the exercise date.

  • The exercise price on the date of grant of the share option.

See Question 3.

Grant

17. What rules apply to the grant of phantom or cash-settled awards?

Cash settlement share option

The rules are the same as for a share option, see Question 4.

 
18. What are the tax/social security implications when the award is made?

Cash settlement share option

There are no tax/social security implications when the award is made.

Vesting

19. Can phantom or cash-settled awards be made to vest only where performance or time-based vesting conditions are met?

Cash settlement share option

The rules are the same as for a share option, see Question 6.

 
20. What are the tax/social security implications when performance or time-based vesting conditions are met?

Cash settlement share option

There are no tax/social security implications with respect to vesting.

Payment

21. What are the tax and social security implications when the phantom or cash-settled award is paid out?

Cash settlement share option

An individual is subject to income tax and required to make social security payments in the same way as for share option plans, see Question 8.

 

Corporate governance guidelines, market or other guidelines

22. Are there any corporate governance guidelines, market rules or other guidelines that apply to any of the above plans?

There are no applicable corporate governance guidelines, market rules or other guidelines.

 

Employment law

23. Is consultation or agreement with, or notification to, employee representative bodies required before an employee share plan can be launched?

If an employer employs 30 or more employees, it must consult with its Labour Management Council to discuss any change in policies that may affect employees' welfare or compensation (including employment share ownership plans). Therefore, a company should consult with its Labour Management Council before the adoption of an ESOA share option plan or ESOA share plan.

A Labour Management Council is comprised of representatives of both the employer and the employees, and must meet periodically to discuss employment-related matters such as employees' training, employees' complaints, termination of employees, compensation and so on.

 
24. Do participants in employee share plans have rights to compensation for loss of options or awards on termination of employment?

Participants in share plans do not have any compensation rights for loss of options or awards in the event of termination of employment.

Share option plan

The holder of share options must work for at least two years before the exercise of the option (see Question 6). However, if the company is a listed company and the employee's employment with the company is terminated due to causes not attributable to the employee, the two-year requirement does not apply. An option agreement may also provide that options will be revoked if the individual voluntarily resigns from the company.

ESOA share option plan

The holder of employee share options can exercise the option no earlier than six months from the date the option is granted (see Question 6), provided that the holder cannot exercise the option if he/she no longer qualifies as an ESOA member. For reference, the Welfare Law does not provide a mandatory work period for exercising the option. However, a company can elect not to grant options to employees who have been employed by the company for less than one year (see Question 4).

 

Exchange control

25. How do exchange control regulations affect employees sending money from your jurisdiction to another to purchase shares under an employee share plan?

Under foreign exchange regulations, any South Korean resident who intends to acquire securities issued by a non-South Korean resident must obtain approval from the Bank of Korea. However, if an employee of a South Korean subsidiary (or a branch) of a foreign company acquires securities of the foreign company (or its affiliates), this approval is not required (but non-employee consultants of a South Korean subsidiary must receive this approval).

In addition, if an employee of a South Korean subsidiary (or a branch) of a foreign company makes cash payments in excess of US$2,000 per transaction to a foreign parent company in exchange for securities in the foreign parent company (for example, after the exercise of the share option), the employee must submit evidence of the underlying transaction to a foreign exchange bank in South Korea. However, this submission of evidence is not required if the aggregate amount (calculated on an annual basis) to be paid by the employee does not exceed US$50,000.

 
26. Do exchange control regulations permit or require employees to repatriate proceeds derived from selling shares in another jurisdiction?

No foreign exchange authorisation or filing is required for the repatriation of funds to South Korea as long as this is through a foreign exchange bank in Korea. However, a Korean resident that receives an amount greater than US$20,000 in aggregate a single day must notify the applicable foreign exchange bank in writing of the reason the funds were received.

 

Internationally mobile employees

27. What is the tax position when an employee who is tax resident in your jurisdiction at the time of grant of a share option or award leaves your jurisdiction before any taxable event affecting the option or award takes place?

