TAIWAN Law and Practice Contributed by: Susan Lo, Chi Lee and Evelyn Shih, Lee and Li Attorneys-at-Law
they fall within industries listed on the government’s negative list, which includes sectors such as military- related chemicals, firearms, energy supply, telecom - munications and mass media, or may cause concern with respect to national security. While Taiwan does not impose a general minimum capital requirement for JV formation, certain regulat - ed industries do require special licences or minimum capital injections under applicable laws. Examples include, among others: • financial institutions (eg, banks, insurance com - panies) – subject to strict licensing and capital adequacy requirements under financial supervisory regulations; • freight forwarding and logistics – require registra - tion with the Ministry of Transportation and Com - munications, often with minimum capital thresh - olds; • telecommunications and broadcasting – require licensing and compliance with ownership restric - tions and capital requirements; and • medical and biotech sectors – may require approv - al from the Ministry of Health and Welfare, with minimum capital tied to the scope of operations. These requirements must be carefully assessed dur - ing the structuring phase, as they directly impact the feasibility and timeline of the consummation of the JV transaction. 6. Core Terms of a JV Agreement 6.1 Drafting and Structure of the Agreement In Taiwan, a JV is typically established as a compa - ny. The terms are documented in a JV agreement, although some of the terms are also stipulated in the articles of incorporation of the JV entity. A corporate JV agreement typically covers the parties, investment structure, capital call schedule, corporate governance, management and board composition, reporting and information rights, audit procedure, dispute resolution mechanism, confidentiality, non- compete/non-solicitation, breaches and indemnity, transfer restrictions (such as right of first refusal put/
call options, drag-along and tag-along provisions), termination rights, distribution waterfall, and costs and expenses. 6.2 Governance and Decision-Making The JV entity’s directors or board of directors consti - tute the managing body. The board may also delegate different committees to aid the decision-making pro - cess and/or form a steering committee. It is also worth noting that Taiwan adopts a system of “supervisors” for companies having two or more shareholders. If there are two JV participants, each will normally nomi - nate one supervisor for the JVC. 6.3 Funding In practice, JV entities can be funded by equity or a mix of debt and equity. Depending on the provi - sions agreed by the parties, the JV participants may be required to increase investment by equity or loan when receiving a drawdown notice. Alternatively, there can be a right to purchase more shares and increase the investments in the JV entity. To avoid future equity funding diluting the original controlling power of cer - tain JV participants, the parties may also include a right of first refusal provision in the JV agreement; the Taiwan Company Act also gives shareholders a statu - tory pre-emptive right when the JV entity issues new shares. 6.4 Deadlocks Taiwan JVCs typically have an odd number of directors on the board to avoid a deadlock. In some cases, such as a 50–50 JV where each party appoints the same number of directors, or where the minority JV partici - pant has certain veto rights at either board or share - holder level, an escalation process can be included in the JV agreement to resolve potential deadlocks. 6.5 Other Documentation In addition to the aforementioned documents, ser - vices agreements, IP transfer agreements, licensing agreements and co-operative development agree - ments may be required, depending on the case. 6.6 Rights and Obligations of JV Partners In Taiwan, the rights and obligations of JV parties are primarily governed by contracts, as there is no spe -
185 CHAMBERS.COM
Powered by FlippingBook