TAIWAN Law and Practice Contributed by: Lihuei Mao, Dennis Yu and David Tien, Lee and Li Attorneys-at-Law
In general, aside from FDI-related and sector-specific regulations, the M&A of a private company would not be subject to other prior regulatory review/approval under the Company Act or the Business Mergers and Acquisitions Act (the “M&A Act”). However, a listed company would also need to comply with certain approval, reporting or public announcement obli - gations as imposed by the Taiwan Stock Exchange (TWSE) or the Taipei Exchange (TPEX). 4. Corporate Governance and Disclosure/Reporting 4.1 Corporate Governance Framework Corporate Governance Framework in Taiwan In Taiwan, corporate governance rules are mainly stip - ulated under the Taiwan Company Act and the rulings rendered by the MOEA. In addition, listed companies must comply with the SEA, rulings rendered by the FSC, and other rules promulgated by the TWSE/TPEX (depending on the stock market to which a company belongs). There are also sector-specific corporate governance requirements and norms – for example, banks and other financial institutions must comply with the regulations promulgated by the FSC for the financial industry. In general, the corporate govern - ance framework and practices in Taiwan are similar to Western standards. Commonly Used Legal Entities in Taiwan In terms of legal entity forms, limited liability compa - nies and companies limited by shares are most com - mon in Taiwan. Limited liability company A limited liability company is a company established by one or more member(s), with the liability of mem - bers limited to the respective amounts of their capital contribution. Company limited by shares A company limited by shares is a company estab - lished by two or more shareholders, or by at least one single government, juristic or corporate shareholder, and its capital must consist of shares. The liability of each shareholder of a company limited by shares is limited to the amount of the share capital for which
each shareholder subscribes. Only a company limited by shares can go public. In 2015, the Company Act introduced a new type of company limited by shares: a “closely held company limited by shares” (normally referred to as a CHC), which is a private company with no more than 50 shareholders. A CHC’s articles of incorporation (AOI) must impose restrictions on the transfer of its shares. Under the 2018 amendment of the Company Act, a regular company limited by shares may adopt more flexible designs of preferred stocks and can now structure its corporate governance and sharehold - ers’ rights with similar flexibility via preferred stock A foreign company may also register a branch office in Taiwan. A branch office is a branch unit that is part of the foreign company and does not have an independ - ent legal personality. Key Consideration in Selecting Type of Legal Entity If a foreign investor wishes to establish a joint venture with a partner in Taiwan and – in view of the trust between the parties – restrict the partner from trans - ferring the shares in the joint venture to a third party, a CHC may be used. (The Company Act prohibits any restriction on the transfer of ordinary shares in a regu - lar company limited by shares.) Subsidiary Versus Branch A foreign company may choose to establish a sub - sidiary in Taiwan or register a branch office in Taiwan based on its expected operations in Taiwan. A Taiwan - ese subsidiary is an independent legal entity, under which the foreign investor only bears limited share - holder liability. A Taiwanese subsidiary may possess property under its own name and the foreign company may thereby benefit from the protection of assets par - titioning. Conversely, a Taiwanese branch office is not an independent legal entity, and the liabilities of the Taiwanese branch would be extended to the foreign company. The differences between a Taiwanese subsidiary and a Taiwanese branch are generally as follows. arrangements. Branch office
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