Amendment to Taiwan Company Act Establishes New Section of “Closely-Held Company Limited by Shares”

On June 15, 2015, the amendment to Taiwan Company Act completed its third reading at the Legislative Yuan to establish a new category of “closely-held company limited by shares” (hereinafter referred to as “a close company”) under Chapter V, company limited by shares, aiming to provide start-up companies and small and medium sized businesses with flexibility for dealing with equity arrangement and in business operation. 

The amendment defines a close company as a non-public company with no more than 50 shareholders and the articles of incorporation thereof impose restrictions on transfer of its shares.

According to the amendment, the founder of a close company is allowed to pay for shares by providing the properties, technologies or by rendering services or extending credit line needed by the company, in addition to cash, provided that the shares paid for by rendering services or extending credit shall not exceed a specific percentage of the total issued shares.

In addition, for providing the founder and shareholders of start-ups with flexibility regarding equity schemes, the amendment adds that a close company may decide to issue shares either with par value stocks or no par value stocks.  The amendment, on the other hand, allows a close company to issue preferred shares that may have multiple votes or may be entitled to a veto right against certain matters as stipulated in the articles of incorporation.

In view of the fact that shareholders of a close company are limited in number and they usually would participate in the business operation of the company, the amendment relaxes restriction by permitting that shareholders’ meeting of a close company can be held by video conference and that shareholders appearing at the video conference meeting would be regarded as participating in person.

According to the Ministry of Economic Affairs, the current Company Act imposes regulatory and mandatory provisions on both company limited by shares and limited company, which indeed puts bounds on entrepreneurs’ and investors’ schemes.  Therefore, the government takes reference from the laws and mechanisms of the UK and the US in regard to closely-held company to tailor relevant laws and regulations of Taiwan with a view to attracting more local and foreign founders to establish companies in Taiwan.  (June 2015)
/CCS