TAIWAN Law and Practice Contributed by: Susan Lo, Chi Lee and Evelyn Shih, Lee and Li Attorneys-at-Law
mination activities did not fall within that scope, the defendant’s activities did not violate the non-compete obligation, and no damages were awarded. This judg - ment clarified the enforceability of post-termination non-compete clauses in JV contexts by emphasising alignment with the JV’s lawful business scope. In Taiwan High Court 113-Shang-Zi No 239, the court examined a non-compete clause in a JV agreement that allowed a JV partner to continue its existing busi - ness operations with prior disclosure and good-faith discussion among the JV partners. The plaintiff argued that the JV partner may only continue to accept orders from its existing clients and is prohibited from accept - ing orders from new clients. However, the court held that the non-complete provision clearly permits the partner to continue its existing business operations and should not be reinterpreted to impose stricter obligations in the absence of explicit language in the JV agreement. The court reaffirmed that contractual interpretation of JV agreements must respect the par - ties’ expressed intent and commercial context. 5. Negotiating the Terms 5.1 Preliminary Negotiation Instruments and Practices The JV parties typically enter into non-disclosure agreements, accompanied by a memorandum of undertaking (MoU) and/or a letter of intent (LoI). In Taiwan, investors generally include exclusivity provi - sions in the MoU or LoI. At the pre-JV agreement stage, the MoU or LoI is typi - cally expected to cover elements relevant to high-level commercial consensus, such as investment structure, expected paid-in capital, shareholder rights (including the right of first refusal) and management rights and governance (but not the details thereof); sometimes, the MoU or LoI also covers additional arrangements such as earn-outs, exit rights, the distribution water - fall, the deadlock resolution mechanism and other issues of major concern to the investors in the project. 5.2 Disclosure Obligations In Taiwan, listed companies are obliged to disclose significant JV projects when they have a degree of
certainty and materiality, according to the Securities and Exchange Act. Under the Regulations Governing the Scope of Material Information and the Means of its Public Disclosure, such timing could, depending on the specific nature of a given project, be the closing day, negotiation day, execution day or resolution day of the board of directors (whichever is earliest). 5.3 Conditions Precedent, Material Adverse Change and Force Majeure In Taiwan, JV agreements typically include conditions precedent such as regulatory approvals, corporate authorisations, completion of due diligence and con - firmation of capital contributions. These conditions must be satisfied or waived before closing and are often tied to the legal and operational readiness of the JV. Material adverse change (MAC) and force majeure clauses are commonly negotiated, especially in cross- border or high-value deals for JV activities. MAC clauses allocate pre-closing risk and are often nar - rowly defined to reflect specific commercial concerns, while force majeure provisions, grounded in both the spirits of contracts and Article 227-2 of Taiwan’s Civil Code, address unforeseeable events that hinder per - formance, often with tailored notice and mitigation requirements. 5.4 Legal Formation and Capital Requirements There are two common approaches to setting up a JV vehicle in Taiwan: • one of the JV participants first establishes a local entity, which will issue new shares for other JV participants to subscribe for; or • the JV participants convene a promoters’ meeting and establish the JV entity together. In practice, the first option is preferred by investors because the procedure is more straightforward. Participation by foreign entities requires FIA from the DIR. The DIR reviews the proposed shareholding structure and business scope to ensure compliance with the Statute for Investment by Foreign Nationals of Taiwan. Investments are generally permitted unless
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