Newsletter
Amendment to the Company Act
On May 27, 2005, the Legislative Yuan passed the proposed amendment to certain provisions under the Company Act (hereinafter referred to as the "Amendment"). The purpose of the Amendment is to establish a more comprehensive system of corporate governance. We summarize the Amendment as follows:
1. The business scope of a company shall be registered in accordance with the business item coding system:
The competent authorities have implemented a business item coding system since January 1, 1998 for stating the business scope engaged by the companies in the corporate registrations. The corporate registration of many companies incorporated prior to such date still state narrative descriptions of their business scopes, which are inconsistent with the standardized method of descriptions in the coding system. According to the Amendment, if there is any change to the business scope of the above-mentioned companies, they should revise the description of their business scope in the corporate registration by following the coding system.
2. Restriction on a juristic person acting as a promoter has been relaxed:
Before the Amendment took effect, the promoter of a company limited by shares could only be individuals, companies or governments. After the Amendment, other juristic persons may also become promoters by providing intellectual property rights or self-created know-how as investment to the company. In addition, other types of juristic persons may also act as promoter of a company if the competent authorities deem its investment as related to the purpose of the incorporation.
3. Authorized Capital System
In order for companies to be incorporated more efficiently and to raise funds in a more convenient way, the Amendment abolished the requirement that the number of initial issuance of shares after the incorporation of a company shall be no less than one-fourth of the authorized capital. The requirement that the number of shares issued for the first capital increase should not be less than one-fourth of the total increased shares is also abolished. This will help cope with the introduction of new financial products and to avoid the inconvenience in computing the minimum number of the shares to be issued each time.
4. Proposals for election and discharge of directors and supervisors shall not be brought up by ad hoc motions:
Before the Amendment, proposals for the "re-election" of directors and supervisors should not be brought up by ad hoc motions. However, in practice, it is unclear whether such a requirement is also applicable when a company needs to elect new directors/supervisors to fill the vacancy of the current terms of directors/supervisors or when a company would like to discharge a director/supervisor. According to the Amendment, any matters pertaining to the "election and discharge" of directors and supervisors cannot be brought up by ad hoc motions since all types of elections or discharge will result in the replacement of directors and supervisors.
5. Preparation and distribution of notices for convening shareholders' meetings and relevant meeting minutes can be done electronically:
In light of the advanced development in electronic technologies, and to reduce the costs of processing written notices, the Amendment stipulates that the notices for convening shareholders' meetings can be done electronically upon the consent of the other party. In addition, shareholders' meeting minutes may also be prepared and distributed electronically. Documents in an electronic form should be prepared in accordance with the Electronic Signature Act.
6. Shareholders are entitled to make proposals:
In order to allow shareholders to participate in the operation of a company actively , the Amendment allows certain shareholders to make proposals in the shareholders' meetings. According to the Amendment, a company should make public announcements of its acceptance of the proposals submitted by its shareholders and the venue and deadline for such submission before the non-book-entry period prior to the annual shareholders' meeting. The period for submission should not be less than 10 days. Shareholders representing 1% or more of the total outstanding and issued shares of the company during the prescribed period of time may submit to the company a written proposal containing no more than 300 Chinese characters for discussion at the annual shareholders' meeting. Before the notice for convening a shareholders' meeting is sent, the company shall inform such shareholders of the result and include the qualified proposal in the agenda of the notice. The shareholders who made the proposal shall attend the annual shareholders' meeting in person or by proxy and participate in the discussion of such proposal.
7. Shareholders may exercise voting rights in writing or electronically:
In order to encourage shareholders to vote in the shareholders' meetings, a company many allow its shareholders to exercise their voting rights in writing or electronically. The company shall specify in the notice for convening a shareholders' meeting the methods for exercising the voting rights. The votes of the shareholders should be delivered to the company five days prior to the shareholders' meeting. In addition, as such shareholders will not be attending the shareholders' meeting in person, in order to facilitate the smooth proceeding of the meeting, the Amendment specifies that such shareholders shall be deemed to have waived their voting rights on any ad hoc motions and any amendment to the original proposal.
8. No voting rights should be vested in cross-shareholding:
If a company exercises its voting rights at a shareholders' meeting of its parent company based on its shareholding in the parent company, it would be like the parent company exercising its voting rights based on the shares held by it in its own company. For the purpose of corporate governance, the Amendment provides that no voting rights shall be vested in the shares held by a company in its parent company, or those held by another company which is re-invested by such company and such parent company.
9. System for nominating directors and supervisors:
To strengthen the development of companies and protect the interests of shareholders, the Amendment provides that a company may adopt a system for nominating candidates to be elected as directors and supervisors so as to promote corporate governance. A company which adopts such nomination system should stipulate the same in its Articles of Incorporation. The company should also make public announcements of the timeframe for nomination, the numbers of directors or supervisors to be elected, the venue for making nominations, and other information before the non-book-entry period prior to the shareholders' meeting. The period for submission of nominations should not be less than 10 days. Shareholders representing 1% or more of the total outstanding and issued shares of the company may submit a candidate list to the company along with relevant information and supporting documents. The board (or other persons having the right to convene the meeting) should then review the nominations and make them the candidates unless there are statutory causes to the contrary, and provide a report on its review. 40 days before an annual shareholders' meeting or 25 days before a special shareholders' meeting, the company should make public announcements of the candidate list and relevant information so as to facilitate the election.