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Deregulation -- the Structure of the Board of Directors



In order to improve the corporate governance mechanism as well as meet the practice need, the Company Act provides more flexibility in the structure of the board of directors after its amendment in 2018. More details will be elaborated in the following paragraphs:
 
1.    The required minimum number of the directors is reduced in a non-public company.
 
Before the 2018 Amendment, Article 192 (1) of the Company Act required that there shall be a minimum of three directors in the board of directors for companies limited by shares. In reality, however, the majority of the companies in Taiwan are small and medium enterprises; as a consequence, if a company intends to incorporate in the form of a company limited by shares, it usually would need to find directors in name only due to the requirements of the Company Act. Even though the directors in name only do not actually involve themselves in the operation of the business, they may still be held liable as the company's responsible persons in accordance with Article 8(1) of the Company Act. Therefore, the newly amended Article 192(2) of the Company Act allows a non-public company to have options to choose not to have a board of directors but instead only one or two directors in accordance with its articles of incorporation. Nevertheless, the board of directors of a public company shall still consist of a minimum of five directors according to Article 26-3 (1) of the Securities and Exchange Act.
 
2.    A single shareholder company may choose not to have a board of directors and supervisors.
 
In the case of a company with a single corporate shareholder, business decisions would most likely be made based on the discretion of that corporate shareholder. Considering that the directors and supervisors are also designated by the corporate shareholder and there is no other shareholder whose interest needs to be protected, it is not reasonable to require a single shareholder company to have a minimum of three directors along with a supervisor. Consequently, the newly amended Articles 128-1(2) and (3) of the Company Act loosen the restriction and allow a single shareholder company to have option to choose one or two directors, instead of having a board of directors and supervisors.
 
3.    The application of the provisions governing the board of directors, mutatis mutandis, under the circumstances that there are two directors in the company.
 
As provided respectively under Article 128-1(2) and Article 192(2) of the newly amended Company Act, whereas there is only one director in a single shareholder company or a non-public company, such director shall be the chairman of the company and the authority of the board of directors shall be exercised by such director, and the provisions governing the board of directors as set out in this Company Act shall not apply. However, if there are two directors in the above-mentioned forms of companies, the provisions governing the board of directors as set out in this Company Act shall apply mutatis mutandis.
 
A valid resolution of the board of directors shall be adopted by a majority of the directors at a meeting attended by a majority of the directors according to Article 206(1) of the Company Act. In this regard, there are risks that the meeting of the board of directors may not be convened successfully and/or a valid resolution may not be adopted. For instance, the Administrative Interpretation Jing-Shang-Zi No. 29930 dated 24 July, 1981 and the Administrative Interpretation Jing-Shang-Zi No. 09302202470 dated 2 December, 2004 both provide that, the basic formation of a meeting requires at least two attendees and a meeting may not be constituted with only one director. Accordingly, the two directors shall both attend to successfully constitute a meeting. In the event that one director appoints the other director to attend the meeting as his/her proxy, there would still be only one director that is physically present, and therefore the resolution may not validly be adopted. On top of that, the two directors have to reach a consensus in order to adopt a resolution; otherwise, the operation of the business may be put on hold due to the different views between the two directors.
 
To conclude, if a non-public company or a single shareholder company decides not to have a board of directors in accordance with its articles of incorporation, the above-mentioned risks should be taken into consideration when deciding the number of directors. In this way, the enhanced flexibility in the corporate governance provided in the newly amended Company Act may actually be brought into play.


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