Company Act: The Legislative Yuan has passed the Amendments to the Company Act adding the section of “Closely-held Company Limited by Shares” on June 15th, 2015.

[2015/07/16]

The Legislative Yuan has passed the Amendments to the Company Act by adding the section of “Closely-held Company Limited by Shares” (the “Closely-held Company”) on June 15th, 2015 (the “Amendments”), the effective date of which will be further promulgated by the Administrative Yuan. The main points of the Amendments are summarized as below:

1. Feature: Given that the Closely-held Company has the feature of “closely-held”, the Amendments define Closely-held Company as a company, whose shares have not been issued publicly, has 50 shareholders or less and sets up restriction on the transfer of shares in its Articles of Incorporation. The feature of a Closely-held Company shall be disclosed to the public via the central competent authority’s website. In addition, the restrictions on the transfer of shares shall be noted in the share certificates or the written documents of stock transfer. Comparing to the standard company limited by shares, in which there has no limit on the maximum number of shareholders and restriction on the transfer of share in the Articles of Incorporation is expressly prohibited, the Closely-held Company has unique feature.

2. Incorporation: A Closely-held Company may be incorporated and funded only by the promoters rather than soliciting shares of the Company. In addition, the contribution for the shares may be made in form of assets, know-how, services or goodwill as required by the Company provided that the unanimous consent of all shareholders shall be obtained and the form of contribution, its value recognized as paid in capital and the number of shares given thereby shall be set forth in its Articles of Incorporation. Nevertheless, the number of shares the contribution of which is made in the form of services or goodwill shall not exceed a certain proportion, to be promulgated by the central competent authority, of the outstanding shares of such Company for the purpose of capital enrichment. The afore-mentioned matters in the Articles of Incorporation shall be published via the central competent authority’s website.

3. Shares: The Closely-held Company shall not publicly offer or solicit its securities to the public except for through platform of equity crowdfunding operated by the licensed security brokers. The shares may be issued with or without par value.

4. Special shares: In addition to those kinds of special shares, which are permitted to be issued by a standard company limited by shares, on the priority, fixed amount or fixed ratio of the distribution of dividends or bonus or of the allocation of surplus assets, or on the priority of or restriction on the exercise of voting power or without voting right, the Closely-held Company may also issue special shares of other kinds, including with the multiple voting rights or veto right on the specific issues, with restriction on the right to be appointed as the director and/or supervisor, with conversion rights and with restriction on the transfer of such shares; provided, however, similar to the requirements in a standard company limited by shares, the information concerning the special shares shall be set forth in its Articles of Incorporation.

5. Shareholders’ meeting: Given that the Closely-held Company has a limited number of shareholders, and the shareholders may have known to or have connection with each other, the Amendments therefore allow more flexibility in convening the shareholders’ meeting in such Company as well as in the methods of exercising the voting right therein: The Closely-held Company may adopt in its Article of Incorporation the shareholders’ meeting to be proceeded via visual communication network. In addition, the Articles may also set forth, upon the unanimous consent of all shareholders, the written resolutions can substitute a shareholders’ meeting, which is strictly required in the case of a standard company limited by shares. The Amendments further provide that the shareholders may enter into a written agreement for jointly exercising their voting rights or establish the voting trusts. The voting trusts may have the binding force against the Closely-held Company so long as the written trust agreement is submitted to the Company five days prior to the said shareholders’ meeting.

6. Accounting: Unlike a standard company limited by shares that the profit may be distributed or the losses could be covered only after the close of each fiscal year, the Amendments provide that the Closely-held Company may adopt in its Articles of Incorporation that such distribution or offset may be made after the close of each half fiscal year.

7. Corporate bond: Because the Closely-held Company shall not publicly issue or offer its securities, it may only issue its corporate bonds by way of private placement.

8. Issue of new shares: In the event of issue of new shares, the Closely-held Company is not required to reserve a certain percentage of new shares for its employees to subscribe, nor does the original shareholders have the preemptive right to such new shares. In other words, the Company may directly have such new shares to be subscribed by a third party; provided, however, the total number of the original shareholders and new subscribers shall still be limited to the maximum of 50 persons.

9. Change of organization: A Closely-held Company may transform into a standard company limited by shares with the special resolution of shareholders adopted by a majority of the votes present at the meeting representing two-thirds or more of the total number of its outstanding shares. A non-pubic company limited by shares may also transform into a Closely-held Company with the unanimous consent of all shareholders.