Newsletter
Amendment to Company Act Series - Expanding the Scope of a Company's Responsible Persons and De Facto Directors
The Company Act was comprehensively amended in 2018, in which the following revisions were made to the definition of a company's responsible persons and scope of de facto directors, so that more robust corporate governance mechanisms can be established and to protect shareholders' interests:
I. Defining the "Temporary Manager" as a Responsible Person of a Company.
The responsible persons of a company are defined in Article 8 of the Company Act. Pursuant to Paragraph 1, Article 8 of the Company Act, the term "responsible persons" of a company denotes shareholders conducting the business or representing the company in the case of an unlimited company or unlimited company with limited liability shareholders; directors of the company in the case of a limited company or a company limited by shares. Paragraph 2, Article 8 of the Company Act before amendment specified that the managerial officer of a company, liquidator of a company, the promoter, supervisor, inspector, reorganizer and reorganization supervisor of a company limited by shares acting within the scope of their duties, were also responsible persons of the company.
However, the list of responsible persons of a company set out in Paragraph 2, Article 8 of the Company Act before amendment leaves out temporary managers. When the board of directors do not or cannot perform its duties, temporary managers perform duties on behalf of the chairperson and the board of directors to maintain company operations in accordance with Paragraph 1, Article 208-1 of the Company Act. Accordingly, the role of temporary managers shall also be deemed as a responsible person of the company. This issue was addressed by the Ministry of Economic Affairs in Letter Jing-Shang-Zi No. 09300195140 dated November 9, 2004, which stated that temporary managers shall also be categorized as responsible persons of the company when they are acting within the scope of their duties.
Given the above, the newly amendment to Paragraph 2, Article 8 of the Company Act specifies that temporary managers acting within the scope of their duties are also responsible persons of a company.
II. Expanding the Scope of De Facto Directors to Non-public Companies
Paragraph 3, Article 8 of the Company Act in the amendment on January 4, 2012 states that, in the case of a public company, any person without being registered as a director of the company who de facto conducts business of a director or de facto controls over the management of the personnel, financial or business operation of such company and de facto instructs a director to conduct business shall be liable for the civil, criminal and administrative liabilities as a director. The purpose of the provision is for non-directors of a company who de facto conducts business of a director or de facto controls the company's business decisions to bear the same liabilities of directors.
The amendment to Paragraph 3, Article 8 of the Company Act in 2012 limited the de facto director mechanism to public companies. This was because the concept of de facto directors in the legislative purpose was unprecedented in the legal system of Taiwan, and the scope of application was therefore limited for preventing its impact from being too large in practice. However, family businesses are very common in Taiwan and are more likely to have de facto directors compared with public companies, which have higher stock diversification. As a result, non-public companies are more likely to have non-directors that de facto control the company's business decisions. In the light of this, the Supreme Court in Judgment Tai-Shang-Zi No. 736 in 2014 expanded the scope of de facto directors to non-public companies based on the principle of fairness before the most recent amendment to the Company Act. In light of this, to strengthen corporate governance and protect shareholders' interests, the newly amendment to the Company Act in 2018 removed the wording "public company", rendering the scope of the application of the de facto director mechanism expanding from public companies to all companies.