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Amendment to Taiwan Company Act cleared the Legislative Floor



Amendment to Taiwan Company Act cleared the Legislative Floor
 
In response to the drastic changes in the local and international business environment over the past decade, the Legislative Yuan (the equivalent of a legislature in Taiwan) passed the amendment to the Company Act (the "Amendment") on July 6, 2018. The Amendment included changes to 148 articles in the Act and is the largest overhaul since 2001.
 
Focus of Amendment
Key Issues
To create a friendly environment for innovation and entrepreneurship
1.      Corporate social responsibility: Besides seeking profit, a company shall also shoulder its social responsibilities.
2.      Surplus to be distributed twice or four (4) times a year: Limited companies and companies limited by shares may stipulate in their articles of incorporations that surplus will be distributed every six (6) months or every quarter, subject to the approval of the shareholders' meeting or the board of directors' meeting, depending on the nature of the surplus.
3.      Shares without par value: A company may elect to issue shares either with or without par value. A non-public company may convert all of its shares with par value into shares without par value via a special resolution adopted at a shareholders' meeting.
4.      Additional categories of preferred shares: Besides non-voting preferred shares, a non-public company may also issue the following categories of preferred shares: (1) preferred shares with weighted voting right; (2) preferred shares with veto right in respect of certain issues; (3) preferred shares with restrictions on transfer; and (4) preferred shares where holders are not allowed to be elected as a director or a supervisor, or are guaranteed to be elected to a certain number of positions as directors or supervisors.
5.      Voting agreements and voting trust agreements: Shareholders of a non-public company may agree to jointly exercise their voting rights, or to entrust their voting rights to a third party.  A voting trust agreement shall be effective against the company after it is sent to the company for registration.
6.      Removing the cap on the total value of corporate bonds issued by a non-public company.
To strengthen corporate governance
1.      Widening the scope of de factor directors: The regulation that considers a de facto director as a company's responsible person will apply to all types of companies.
2.      Widening the application of the doctrine of piercing the corporate veil: The doctrine of piercing the corporate veil will apply to limited companies.
3.      Disclosure obligation on liability insurance for directors: A company may purchase liability insurance for its directors, and shall report the details of such insurance to the first board meeting convened after the purchase or renewal of such insurance.
4.      Granting more people the right to convene a board meeting: A group of directors with a simple majority may request the chairman of the board to convene a board meeting; if the chairman fails to do so within fifteen (15) days, the group of directors with a simple majority may convene the board meeting.
5.      Widening the scope of inspections conducted by the inspectors: Besides documents related to the company's business accounts and assets, the scope of inspections conducted by the inspectors will include documents and records of specific issues and transactions.
6.      Raising a company responsible persons' administrative liability for certain violations: By referring to the Securities Transaction Act, the fine imposed on a public company's responsible person for certain violations of the Company Act will be raised to between NT$240,000 and NT$2.4 million.
To provide more flexibility on corporate management
1.      Removing the restrictions on a non-public company's reinvestment activities.
2.      The threshold for adopting certain resolutions will be lowered for limited companies: Changes to the articles of incorporation, combination and dissolution of a limited company only need to be approved by a two-thirds majority of shareholders.
3.      Relaxing the restrictions on the number of directors: A company owned by a single corporate shareholder may assign one or two directors in lieu of a board of directors and supervisors. A non-public company that is not owned by a single corporate shareholder may assign one or two directors in lieu of a board of directors; but a supervisor shall still be assigned.
4.      Rules of issuing shares: A non-public company may decide whether or not to issue shares at its own discretion.
5.      Removing the restrictions on the transfer of shares by a company's promoter within one year of the company's incorporation.
6.      Shortening the notice period of a board meeting: Notice period of a board meeting will be shortened from seven (7) days to three (3) days.
7.      Widening the application of employee rewards: A company may stipulate in its articles of incorporation that (1) treasury shares for employees, (2) employee stock warrant, (3) employee compensations, (4) employee preemptive rights, and (5) restricted employee stocks may be issued, transferred or granted to qualified employees in the controlled or subordinate companies. In addition, a non-public company may also issue restricted employee stocks.
