Company Act: Revised Provisions on Control of Companies in Company Act

[2018/8/15]

On 1 August 2018, the President announced amendments to the Company Act. The amendments affect nearly 200 articles, representing a major overhaul of the legislation. The changes in the law are mainly relaxations of restrictions imposed by the old Act, along with measures to strengthen corporate governance and to combat money laundering. Because of the broad scope of the amendments, the date on which the amended Act will take effect remains to be set by the Executive Yuan. In this article, we introduce the main points of those changes that are likely to affect the exercise of power of control over companies.

1. Broader recognition of legality of shareholder voting agreements and voting trusts:
Following the last amendment that allowed shareholder voting agreements and voting trusts for close companies, the latest amendments expressly allow that shareholders of a non-public company may agree by written contract to exercise their voting rights jointly, and may set up a voting trust under which the trustee exercises the shareholders’ voting rights according to the terms of a written trust agreement. (Article 175-1)

2. Additional types of action barred from decision by extempore motion at a shareholder meeting:
To prevent the use of “guerrilla tactics” to secure resolutions at shareholder meetings, in the amended Act the following items are newly added to the types of major proposal that a company limited by shares must list in its notice convening a shareholders meeting, and which may not be tabled as an extempore motion: (1) capital reduction, (2) application to become a non-public company, (3) granting permission for a director to compete with the company, (4) capitalization of profits, and (5) capitalization of reserves. Motions concerning matters that cannot be the subject of an extempore motion, as referred to in Article 172 of the Act, not only must be stated in the reasons for convening a shareholder meeting, but an explanation of their main content must also be given, to enable shareholders to understand the content of such motions prior to the meeting. (Article 172)

3. Greater powers for shareholders to propose motions:
To prevent the undesirable practice of companies arbitrarily rejecting motions proposed by shareholders, the amended Act puts the board of directors under a duty to place all motions put forward by shareholders on the agenda for a shareholder meeting, except under the following circumstances: (1) the content of the motion is not a matter for decision by resolution of a shareholder meeting; (2) the proposing shareholder holds less than 1% of the company’s shares at the book closure date; (3) the motion is submitted outside the period announced for receiving motions; or (4) the motion is more than 300 Chinese characters in length or relates to more than one matter for decision. (Article 172-1)

4. Simplified procedures for convening shareholder meetings:
(1) The articles of incorporation of a non-public company may expressly allow for shareholder meetings to be conducted by videoconferencing. (Article 172-2)
(2) A shareholder that holds more than half of the issued shares in a company, and has held them continuously for a period of at least three months, may convene a
      special shareholder meeting themselves, without having to request the board of directors to convene such a meeting, or having to obtain permission from the
      competent authority. (Article 173-1)

5. Board of directors no longer mandatory for single-shareholder companies and non-public companies:
A company limited by shares that is owned by the government or by a single corporate shareholder may, if its articles of incorporation so provide, refrain from establishing a board of directors (which should comprise at least three directors), but may simply appoint one or two directors; it may also refrain from appointing supervisors (Article 128-1). Similarly, if a company limited by shares has no publicly issued shares, it may, if its articles of incorporation so provide, also refrain from establishing a board of directors; it must, however, appoint a supervisor (Article 192).

6. Directors’ regular proxies abolished:
The old Act, as still in force, permits a director who is resident abroad to appoint in writing another shareholder, resident within the ROC, as a proxy, to regularly attend board meetings on the director’s behalf. However, this system is at odds with the principle that directors must carry out their duties; moreover, the current Act provides for board meetings to be conducted by videoconferencing. Therefore this regular proxy system is abolished in the amended Act. (Article 205)

7. Simplified procedures for board resolutions of non-public companies:
(1) To prevent inaction by a company chairperson from adversely affecting a company’s operations, the amended Act expressly provides that a majority of a company’s
      directors may request the chairperson to convene a board meeting, giving written notice of the matters on which motions will be tabled, and the reasons. If the
      chairperson fails to convene a board meeting within 15 days after such a request is presented, a majority of the directors may convene a board meeting themselves.
      Thus after the amended Act takes effect, a majority of a company’s directors will have the power to convene board meetings themselves. (Article 203-1)
(2) The old Act, as still in force, provides that notice of convening a board meeting of a non-public company must be given seven days before the meeting. To give
      companies greater flexibility, the amended Act shortens this notice period to three days. (Article 204)
(3) The old Act provides that for a meeting of a company’s board of directors to have the power to pass resolutions, the directors must attend the meeting in person or
      by videoconferencing. To facilitate greater operating flexibility and business autonomy for enterprises, the amended Act provides that if a non-public company’s
      articles of incorporation expressly so provide, then by unanimous agreement of all its directors, the directors may exercise their right to vote at a specific board
      meeting in written form, and they do not need to hold a physical meeting. (Article 205)

8. Duty to provide a shareholder list:
When a supervisor or shareholder has gained the right to convene a shareholder meeting, to prevent their efforts to do so being frustrated by the company’s obstructive behavior in not providing a list of shareholders, the amended Act provides that the board of directors, or another person with the right to convene a shareholder meeting, may request the company or its shareholder services agent to provide a list of shareholders. A director authorized to represent the company that refuses to provide a shareholder list will be subject to an administrative fine, which may be levied repeatedly until the situation is corrected. (Article 210-1)