TAIWAN Law and Practice Contributed by: Eddie Chan, Derrick Yang, Winnie Lin and Yuan-Yuan Lo, Lee and Li Attorneys-at-Law
2.2 Type of Entity In Taiwan, there are various forms of business enti- ties that can be used to operate a business. However, companies limited by shares and closely held com- panies (limited by shares) are the primary choices for venture capital investment. These types of companies are allowed to issue preferred shares with different rights and privileges, making them suitable for signifi- cant minority investments. 2.3 Early-Stage Financing Early-stage financing in Taiwan is typically supported by local investors and government-sponsored funds, but there is also an increasing trend of foreign venture capital investors getting involved in funding start-ups at an early stage to assist them in bringing their ideas to market. Share subscription agreements, a share- holders’ agreement and the articles of incorporation of the target company are typically used to document the investment. 2.4 Venture Capital Typical sources of venture capital in Taiwan include large corporations, government-sponsored funds and institutional investors. To be specific, Taiwan has been actively promoting its start-up ecosystem through var- ious government initiatives and endeavours. The gov- ernment has established incubators, accelerators and innovation centres to support and nurture early-stage companies. Additionally, Taiwan has been attracting foreign venture capital firms to invest in its start-up ecosystem. These firms bring in not only capital but also expertise, global networks and market access to Taiwanese start-ups, helping them to expand inter- nationally. Overall, the venture capital landscape in Taiwan is diverse and dynamic, with a range of funding sources and support programmes available to help start-ups thrive and succeed. 2.5 Venture Capital Documentation The typical documents for a venture capital transac- tion consist of: • a share subscription agreement; • a shareholders’ agreement; and • the articles of incorporation of the target company.
While the Cayman Islands and British Virgin Islands model forms are commonly used in Taiwan, they must be adapted and tailored to comply with Taiwanese law. 2.6 Change of Corporate Form or Migration Venture capital investment is primarily directed towards companies limited by shares and closely held companies (limited by shares). However, if a closely held company has drawn funds from more than 50 shareholders, it must transfer its form to a company limited by shares due to the cap on the number of shareholders. Additionally, start-ups that have inter- national investors may be asked to consider relocating their jurisdiction to the Cayman Islands or the Brit- ish Virgin Islands in order to align with the corporate governance schemes that are more familiar to inter- national investors. 3. Initial Public Offering (IPO) as a Liquidity Event 3.1 IPO v Sale When investors in a start-up in Taiwan are considering a liquidity event, they may be more likely to expect to take the company public, in light of the potential for greater visibility, access to capital, and enhancement in the valuation that can follow with an IPO. However, the current trend in Taiwan is leaning towards a dual-track process, where investors explore all the possibilities at the outset, and choose the path that best aligns with their interest, ultimately depending on various factors such as the company’s growth stage, industry dynamics or market conditions. 3.2 Choice of Listing In most cases, when a Taiwanese company decides to do a listing, it is more likely to consider listing on a local exchange including the Taiwan Stock Exchange and the Taipei Exchange. The reasons are the familiar- ity with local environments and regulations, and the ease of access to local investors and stakeholders who better understand the company’s operations and products. By listing on a local exchange, the company can also enhance its visibility and reputation in the local industry. Other considerations include the ease
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