Major amendments to Taiwan Company Act on August 1, 2018
Contributed by Deep & Far Attorneys at Law
24 October, 2019
Taiwan Company Act was promulgated on December 26, 1929 and effective from July 1, 1931. However, with the development of companies, the Company Act had not been able to meet the expectations of the public, which was followed by the voice of act amendment. The industries, government agencies and scholars formed a committee to put forward suggestions on revising the Company Act comprehensively on February, 2016.
The Ministry of Economic Affairs also put forward another draft after reviewing the committee's suggestions on revising the Company Act. After eight public hearings, the draft amendment to the Company Act was finally proposed in 2017. Due to the large scope of the amendment, which would affect Taiwan enterprises a lot, the Legislative Yuan had not passed the amendment until July, 2018.
There were 26 times of amendments to the Company Act, the last amendment was published on August 1, 2018. It took two and a half years to amend the Company Act and finally 148 articles were amended. However, scholars still criticized the amendment of the law as incomplete. But which law is perfect?
With the development of economic and social globalization, companies have become the core organizations for national economic activities and their economic influence is becoming more and more profound.
The quality of the corporate legal system has a great impact on the country's economic activities. In response to the rise of new economic development models, the vigorous development of innovative businesses and the challenge and demand of economic transformation, the Company Act has been continuously adjusted and amended to keep pace with the times. While creating a friendly environment for doing business, we also review and adjust the provisions of the Company Act.
Without a big increase in compliance costs, we continue providing friendly innovation and entrepreneurship environment, constructing our country to be a suitable environment for global investment, prompting our country's business environment to be more conducive to the development of various industries, attracting more domestic and foreign entrepreneurs to set up companies in our country, and giving small and medium enterprises bigger operating flexibility.
Therefore, the Company Act was amended on August 1, 2018 with the following major amendments:
1. Creating friendly environment for innovation and entrepreneurship
- In order to promote the corporate social responsibility, business operations of a company should comply with laws and regulations as well as business ethics, and a company may take action which will promote the public interests (amended Article 1).
- In order to enhance investment benefits of shareholders, a limited company and a company limited by shares may explicitly provide for in its Articles of Incorporation that the surplus earning distribution may be proposed at the close of each quarter or each half fiscal year (amended Article 110 and Article 228-1).
- A company limited by shares shall choose either par value or no par value shares when issuing shares and may covert all of the issued par value shares into no par value shares, but may not covert all of the issued no par value shares into par value shares (amended Article 156 and Article 156-1).
- A non-public offering company may issue special shares with multiple voting rights or a veto power over specific matters on the exercise of voting rights (amended Article 157).
- Shareholders of a non-public offering company may reach a voting agreement in writing to jointly exercise their voting rights or may form a voting trust, so as to gather the shareholders with common ideas to jointly exercise the voting rights (amended Article 175-1).
- Corporate bonds are an important financing device for an enterprise. A non-public offering company not only can issue corporate bonds, but also can issue convertible bonds and corporate bonds with warrants to specific creditors (amended Article 247 and Article 248).
2. Strengthening corporate governance
- A non-public offering company shall also be subject to the provision of de facto director (amended Article 8).
- Limited companies are incorporated into the application scope of the principle of "piercing the corporate veil" (amended Article 99).
- If the chairman of the board of directors fails to convene a meeting of board of directors, the majority or more of the directors may convene a meeting of board of directors on their own (amended Article 203-1).
- In order to strengthen protection of minority shareholders, reduce limitation on the shareholding period and the shareholding number of the shareholders who petition the court to appoint an inspector as well as strengthen the investor protection mechanism and improve the ability of shareholders to collect illegal evidence and evidence for the benefit transfer of related party transaction, the scope of objects inspected by an inspector and specific transaction documents within a company are expanded (amended Article 110 and Article 245).
- Administrative fines imposed on responsible persons of a public offering company due to violation of law are increased, including violation of provisions with respect to the term for issuance of share certificates, proposal of shareholders, nomination of director candidates, inspection of accounting books and records by shareholders and creditors, provision of the roster of shareholders in case an authorized convener convene a shareholders' meeting, and examination by supervisors (amended Article 161-1, Article 172-1, Article 192-1, Article 210, Article 210-1 and Article 218).
3. Increasing flexibility of business operation
- Relaxation of restriction on re-investment by unlimited companies, limited companies, unlimited companies with limited liability shareholders and non-public offering companies (amended Article 13).
- An unlimited company or unlimited company with limited liability shareholders may reincorporate into a limited company or a company limited by shares with the approval by two thirds or more of all shareholders to modify its Articles of Incorporation (amended Article 76-1 and Article 126).
- Modification of Articles of Incorporation, consolidation or merger and dissolution of a limited company shall be approved by two thirds or more of voting rights of all shareholders (amended Article 113).
- A company limited by shares which is organized by a single government shareholder or a single juristic person shareholder may choose not to have the board of directors but to have one or two directors, and may choose not to have supervisors. A non-public offering company may choose not to have the board of directors but to have one or two directors (amended Article 128-1 and Article 192).
- Considering that whether a non-public offering company will issue share certificates should be decided by the company on its sole discretion, it may issue no share certificates. Therefore, it is only stipulated that a public offering company shall, within three months after having completed the procedures for company incorporation registration or for company alteration registration as required for issuance of new shares, issue its share certificates (amended Article 161-1).