A South Korean tax resident at the time of the grant of a share option or award remains subject to tax on the income from the share option or award, even if the individual is no longer a South Korean tax resident at the time of the taxable event. Such an individual is solely responsible for reporting the taxable event and paying the applicable tax amount.

 
28. What is the tax position when an employee becomes tax resident in your jurisdiction while holding share options or awards granted abroad and a taxable event occurs?

A South Korean tax resident is liable for tax on worldwide income. Accordingly, if an individual is not a South Korean tax resident at the time of the grant of a share option or award, but becomes a South Korean tax resident before the taxable event, the individual will be subject to tax on the income with regard to the share option or award. The employee can claim a foreign tax credit on the income portion attributable to his services performed outside Korea for any foreign taxes paid on such income.

Although it is not clear under Korean law, arguably employees of a Korean subsidiary exercising share options for shares of a foreign parent company must make social security payments, as is done in connection with a share option plan. However, shares of a foreign company are generally not considered a security for the purposes of the securities transaction tax, and therefore this tax does not apply when employees sell shares acquired through the exercise of options granted by the foreign parent company.

Because the shares are transferred from a foreign parent company, the Korean subsidiary is not required to withhold the applicable income tax arising from the share acquisition by the individual. Any tax filing or tax payment obligation in relation to the acquisition of the shares is solely the responsibility of the individual.

 

Securities laws

29. What are the requirements under securities laws or regulations for the offer of and participation in an employee share plan?

Under the Financial Investment Services and Capital Markets Act (FSCMA), the offering of shares or other securities to 50 or more persons in South Korea requires the issuer to file a registration statement with the Korean Financial Services Commission (FSC). However, there are exceptions to this rule:

  • Members of an ESOA are not counted towards the 50-person threshold requirement.

  • If a foreign entity offers shares or other securities to employees of a foreign entity's affiliated company in South Korea under a share incentive plan as part of the employees' compensation package, the employees are not counted towards the 50-person threshold.

Accordingly, an ESOA share option plan, an ESOA share plan or a foreign parent company's share incentive plan would not require a registration statement.

The FSCMA does not give any express exceptions to the registration requirements for grants of share options or issuances of new shares following the exercise of share options. However, based on informal discussions with the Financial Supervisory Services (FSS), to whom the FSC has delegated responsibility to handle registration statement matters, as a practical matter the FSS does not enforce this registration requirement in these circumstances.

Separately, under the FSCMA, if a listed company grants share options under the KCC, it must file a report with the FSC and the Korea Exchange.

In addition, under the FSCMA, if a listed company transfers or otherwise disposes of its treasury shares, it is required to file a report with the FSC and the Korea Exchange. Therefore, if a listed company transfers its treasury shares to its employee pursuant to the exercise of a share option, on the adoption of share grant plan, or otherwise, it must file a report.

 
30. Are there any exemptions from securities laws or regulations for employee share plans? If so, what are the conditions for the exemption(s) to apply?
 

Other regulatory consents or filings

31. Are there any other regulatory consents and filing requirements and/or other administrative obligations for an offer of and participation in an employee share plan?

To establish an ESOA, the committee created to establish the ESOA is required to:

  • Enter into a management and deposit agreement with a trustee designated under the Welfare Law.

  • Report the establishment of the ESOA to the Ministry of Employment and Labour within three weeks of execution of the agreement.

In addition, the ESOA must file annual reports with the Ministry of Employment and Labour within three months after the end of each fiscal year, and file a report on dissolution.

Further, an employer of a company implementing the ESOA is prohibited from, against an ESOA member's will, doing any of the following:

  • Ordering the member to acquire the employee share.

  • Allocating the employee share to the members in accordance with certain standards, such as the department or position of the members in the company.

  • Treating a member who refuses to acquire the employee share unfavourably in comparison with other members who acquire the employee share.

 
32. Are there any data protection requirements or obligations for an offer of and participation in an employee share plan?

Under the Personal Information Protection Act of Korea (PIPA), in order for any data handler to collect or use personal information or to disclose any such information to a third party, consent must first be obtained from each individual. Such consent must be obtained only after informing the individual of, among other things:

  • The purpose(s) for collecting and/or using the personal information.

