Company Act: New Amendment to Taiwan Company Act.

[2015/05/21]

Taiwan Company Act was amended by Legislative Yuan on 1 May 2015 which took effectiveness on 22 May 2015 (“Amendment”). This newly added Article 235-1 requires that a clause in the Articles of Incorporation of companies shall set up an amount or a proportion of earnings to be distributed to employees as part of their remunerations when companies are profitable in a given fiscal year provided that accumulated deficit shall be covered prior to distribution. The detailed distribution of the employees' remunerations, in form of cash or stocks, shall be adopted by the majority votes of a meeting of the board of directors attended by two-thirds or more of all the directors, and then shall be reported to the Shareholders' meeting. Moreover, the Articles of Incorporation may specify that the employees of subsidiaries of a company meeting certain specific requirements are quailed receipts of the cash or stock to be distributed to employees of the company.

The new Article 235-1 is applicable to both company limited by shares and limited company, but not applicable to the government operated enterprises, unless special approval has been granted by the authority in charge of the government operated enterprise concerned.

The legislative reasons for such amendments indicate that only shareholders of a company are entitled to the distribution of corporate profits so the original provisions of Article 235, paragraphs 2 to 4, giving a proportion of the surplus profit of companies to employee as bonus, were deleted and substituted by Article 235-1. In addition, the basis on which the employee bonus is calculated is the profits after tax but that of employee remunerations is earnings before tax.

Note that there is no penalty imposed on the violation of such requirements under the Amendments. However, if companies fail to amend the current Articles of Incorporation as provided in the Article 235-1, the registry office will reject the application, if any, in which the company needs to amend its Articles of Incorporation due to activities involving company merger, division or restructure.