To protect shareholders interests
1.      Notice of shareholders' meeting must state certain items and provide adescription of the main content thereof on the agenda of the meeting: By referring to the Securities Transaction Act, if any of the following items is on the agenda of a shareholders' meeting, such item must be specified and adescription of the main content thereof must be provided in the meeting notice: (1) election or dismissal of any director or supervisor; (2) changes to the articles of incorporation; (3) capital reduction; (4) application for suspending public offerings; (5) approval for a director to be involved in any competing business; (6) capital increase out of surplus; (7) capital increase out of reserve; (8) dissolution of the company; (9) consolidation, merger, or division of the company; and (10) any of the matters prescribed under Paragraph 1, Article 185 of the Company Act.
2.      Reinforcing the protection of the shareholders' right to make proposals: The board must include all shareholder proposals in the agenda of the shareholders' meeting' unless the proposals fail to meet the requirements stipulated under the Company Act.
3.      Controlling shareholders' right to convene shareholders' meetings: Shareholders holding over 50% of the company's outstanding shares for more than three (3) months may convene an interim shareholders' meeting.
4.      Reinforcing the protection of shareholders' right to nominate directors and supervisors: All shareholders' nominations of directors and supervisors shall become official candidates for the positions as directors and supervisors unless the nominations fail to meet the requirements stipulated under the Company Act.
5.      Reinforcing shareholders' right to information: If any information requested by a shareholder is controlled by the company's stock agency, the company shall request the stock agency to provide such information.
6.      Reinforcing the right to information of the conveners of shareholders' meeting: Any rightful conveners of shareholders' meeting, including the board of directors and others, may request the company or the company's stock agency to provide the shareholders roster.
To promote digitization and paperless processing
1.      Non-physical shares: All companies that issue shares may elect to forgo the issuing of physical certificates, and instead, to register its shares with a centralized securities depository for its issuance of non-physical shares.
2.      Digitization of shareholder proposals: A company may accept shareholder proposals for a shareholders' general meeting via electronic submissions.
3.      Shareholders meeting via video-conference: A non-public company may stipulate in its articles of incorporation that a shareholders meeting may be held via video-conference.
To build an international environment
1.      Repealing the recognition mechanism for foreign companies: Foreign companies enjoy the same rights and capabilities as Taiwanese companies without being recognized. Instead, if a foreign company decides to do business in Taiwan, it only needs to register a branch office in Taiwan.
2.      Registration of a company's name in a foreign language: A company may register its name in a foreign language with the authority in charge of business registrations.
To increase the flexibility of closely held corporation
Elections of directors and supervisors will not be required to adopt the cumulative voting method: A closely held company may elect its voting methods, not necessarily the cumulative voting method, for the elections of directors and supervisors by stipulating the method under its articles of incorporation.
To comply with international anti-money laundering regulations
1.      Submitting information regarding directors, supervisors and shareholders: Except for companies that meet certain requirements, a company should upload the information related to its directors, supervisors and shareholders who hold over 10% of the company's total outstanding shares or capital to the information platform set up by the central competent authority every year or within fifteen (15) days after the date of the change of such information. If any inaccuracies are revealed in the information submitted, the company will be subject to administrative sanctions.
2.      Companies are no longer allowed to issue bearer shares in order to prevent such shares from being used for money laundering.
 

In response to the overhaul of the Taiwan Company Act, Lee and Li will hold a series of seminars on relevant topics and assist our clients to conduct training sessions.  If you have any questions concerning the above-mentioned regulations or the proper response strategies to the amendments, please do not hesitate to contact our Corporate and Investment Practice Group.  You may also visit our website for the latest information on our seminars regarding the amendments to the Company Act. 



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