TAIWAN Law and Practice Contributed by: Lihuei Mao (Grace), Dennis Yu and Christina Chiang, Lee and Li, Attorneys-at-Law
5.4 Implementation Given that an option pool would potentially dilute the investors’ investment, VC investors usually agree to reserve a fixed percentage of the total issued and outstanding shares of the company, either pre or post the closing of a fundraising round, for the employee option pool. Further, the adoption of any additional option plan would be included in the list of board or shareholder- reserved matters to ensure that the investors have control over, or at least will be made aware of, any proposed new option plan. VC investors typically request the following rights in the shareholders’ agreement in relation to a trade sale or IPO of a target company or other liquidity event. • Inclusion of sale or IPO of the target com - pany in the list of board and/or shareholder- reserved matters so that the VC investors have control over, or will be made aware of, the proposed sale or IPO of the company/ other liquidity event. • Registration right – this provision is common - ly observed when the target company adopts an “offshore holding structure” with the inten- tion of going public in jurisdictions outside of Taiwan (if the target company is incorporated 6. Exits 6.1 Investor Exit Rights in Taiwan with the goal of going public in Taiwan, this is not necessary because all the issued and outstanding common shares of a company would be listed together). • Drag-along right – where shareholders hold - ing the majority or a certain number of shares may demand minority shareholder support, vote in favour of and participate in a pro - posed sale of the shares or assets of the
entitled to do, a stock option plan and necessary transfer restrictions may also be adopted. 5.2 Securities Statutory employee stocks with transfer restric - tions ( “employee-restricted stocks” ) as stipulat - ed under the Company Act or employee stock options are commonly used to incentivise found - ers and employees. Employee-restricted stocks, as stipulated under the Company Act, may be issued to employees first while being subject to transfer restriction of no more than two years. Employees will be able to freely transfer the shares after meeting the applicable requirements and upon the expiration of the restrictive period. Employee stock options are usually vested by instalment over time with a vesting period of two to four years and/or when founders/employees meet certain other performance requirements. Upon the vesting of options, employees may determine whether to exercise the options and subscribe for the shares in the company. 5.3 Taxation of Instruments There is different tax treatment of employees in respect of (i) employee stock options and (ii) employee-restricted stock offered by a Tai - wanese company to its employees in Taiwan or offered by a foreign company to the employ - ees of its Taiwan branches/Taiwan subsidiaries. However, given that the relevant taxes arising from the exercise of employee stock options or the disposal of employee-restricted stock and the subsequent sale of the shares acquired are to be borne by the employees, this tax consid - eration would not generally affect the company’s determination of the structure of the incentive pool.
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