Newsletter
Amendment to Company Act Series - Candidate Nomination System: Expansion of the Applicable Scope and Related Issues
I. Non-public companies may also adopt a candidate nomination system
The candidate nomination system was introduced in Taiwan in 2005. Since the term "public company" was used under Article 192-1 of the Company Act before the amendment in 2018, the Ministry of Economic Affairs stated in Interpretation Jing-Shang-Zi No. 09602006030 dated January 19, 2007 that a non-public company may not adopt a candidate nomination system. The 2018 amendment deleted the term "public company" and the legislative purpose clearly specifies that a non-public company may also adopt a candidate nomination system. Soon after such amendment came into force, the Ministry of Economic Affairs revoked its previous interpretation in Interpretation Jing-Shang-Zi No. 10702429010 dated December 21, 2018. Therefore, both public and non-public companies may now specify in their Articles of Incorporation that they adopt a candidate nomination system.
II. Simplifying the nomination procedures
Before the 2018 amendment to the Company Act, Paragraph 4, Article 192-1 of the Company Act prescribed that a shareholder shall nominate a candidate by submitting the candidate's name, education background, work experience, a letter of consent to serve as a director after being elected, a statement that the candidate does not have any of the conditions specified under Article 30 of the Company Act, and other relevant documents. If a corporate shareholder or its representative is nominated, the corporate registration card and a document stating the number of shares held by the corporate shareholder must be submitted. Due to such burdensome documentation requirements, it was cost and time consuming for a shareholder to make a nomination. In addition, there were cases where certain companies excluded specific candidates nominated by shareholders from the list of candidates based on the reason that the documents submitted were incomplete. Therefore, the original requirement for a shareholder to "submit" the aforesaid documents was replaced with the requirement for a shareholder to "describe" a candidate’s name, education background, and work experience.
III. The board of directors shall not review the list of candidates
Before the 2018 amendment, Paragraph 5, Article 192-1 of the Company Act prescribed that, "the board of directors or other authorized conveners of shareholders' meetings shall review the relevant documents submitted for each candidate...," which were asserted by certain companies to exclude specific candidates from the list of candidates. To eliminate such problem, the word "review" was deleted in the 2018 amendment. In addition, the legislative purpose specifies that the board of directors or other authorized conveners of shareholders' meetings shall follow Paragraph 5, Article 192-1 of the Company Act to determine whether to include candidates nominated in the list of candidates.
IV. A penalty will be imposed if candidates are intentionally excluded, and the penalty amount is increased for public companies.
Paragraph 8, Article 192-1 of the Company Act before the 2018 amendment prescribed that, "if the responsible person of a company violates the provisions stipulated in Paragraph 2 or the preceding two paragraphs, he/she shall be imposed with a fine from NT$10,000 to NT$50,000." This indicates that the responsible person will not be punished if he/she violates any of the provisions stipulated in Paragraph 5. Accordingly, the responsible person will not be punished if he/she intentionally excludes certain candidates from the list of candidates. From the perspective of a company's current management, by excluding candidates nominated by shareholders, the company's current management will be able to continue running the company because the list of candidates only includes candidates nominated by the company's current management. Since there is no punishment for such exclusion, and considering the interests that the responsible person could receive by continuing running the company after a re-election, the current management has considerable incentive to violate the Company Act to maintain its control over the board.
To resolve the aforesaid problem, Paragraph 7, Article 192-1 of the Company Act was amended whereby if the responsible person or other authorized conveners of a company violate any of the provisions stipulates in Paragraph 5 (i.e., intentionally exclude certain candidates from the list of candidates), a fine will be imposed. Furthermore, a fine of NT$240,000 to NT$2,400,000 can be imposed on the responsible person of a public company. The legislators hope that a significant amount of fine would discourage the responsible persons/other authorized conveners of companies from violating the provisions stipulated in this article.