  • The specific type of personal information sought.

  • The period of retention and use.

An employer may be subject to PIPA if it obtains personal information from its employees in connection with an employee share plan. The employee's consent would therefore be required for an employer to transfer personal information to its overseas parent company or any plan administrator.

 

Formalities

33. What are the applicable legal formalities?

Translation requirements

There is no requirement to translate plan documents into Korean. However, this is customary, especially when a wide range of employees are subject to the plan.

E-mail or online agreements

E-mail or online agreements are legally binding. However, the burden of proof to prove that an agreement was actually executed through email or electronically is imposed on the party claiming that such an agreement exists.

Witnesses/notarisation requirements

There are no witness or notarisation requirements.

Employee consent

The employee's consent is required for the administration of any share incentive plans.

 

Developments and reform

34. Are there any current trends, developments and reform proposals that have or will affect the operation of employee share plans?

Trends and developments

There are currently no particular trends or developments. However, in the last ten years there has been a decrease in the number of companies adopting employee participation plans.

Reform proposals

The South Korean Government has organised a taskforce to establish a plan to revitalise ESOA plans, which includes amendments to the current regulations related to ESOA plans. The basic plan prepared by the taskforce and adopted by the South Korean Government in February 2015 anticipates amending the current regulations governing ESOAs so as to expedite the establishment of ESOAs and facilitate the acquisition of shares by members of an ESOA (for example, by providing tax benefits for members of an ESOA when acquiring shares, and requiring an unlisted company to repurchase the shares from the members of an ESOA who have held the shares for a period of more than six years).

 

Online resources

English language

Ministry of Government Legislation

W www.moleg.go.kr/english/korLawEng

Description. The official website of the Ministry of Government Legislation containing English translations of certain statutes. Such translations are for reference purposes only, and may be out-of-date.

Statutes of the Republic of Korea

W http://elaw.klri.re.kr/eng_service/main.do

Description. An unofficial website maintained by Korea Legislation Research Institute containing English translations of certain statutes. Such translations are for reference purposes only, and may be out-of-date.

Financial Supervisory Service website

W http://english.fss.or.kr/fss/en/main.jsp

Description. The official website of the FSS containing English translations of certain securities regulations. Please note that such translations are for reference purposes only, and may be out-of-date.

Korean language

Ministry of Government Legislation

W www.moleg.go.kr/main.html

Description. The official website of the Ministry of Government Legislation, containing statutes.

Bank of Korea website

W www.bok.or.kr/main/korMain.action

Description. The official website of the Bank of Korea, containing foreign exchange regulations.

Financial Supervisory Service website

W www.fss.or.kr/fss/lmx/main.jsp

Description. The official website of the FSS, containing securities regulations.

Ministry of Employment and Labour website

W www.moel.go.kr

Description. The official website of the Ministry of Employment and Labour, containing information related to ESOA. Some information may be out-of-date.



Contributor profiles

Sun-Hee Park

Bae, Kim & Lee LLC

T +82 2 3404 0179
F +82 2 3404 7692
E sunhee.park@bkl.co.kr
W www.bkl.co.kr

Qualified. Korea, 1996

Areas of practice. Corporate; M&A; private equity; hostile takeovers and defence; foreign investment; corporate governance.

Oh Ryung Lee

Bae, Kim & Lee LLC

T +82 2 3404 0688
F +82 2 3404 7692
E ohryung.lee@bkl.co.kr
W www.bkl.co.kr

Qualified. Korea, 2002

Areas of practice. Corporate; M&A; private equity; foreign investment; corporate governance' corporate restructuring.

Seung Wan Chae

Bae, Kim & Lee LLC

T +82 2 3404 0577
F +82 2 3404 7687
E seungwan.chae@bkl.co.kr
W www.bkl.co.kr

Qualified. Certified public accountant, Korea, 2000

Areas of practice. Transfer pricing; tax; international trade & anti-dumping; foreign investment; business planning; hostile takeovers & defence.


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