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In an interpretation dated 26 April 2000, the Ministry of Economic Affairs (MOEA) ex-plained a number of points concerning not only the capitalization of reserves but also the regis-tration of reductions in capital. The details are as follows:
Article 241 Paragraph 1 of the Company Law provides that when a company issues new shares, it may, by special resolution of a shareholders' meeting, capitalize its reserves and issue new shares to its shareholders in proportion to their existing shareholdings. Although Article 41 Paragraph 2 of the Secu-rities and Exchange Law requires a pub-lic-issuing company to make up any deficit before applying to capitalize its capital reserve, there is no such provision in the Company Law.
Article 168 Paragraph 1 of the Company Law prohibits a company from canceling shares except in accordance with the provisions on reduction of capital, and provides that in the case of any reduction in capital, each share-holder's shares should in principle be reduced in equal proportion. But there is no require-ment in the Company Law that a company must first make up any deficit before returning share contributions to shareholders. Also, according to an MOEA interpretation, the Company Law provisions under which a company may apply to register a reduction in its capital do not refer exclusively to a reduc-tion in share capital contributed at the time of the company's incorporation or at the time of any particular increase in capital. Therefore, approval should be granted for the registration of any reduction in capital which complies with the statutory provisions and procedures.
However, where the assets of a company are insufficient to cover its liabilities as per Arti-cle 211 of the Company Law, in order to pro-tect public trading security and the rights of creditors, the registration of an increase or reduction in the company's capital can only be approved insofar as the company needs to adjust its real total assets to exceed its total liabilities.
