Proposed Draft to Introduce Employee Restricted Stock in Taiwan


October 5, 2006

In response to the call to provide better flexibility to corporations to attract and maintain talented employees, on October 3 Taiwan's Ministry of Economic Affairs (MOEA) has unveiled a proposed amendment to the country's Company Act to increase flexibility to the company's purchase of its outstanding stock (i.e. treasury stock) and introduce employee restricted stock, which if passed into law will allow a stock company to re-issue stock from its pool of treasury stock to its employees with a restricted transfer period of up to 2 years. If the amendment is passed, rules are anticipated to be promulgated by the Financial Supervisory Commission (FSC) in respect of a public company to permit even more relaxed restrictions, e.g. a public company may be exempted from even imposing the 2-year period on these employee restricted shares. Among other things, the proposed amendment also seeks to make cumulative voting a compulsory feature for election of a company's directors of the board of directors, in an effort to increase the representation of interest of minority shareholders. Under the current law, a company can opt out of the cumulative voting by inserting a provision in the company's articles of incorporation stating otherwise.