Newsletter
AMENDMENT TO THE COMPANY ACT
On May 27, 2005, the Legislative Yuan passed a proposed amendment to the Company Act and on 22 June 2005, the amendment was officially promulgated by the President. The amendment, aimed to enhance corporate governance, is summarized as follows:
The business scope of a company must be registered in accordance with the business item coding system:
The competent authorities have implemented a business item coding system since January 1, 1998 in corporate registrations. The corporate registration of companies incorporated prior to such date still state narrative descriptions of their business scopes, which are inconsistent with the coding system. According to the amendment, whenever there is any change to the business scope of such companies, they should revise the description of their business scope in the corporate registration by follow-ing the coding system.
Restriction on a juristic person acting as a promoter has been relaxed:
Before the amendment, the promoter of a company limited by shares could only be in-dividuals, companies or governments. From now on, other juristic persons may also be-come 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 pro-moters if the competent authorities deem their investment as related to the purpose of the incorporation.
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 requirements that the number of initial issu-ance of shares upon the incorporation of a company be not less than one-fourth of the authorized capital, and that the number of shares issued for the first capital increase not be less than one-fourth of the total increased shares. This will facilitate the introduction of new financial products.
Proposals for election and discharge of direc-tors and supervisors may not be brought up by motions:
Before the amendment, proposals for election of directors and supervisors should not be brought up by motions and must be included in the agenda of a shareholders meeting. However, in practice, it is unclear whether such requirement also applies when a com-pany needs to elect new directors/supervisors to fill vacancies or when a company would like to discharge a director/supervisor. According to the amendment, any matters pertaining to the election and discharge of di-rectors and supervisors cannot be brought up by motions.
Notices for convening shareholders' meetings and meeting minutes can be made electroni-cally:
The amendment stipulates that notices for convening shareholders' meetings can be done electronically upon the consent of individual shareholders. In addition, shareholders' meeting minutes may also be prepared and distributed electronically. Documents in an electronic form should be prepared in accor-dance with the Electronic Signature Act.
Shareholders are entitled to make proposals:
In order to expand shareholders' participation, the amendment allows certain shareholders to make proposals for inclusion in the agenda of a shareholders' meeting. According to the amendment, a company should make public announcements of its acceptance of the pro-posals submitted by its shareholders and the venue and deadline for such submission be-fore the non-book-entry period prior to an 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 not more than 300 Chinese char-acters for discussion at the annual sharehold-ers' meeting. Before the notice for convening a shareholders' meeting is sent, the company should inform such shareholders of the result and include the qualified proposal in the agenda. The shareholders who made the proposal must attend the annual shareholders' meeting in person or by proxy and participate in the discussion of such proposal.
Shareholders may exercise voting rights in writing or electronically:
In order to encourage shareholders to vote in shareholders' meetings, a company may allow its shareholders to vote rights in writing or electronically. The company should specify in the meeting notice the methods for exercising the voting rights. The votes of the sharehold-ers should be delivered to the company five days prior to the shareholders' meeting. In addition, as such shareholders will not attend the shareholders' meeting in person, in order to facilitate the smooth proceeding of the meet-ing, the amendment specifies that such shareholders should be deemed to have waived their voting rights on any motions and any amendment to the original proposal.
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 com-pany, 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 enhancing corporate governance, the amendment provides that no voting rights should 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.
System for nominating directors and super-visors:
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 Incorpora-tion. The company should also make public announcements of the timeframe for nomina-tion, 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 sharehold-ers' 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' meet-ing or 25 days before a special shareholders' meeting, the company should make public announcements of the candidate list and rele-vant information so as to facilitate the election.