Frequently Asked Questions - Taiwan Company Limited by Shares

1. What types of companies are there in Taiwan?

There are four types of companies recognized in Taiwan:

(1) Unlimited Company - a company established by two or more shareholders with joint and several unlimited liability.

(2) Limited Company - a company established by one or more shareholders with liability limited
only to the extent of the amount of their capital contribution.

(3) Unlimited Company with Limited Shareholders - a company established by one or more unlimited liability shareholders and one or more limited liability shareholders. The unlimited liability shareholders are jointly and severally liable with the company while the limited liability shareholders are liable with the company only to the extent of the amount of their capital contribution.

(4) Company Limited by Shares - a company established by two or more shareholders or by the government or by a juristic shareholder. The capital must consist of shares and the shareholders are held responsible to the extent of the shares held by them.

2. How can a minority shareholder protect its interests?

A company limited by shares is in principle managed by the shareholders and the board of directors by way of voting. However, in order to protect the minority shareholders, the Company Act specifically provides that where a minority shareholder holds shares for over a certain period of time, or where the number of shares held by a minority shareholder exceeds a certain percentage, that minority shareholder may exercise certain rights. The provisions of the Company Act in respect thereto are summarized in the following chart.

* Under Taiwanese law, the term “supervisor?means a company auditor who supervises the execution of business operations of the company, and may at any time investigate the business and financial condition of the company, examine the accounting books and documents, and request the board of directors or managerial personnel to make reports thereon.

3. Are there any corporate governance norms?

In addition to the duty of loyalty and obligation of a bona fide administrator, and the non-compete obligations imposed on the directors, supervisors, and managers by the Company Act, there is also the Corporate Governance Best-Practice Principles for the Taiwan Stock Exchange and the GreTai Securities Market Listed Companies, which is applicable to all listed and over-the-counter (“OTC? companies. Different industries also have their own corporate governance rules. For example, in industries such as banking, insurance, futures, etc., there are corporate governance practice guidelines tailored pursuant to the special characteristics of the industry.

4. Are there any restrictions on a foreign-owned Taiwanese company from raising capital/debt from Taiwanese markets?

Provided the company is established pursuant to the laws of Taiwan, the source of funding (e.g., issuance of new shares, funding through corporate bonds, loans from banks, etc.) and relevant procedures in respect to the company must be made in accordance with the laws of Taiwan, regardless of whether the shares of the company are held by Taiwanese nationals or foreign nationals. As to the branch of a foreign company in Taiwan, although the branch may obtain funds through a bank loan or loan from companies in the same industry, unless the company issues TDR (Taiwan Depositary Receipts), it cannot issue new shares in Taiwan to raise capital.

5. Can a Taiwanese company appoint foreign nationals as directors?

The Company Act does not require that a director or chairman of a company limited by shares be a Taiwanese national. Thus, a foreign national can be a director of a Taiwanese company.

6. Are there any norms for the sharing of profits?

According to Article 232, paragraph 1 and 2 of the Company Act, a company may not pay dividends or bonuses unless its losses have been covered and a statutory reserve has been set aside. If there are no surplus earnings, in principle, the company must not pay dividends or bonuses. However, where the aggregate amount of the statutory reserve exceeds 50% of its capital, the company may share the excess portion as dividends and bonuses. According to Article 237, paragraph 1 of the Company Act, a “statutory reserve?refers to 10% of the surplus earnings after tax. Once the statutory reserve has reached the total amount of the capital, the company does not need to continue to set aside any amounts for its statutory reserve.

7. Should a company issue share certificates?

According to Article 161-1 of the Company Act, when the total amount of capital reaches the
amount specifically fixed by the central competent authority (as of October 2010, NT$500,000,000), the company must, within three months after having completed the procedures for company registration or for changes to company registration as required for the issuance of new shares, issue its share certificates. If the total amount of capital has not reached the amount fixed by the central competent authority, unless otherwise provided by the Articles of Incorporation, the company does not have to issue share certificates.

8. Should a company issue shares publicly?

Whether a company issues shares publicly is at the discretion of the company. If the company wishes to publicly issue shares, the company may, upon passing a board resolution, apply to the competent authority responsible for the public issuance of securities pursuant to Article 156, paragraph 3 of the Company Act.

9. What types of shares can be issued by a limited company?

According to Article 156, paragraph 1 of the Company Act, the types of shares issued by a company can be separated into common and special shares. The holders of special shares are entitled to special rights to the distribution of dividends, the company’s surplus earnings, and residual assets, which are different from the rights of common shares in the order and method of their distribution. The order in which shareholders of special shares shall exercise their voting rights, restrictions on voting rights, or that there are no voting rights can also be specified in the Articles of Incorporation.

10. Are there any requirements in relation to the frequency and mode of holding board meetings?

(1) Method of Convening a Board Meeting

According to Article 205 of the Company Act, unless otherwise provided in the Articles of Incorporation that a director may be represented by another director by proxy, directors must attend board meetings in person. Where a director appoints another director to attend the board meeting on his/her behalf, he/her must each time issue a written proxy and specify therein the scope of authority with reference to the matters to be discussed during the meeting. However, where a director resides in a foreign country, he/she may register with the competent authority and appoint in writing another shareholder residing in Taiwan as his/her proxy to attend board meetings on a regular basis. Moreover, a board meeting may be held via video conference. Directors participating in the video conference are deemed to have attended the board meeting in person. Furthermore, according to Articles 207 and 183, meeting minutes for a board meeting must be made and be kept on record for as long as the company exists.

(2) Number of board meetings

The Company Act does not directly regulate the minimum number of board meetings that a company must convene per year. However, according to Articles 170 and 171 of the Company Act, the board of directors must convene the annual shareholders meeting within six months after the end of each fiscal year. Moreover, according to Article 228 of the Company Act, at the end of each fiscal year, the board of directors must submit a business report, financial statements, and proposals for surplus earnings distribution or loss setoff to supervisors for his/her review 30 days before convening the annual shareholders meeting. Therefore, a board meeting must be held at least once a year, so as to make the resolutions for convening the annual shareholders meeting and for the proposals for surplus earnings distribution or loss setoff.

11. What responsibilities and liabilities do company directors have?

According to Article 192, paragraph 4 of the Company Act, unless otherwise provided in the Company Act, the relevant provisions on mandate under the Civil Code apply to the relationship between a company and a director. Therefore, in principle, a director undertakes obligations and responsibilities as a mandate under the Civil Code.

Furthermore, according to Article 193 of the Company Act, the board of directors must act in accordance with the laws, the Articles of Incorporation, and the resolutions adopted by the shareholders meeting in carrying out its business. If the board of directors breaches this provision, and as a result of which the company suffers damage, the directors taking part in the adoption of such resolution are liable to the company.

Moreover, according to Article 209 of the Company Act, if a director engages in an act for himself/herself or on behalf of another person that is within the scope of the company’s business, the director must explain to the shareholders the essential details of such act and must secure the shareholders?approval before he/she can proceed therewith. If the director fails to take such procedure, there is a possibility that the income generated from the act for himself/herself or on behalf of another person will be deemed to be the income of the company.

Lastly, according to Article 23 of the Company Act, if in the course of carrying out the company’s business, a director violates the law as a result of which a third party suffers damage, that director is held jointly and severally liable with the company.