Proposed Criteria for Compulsory Conversion of a Company from Private to Public

The Ministry of Economic Affairs (MOEA) is reportedly considering bills to amend Taiwan’s Company Act to require a private company to be converted to a public company. The proposed quantitative threshold is that if a private company has more than 500 shareholders and has a paid-in capital of Eighty million N.T. dollars (NT$80,000,000), then the company is forced to convert and becomes subject to the reporting requirements under Taiwan’s Securities Exchange Act. Under the current law, there is no requirement of compulsory conversion of a private company.

Also proposed by the MOEA is to remove the power of a corporate shareholder to appoint both nominee directors and supervisors. Under the current Company Act, a shareholder that is a body corporate can nominate several candidates to be elected as member of the board of directors and/or supervisors. Under the current law, if candidates from the same corporate shareholders are elected as supervisors, their role to supervise and audit the company against irregularities tends to be compromised and frequently criticized as rubber stamps. To resolve the dilemma, the MOEA is finally proposing to remove that the nominees out of the same corporate shareholder can be elected in such a way that some serve as directors and the others, as supervisors. The cumulative voting for election of directors will also become compulsory under the proposed amendment.

Under a proposed amendment to the Securities Exchange Act, the annual financial statements of a public company will be due within 3 months of December 31 as opposed to the 4 months under current law, and private placement of corporate bonds by private companies will no longer be permissible under the proposed law.