Giving Employees Equity: What Founders Must Lock Down — Stock Option Vesting vs. Shareholders' Agreements

OPUS 법무팀 · Startup Contract & Equity Advisory · Published 2026-06-18 · Updated 2026-07-10

Key takeaway: There are basically two ways to promise equity to an employee. (1) Stock options are "the right to buy later at a set price," and vesting filters out early departures. Note that under Korea's Commercial Act an option holder must remain employed for at least two years from the date of the shareholder resolution before exercising, so a two-year cliff is effectively mandatory. (2) When you hand over actual shares, you design buyback and transfer terms through a shareholders' agreement. A founder's right of first refusal and call option are rights to buy (you don't have to use them), while a put option is the counterparty's right to demand that you buy — which creates a purchase obligation on your side. Put options mostly show up in investment agreements at the investor's request and can be a genuinely toxic clause, so always check the trigger conditions.

There are two broad ways to promise equity to an employee or co-founder: grant stock options, or hand over actual shares. From a founder's perspective the buyback and control mechanics are completely different, so they deserve separate treatment.

1. Granting stock options — betting on "time" through vesting

A stock option isn't a share today; it's the right to buy shares later at a fixed exercise price. Vesting is the structure by which that right is earned gradually over time on the job. The Silicon Valley standard is "4-year vesting with a 1-year cliff": leave before year one and you get 0%; clear it and 25% vests at once, with the rest accruing monthly.

You cannot copy that structure verbatim in Korea. Under the Commercial Act, stock options can only be exercised after at least two years of continued employment from the date of the shareholder resolution, so options granted by a Korean company effectively carry an automatic two-year cliff. Transplanting a US-style one-year cliff can create enforceability problems.

The upside for founders: if the employee leaves before exercising, the right lapses — so dilution and buyback exposure stay small, and until exercise they aren't shareholders and have no say in decisions.

2. Handing over actual shares — designing buyback and transfer in the shareholders' agreement

The moment you give an employee or co-founder real shares, they become a shareholder. If you haven't written into the shareholders' agreement how their stake gets unwound when they leave, recovering it is hard. Three mechanisms do the heavy lifting.

Founder's right of first refusal — the "right" to buy first

When an employee tries to sell their shares to an outside third party, this gives the founder (or the company or existing shareholders) the right to buy on the same terms first. It keeps strangers out of your cap table. It is strictly a right, so if the founder doesn't want the shares, they don't have to buy.

Call option (right to demand sale) — the founder's right to buy back

If an employee resigns or breaches the agreement, the founder or company can buy those shares back at a pre-agreed price — a guard against opportunistic exits and a way to protect control. This is also a right, meaning it's a "you may decline to buy" option. That said, if the exercise price is set unreasonably low, a court may void it as contrary to public policy, so a tenure-based sliding scale is safer (e.g., 100% recoverable within year one, 75% within year two, 50% within year three).

Put option (right to demand purchase) — their right to say "buy me out" = your obligation to buy

This is the mirror image of a call option. It's the counterparty's right to demand that the founder or company buy their shares back, and where a put option exists, the party on the receiving end takes on a purchase obligation.

In practice, put options rarely appear in agreements with employees. Where they really show up is investment agreements. An investor with negotiating leverage inserts triggers like "failure to IPO by a deadline" or "breach of representations, warranties, or key covenants," and once triggered, the founder must buy back the investor's stake at the original investment amount plus interest. Because the obligation lands precisely when the business is struggling — and often has to be met with personal funds — it's widely regarded as the classic toxic clause in investment agreements. If a put option or buyback clause is on the table, verify the trigger conditions and the price formula before you sign.

Call vs. put — the one-line version

• Right of first refusal and call option = the founder's rights → exercise only if you want to; you can decline to buy.
• Put option = the counterparty's right (usually an investor's) → it creates an obligation for you to buy back. Verifying triggers and the price formula is mandatory.
• A call option priced too low risks being voided → tenure-based pricing tiers are safer.

What founders should check before signing

• Stock options or actual shares? The recovery mechanics are entirely different.
• (Stock options) Does the document reflect the Korean Commercial Act's two-year employment requirement?
• (Shares) Do the right of first refusal and call option actually block outside buyers and opportunistic exits?
• Is the call option exercise price on a reasonable sliding scale (check for enforceability risk)?
• (Investment agreements) Have you verified the trigger conditions and buyback price (principal plus interest, etc.) of any put option or buyback clause?