Proposed Draft to Amend Taiwan's Company Act

May 10, 2018

A draft was proposed to amend Taiwan’s Company Act and was passed by the Executive Yuan December 21, 2017 and are expected to be passed by the legislature. The draft represents a major overhaul of the Company Act over the recent years. The major directions of the draft are to:-

(A) create friendlier environment to startup companies – (1) both limited companies and companies limited by shares will be allowed distribution of dividends on semiannually or quarterly basis instead of yearly. (2) Companies limited by shares will be able to issue shares with or without par value and may convert shares with par value to shares without par value. (3) ability for non-public companies to issues special shares with multiple voting rights or veto rights concerning certain special items. (4) non-public companies may allow the use of voting agreements or voting trusts among shareholders who share the same beliefs and allow them to vote in concert. (5) allow non-public companies may now make a private placement of convertible corporate bonds and corporate bonds with stock warrants, in addition to ordinary corporate bonds.

(B) enhance corporate governance – (1) the application of piercing corporate veil to limited companies in addition to company limited by shares. (2) more rights to access corporate records by board directors. (3) directors meeting may be called by a half of the directors when the chairman of the board is not available or refuses. (4) introduce and incorporate corporate compliance personnel into the structure. (5) enable shareholders appointed inspector with more rights to inspect corporate records related to certain types of deals to prevent improper dealings of insiders.

(C) increase flexibility in corporate governance structures – (1) relax restrictions on reinvestment of company’s funds in other companies, as well as granting of loans and extending of indemnity to other. (2) reduce threshold of voting rights to two thirds in limited companies in matters of amending charter, and approving merger or dissolution. (3) A company limited by shares if owned by a single person may dispense with the structure of board of directors and supervisors, using just one or two directors, while a non-public company limited by shares may also choose to do the same. (4) A non-public company limited by shares may choose to not issue shares while only a public company limited by shares shall issue shares within 3 months of registration. (5) dispense with the requirement that promoters’ shares shall not be transferred within the first year of incorporation. (6) A non-public company limited by shares may shorten the notice of directors meeting to 3 days from 7 days, unless the charter provides otherwise. (7) Allow employees of controlling or subordinate entities to participate in the company’s incentive programs which may include various equity related incentives. Non-public companies will be able to issue restricted stocks to employees.

(D) afford more protection to shareholder – (1) all important corporate events requiring shareholders action should be clearly spelled out in the notice of shareholders meeting. (2) shareholders owning a half or more of the company’s shares may call shareholders meeting without the permission of the competent authority. (3) non-public companies may also utilize the nomination system for nomination of candidates for directorship. (4) Shareholders or the creditors of the company will be allowed the right to access the shareholder roster or the list of the bondholders, even when these records are kept at the stock transfer agent. For the purpose of convening shareholders meeting, the board of directors or other party having right to call such meeting will be given access to such records.

(E) encourage digitalization and paperless – (1) if a company issues shares without printing physical share certificates, it must do so by registering such shares with the centralized stock deposit company. (2) A company limited by shares may adopt an electronic system for shareholders to enter their proposals for consideration at the shareholders meeting. (3) a non-public company may use video conferencing as a way to conduct shareholders meeting.

(F) cater to more internationalized environment of doing business – (1) abolish the requirement of statutory recognition of a foreign company. (2) companies may now have the corporate registration authority enter a name in a foreign language other than the name in Chinese.

(G) give more flexibility to the operations of the so-called close-held corporation – (1) Dispense with the requirement of the use of cumulative voting. (2) possibility to declare and distribute dividends quarterly or semiannually.

(H)) bring compliance to international anti-money laundering practices – (1) disclosure of beneficial shareholder may be compulsory. (2) abolish bearer shares (certificates).