- In order to implement the principle of free transfer of shares, the restriction on transfer of shares by promoters until the elapse of one year after company incorporation registration is deleted (amended Article 163).
- In convening a meeting of the board of directors by a non-public offering company, a notice shall be given to each director and supervisor no later than three days prior to the scheduled meeting date instead of the original seven days. However, where there is a longer period required in the Articles of Incorporation, such a longer period shall prevail, giving companies more flexibility (amended Article 204).
- Expand the entitled recipients of employee award tools to include employees of controlling or subordinate companies, including treasury stocks for employees, employees' share subscription warrants, profit distributable as employees' compensation, employees' new share subscription, restricted new shares for employees. In addition, a non-public offering company may also issue restricted new shares for employees (amended Article 167-1, Article 167-2, Article 235-1 and Article 267).
4. Protecting shareholders' equity
- Given that a company limited by shares' reduction of capital, application for approval of ceasing its status as a public offering company, approval of competing with the company by directors, profit distributed in the form of new shares, reserve distributed in the form of new shares all belong to major matters for business operation of the company, which greatly affect the interests of shareholders, it is additionally stipulated that such matters shall be itemized in the notice to convene a meeting of shareholders. In addition, the essential contents of all matters which shall be itemized in the convening causes shall be explained in the notice to convene a meeting of shareholders (amended Article 172).
- In order to implement shareholders' proposal rights, if a shareholder proposal conforms to the provisions of the Company Act, the board of directors of the company shall include the proposal submitted by the shareholder in the list of the proposals to be discussed at a regular meeting of shareholders. If a shareholder proposal is proposed for urging the company to promote public interests or fulfill its social responsibility, the board of directors may still include it the list of the proposals to be discussed (amended Article 172-1).
- Shareholders continuously holding 50% or more of the total number of outstanding shares of a company for a period of three months or longer may convene a special shareholders' meeting, without the need to request the board of directors to convene or be approved by the competent authority (amended Article 173-1).
- A non-public offering company may adopt a candidates nomination system for election of directors or supervisors. A public company shall gradually adopt a candidates nomination system for election of directors or supervisors. Where shareholders submit a roster of candidates, the candidates shall be included in the final roster of candidates by the board of directors or other authorized conveners if it complies with the provisions of the Company Act (amended Article 192-1 and Article 216-1).
- A company limited by shares shall keep the roster of shareholders and the counterfoil of corporate bonds issued by the company. If kept at the business office of its shareholder service agent, and a shareholder or a creditor of the company requests to inspect, transcribe or copy them, the company shall make such an agent to provide the access (amended Article 210).
- In order to smoothly convene a shareholders' meeting of a company limited by shares, the board of directors or other authorized conveners of shareholders' meetings may require the company or its shareholder service agent to provide the roster of shareholders (amended Article 210-1).
5. Improving digitization and paperlessness
- In order to conform to the international trend of paperlessness and reduce the risk of loss of physical share certificates by shareholders, a public offering company or non-public offering company not printing share certificates shall register the issued shares with a centralized securities depositary enterprise (amended Article 161-2).
- When a company limited by shares accepts a shareholder proposal, apart from the existing acceptance in written, acceptance by way of electronic transmission is added to be one of the acceptance methods. As for whether to adopt acceptance by way of electronic transmission, the company may decide on its own by considering whether its equipment is ready (amendment Article 172-1).
- A non-public company may explicitly provide for in its Articles of Incorporation that its shareholders' meetings can be held by means of visual communication network or other methods promulgated by the central competent authority (amended Article 172-2).
6. Establishing an internationalized environment
- In order to coordinate with the policy of attracting global investment, build Taiwan into an international environment that attracts global investment and keep Taiwan in line with international community, the foreign company recognition system is abolished (amended Article 4 and Article 370 to 386).
- In order to meet the needs of internationalization, a company may apply for registration of corporate name in a foreign language with the competent authority, not subject to a prior review, the competent authority shall register such a foreign name in accordance with the foreign name indicated in the Articles of Incorporation (amended Article 392-1).
7. Making close companies more flexible in business operation
- The provision of Article 198 shall apply to the election of directors and supervisors by a shareholders' meeting of a close company, unless otherwise provided for in the Articles of Incorporation. In other words, it is not compulsory to adopt the cumulative voting system. The company may stipulate another election method in the Articles of Incorporation. (amended Article 356-3).
- The Articles of Incorporation of a close company may provide for the special shareholders' rights of electing a certain amount of seats of directors and supervisors (amended Article 356-7).
8. Complying with international anti-money laundering regulations
- Taiwan, as a member of the Asia/Pacific Group on Money Laundering, has the obligation to comply with the international regulations on anti-money laundering and countering the financing of terrorism. In order to prevent money laundering and counter the financing of terrorism, except for companies meeting certain qualifications, a company shall report annually shareholding numbers or capital contribution of its directors, supervisors, managerial officers, and shareholders holding more than 10 percent of the total shares of a company (amended Article 22-1).
- In order to avoid bearer shares' becoming a tool for money laundering, the system of bearer shares is abolished (amended Article 137, Article 164, Article 166, Article 169, Article 172, Article 175, Article 176, Article 240, Article 273, Article 279, Article 291, Article 297, Article 311, Article 316, and Article 447-1).
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