TAIWAN Law and Practice Contributed by: Lihuei Mao (Grace), Dennis Yu and Christina Chiang, Lee and Li, Attorneys-at-Law
come of TWSE’s efforts is that an LED company registered on the TIB has been included in Mor - gan Stanley Capital International (MSIC)’s World Small Cap Index since February 2025. 6.3 Pre-IPO Liquidity Given the low success rate for start-ups reach - ing an IPO, VC investors in Taiwan find it chal - lenging to achieve timely exits with reasonable returns before IPOs. One key feature of the TIB is its ability to facilitate secondary market trading of start-ups. Before 6 January 2025, only qualified investors are permit - ted to participate in the trading of stocks listed on the TIB, but the lifting of the restriction on qualified investors that allows all investors to trade stocks registered on the TIB has successfully expanded the secondary market with a significant increase in the trading volume on the TIB in the first month after implementing such change (see 4.3 Govern- ment Endorsement for details of the change in law relating to investor qualifications). If a venture capital transaction involves any “US elements” , such as the target group hav - ing business operations in the United States, or the potential investors being US citizens or companies, it is common to include the typical “disclaimer” of foreign securities offering under the US Securities Act. However, this is not a requirement under Taiwan law. There are no specific offering provisions required by Taiwan law. However, in practice, some com - panies may request investors to acknowledge that they are accredited or sophisticated investors and understand the high risk of investing in start-ups. 7. Regulation 7.1 Securities Offerings
In a venture capital transaction where there are multiple minority investors or a significant num - ber of existing minority shareholders, the share - holders’ agreement would be signed by major shareholders meeting a certain threshold that is sufficient to pass necessary board and share - Foreign investors (other than PRC investors) (i) must obtain prior foreign investment approval from the DIR before investing in the equity of Taiwanese companies, and (ii) are prohibited from investing in Taiwanese companies that engage in certain busi - nesses listed on a negative list. Some industries may have foreign shareholding limitations. holder resolutions. 7.2 Restrictions PRC investors as defined under Taiwanese laws (i) may only invest in Taiwanese companies engaged in the businesses listed on a positive list for sectors permitted to be invested in by PRC investors, and (ii) must obtain prior foreign invest - ment approval from the DIR before investing in the equity of Taiwanese companies (that only engage in the businesses as described under (i) above). It is important to note that any company with 30% or more shareholding held directly or indirectly by PRC citizens/companies, or controlled directly or indirectly by PRC citizens/companies, would be considered “PRC investors” and be subject to PRC investment restrictions. Funding from mili - tary or political sources in the PRC is prohibited. However, in practice, any application for PRC equity investment in Taiwan would be subject to stringent scrutiny. Apart from the reorganisation of the DIR, there have been no significant changes in the past 12 months regarding the restrictions governing for - eign/PRC investments in Taiwan, particularly in terms of venture capital investment.
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