Newsletter
EMPLOYEES' TREASURY STOCK AND STOCK WARRANTS NOT AVAILABLE TO SUBORDINATE COMPANY EMPLOYEES
In an interpretation dated 16 August 2002, the MOEA stated that the legislative intent behind the provisions of (1) Article 167-1 of the Com-pany Law, allowing companies to buy back their own shares and transfer them to employees, and (2) Article 167-2, regarding employees' stock warrants, is different in nature from the intent behind Article 235 Paragraph 4, which allows employees of subordinate companies engaged in R&D, production or marketing activities to re-ceive bonuses in the form of shares on the same terms as employees of the controlling company. Therefore the MOEA takes the view that "em-ployees" as referred to in the first two provisions do not include qualified employees of subordi-nate companies.
This interpretation is controversial, because it is at odds with the system applied by the Securities and Futures Commission (SFC), Ministry of Finance, under which TSE and OTC traded companies may allow employees of overseas subsidiaries to subscribe to treasury stock or re-ceive stock options. In response, the SFC issued an interpretation on 28 October 2002 stating that where a public company issues employee stock warrants under Article 28-3 of the Securities and Exchange Law (SEL), or a TSE or OTC traded company buys back shares and transfers them to employees under Article 28-2 Paragraph 1 Item 1 of the SEL, the recipients are limited to full-time employees of the company and its domestic and overseas subsidiaries. This interpretation ex-tends the scope of eligibility to employees of overseas subsidiaries, thereby excluding public companies from the application of the above MOEA interpretation. But companies must ex-plicitly define the conditions for eligibility for share subscription in their issuance and sub-scription rules, and must explicitly define which employees are eligible for transfer of shares, and under what qualifying conditions, in their rules for share transfers to employees.
In this context, subsidiary means an invested company in which a company directly or indi-rectly holds more than 50% of voting shares, as defined in Statements of Financial Accounting Standards Nos. 5 and 7 issued by the Accounting Research and Development Association of the Republic of China.