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Reformation of Issuance of Par Value Stocks



1.    Practical Issues with Par Value Stocks
 
The 2018 amendments to the Company Act regarding the issuance of stocks and par value stocks represents a significant reform for the capital structure. Prior to the amendment, Paragraph 1, Article 156 of the Company Act provided that, "the capital of a company limited by shares shall be divided into shares and that each share shall have the same par value. A portion of the shares may be designated as preferred stocks, and such preferred stocks shall be specified in the Articles of Incorporation." Article 162 of the Company Act further stipulated that, "the total number of issued and outstanding shares and the par value per share shall be stated on the share certificates issued by a company limited by shares and certified by a certifying bank." Based on the above, all shares were required to be issued with the same par value, and the issuance of stocks without a par value was prohibited under the Company Act.
 
The significance of par value is that it was customary to identify that the capital and shares have an inseparable relationship in the past. The total capital of a company shall be equally divided into shares, and the par value per share was regarded as the minimum value of each share (i.e., all shares shall be issued at a price no less than the par value). Par value also means that a minimum amount shall be set aside as equity capital. However, setting par value as the minimum stock value may give rise to many unnecessary restrictions on companies when they would like to consolidate/divide their shares, and make maintenance of accounting records more complicated. The unnecessary restrictions were not in line with practical requirements and received many criticisms.
 
2.    Brief Overview of the Amendments in 2018
 
Under the amendments to the Company Act in September 2015, a new form of company called a closely-held company limited by shares was introduced. Pursuant to Article 356-6 of the Company Act, closely-held companies are allowed to issue shares with or without par value. Issuing shares without par value not only resolves the problems aforementioned, but also provides a more flexible way for companies to set the issuing price, which is beneficial for companies to raise capital and utilize funds.
 
Under the amendments to the Company Act in 2018, Paragraph 1, Article 156 of the Company Act provides that, "Companies shall choose to either issue shares with par value or issue shares without par value." Furthermore, Paragraph 2, Article 156 of the Company Act specifies that, "For a company issuing shares without par value, the payment for such shares shall be fully set aside as equity capital." In short, according to the amendment to the Company Act, companies are not allowed to issue both shares with par value and shares without par value concurrently. In other words, companies must choose between issuing shares with par value and issuing shares without par value. If a company resolves to convert the issued shares with par value into shares without par value, all the recognized capital reserve (i.e., all the amounts received in excess of par value) must be booked as capital in its accounting books. Moreover, once a company resolves to issue shares without par value, it is forbidden to convert such shares into shares with par value.
 
3.    Matters to be improved in this Amendments
 
Before the Legislative Yuan passed the above-mentioned amendments to the Company Act, the Department of Commerce, Ministry of Economic Affairs issued a ruling (Jing-Shang-Zi No.10702402640) on February 1, 2018, which permits companies to issue shares with the lowest par value as an alternative and flexible method under par value stocks. As a result, companies that issued shares with the lowest par value may book a significantly lower paid-in capital in their accounting books than companies that issued shares with no par value. According to the Regulations Governing the Collection of Company Registration Fees, registration fees shall be calculated at NT$1 for every NT$4,000 of an applicant’s paid-in capital. As a result, many start-up companies prefer to issue stocks with less than NT$1 par value to avoid higher registration fees due to adopting par value stocks which should be set aside the total amount of the issued price as equity capital. Hence, if the Regulations Governing the Collection of Company Registration Fees cannot be amended in line with the Company Act, the purpose of having no par value stock will remain difficult to be fully achieved.


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