Proposal to amend Company Law 

Chun-yih Cheng 


In 2009 the government proposed amendments to the Company Law (the Law) and on January 3 2011, the Economic Committee of Legislative Yuan passed the first reading of the amendments. The main points are summarised below.

Submission of Auditing Certificate
According to the current Law, before applying for company incorporation, the company shall first obtain an auditing certificate from a certified public accountant. In order to shorten the time of incorporation procedure, it is proposed to allow the company to submit the auditing certificate within 30 days of the company registration. Therefore, after the amendment takes effect, an auditing certificate may be submitted to the competent authority after the registration is completed.

At the same time, in order to ensure the company's submission of the auditing certificate, the competent authority may, ex officio or upon an application filed by an interested party, order the dissolution of a company according to the amendments if the certificate is not submitted.

Shadow director
In practice, certain companies are actually controlled by the person with actual decision-making power but without the title of a board member. These ��shadow directors' assume the same liabilities as the registered director. Therefore it is proposed that a non-director of a public company who performs the director's duties, controls the personnel, finance or business operation of a public company or instructs the director to perform his duty, should assume the same civil, criminal and administrative liabilities as the 'director' under the Company Law. However, if the instruction is made by the government to a director designated by them for the purpose of economic development, promotion of social stabilisation, or other circumstances for enhancement of public interests, this provision shall not apply.

Disgorgement
Under the current Law, a responsible person of a company shall have the loyalty to the company and shall exercise the due care of a good administrator in conducting its business operation. If the responsible person has acted contrary to the above, he shall be liable for the damages sustained by the company therefrom. Sometimes the profits acquired by the responsible person or the third party from the breach is greater than the damage suffered by the company, and the person responsible for this breach will benefit from this. In order to have the responsible person pay back illegal profits earned from this wrongful conduct, it is therefore proposed to include a provision that states that if the responsible person does anything for himself or for another in violation of the duty of loyalty or due care, the shareholders' meeting may, by a resolution, consider the earnings in such an act as earnings of the company unless one year has lapsed since the realisation of such earnings.

Appointment of directors and supervisors by corporate shareholder
The function of a supervisor is to supervise the business operation by the board of directors. However, according to the Law, a corporate shareholder may have its representatives elected as directors and supervisors and may at any time replace such directors and supervisors. However in this situation the function of the supervisor is compromised by these appointment powers. To address this, an amendment is made stating that the representatives of a corporate shareholder shall not concurrently be elected or serve as directors and supervisors of the company.

Mandatory electronic voting
The current law allows the voting power at a shareholders' meeting to be exercised by way of electronic transmission. However, only a few companies adopt such a voting system. Also, in recent years, the dates of the annual shareholders' meetings of different listed companies have been the same and the shareholders have been unable to attend all of them. In order to afford the shareholders every opportunity to exercise their voting rights, an amendment is proposed that the competent authorities may, dependent on the company's scale, number of shareholders, structure of shareholding, and other necessary circumstances, order the adoption of an electronic voting system.

Cumulative voting system
To heighten the chances of minority shareholders being able to elect directors of their choice, the proposal deletes the provision that a company may rule out by its Articles of Incorporation the cumulative voting system in the election of directors. Therefore, the cumulative voting system must be used, adhering to the basic spirit of corporate governance.

Explanation obligation
To avoid conflict of interests , a director who has a personal interest in the matter under discussion at a board meeting, which may impair the interest of the company, shall not vote nor exercise the voting right on behalf of another director. In addition to the obligation of not-voting, the proposed amendment further imposes an explanation obligation on the directors that a director who has a personal interest in the matter under discussion at a board of directors meeting shall explain the substantial content of such personal interest in the meeting.

Issuance of cash dividends from legal reserve
In the past, some companies have accumulated large amounts of legal reserve and capital reserve that can be used only as capital for the issuance of new shares to current shareholders. The amendment stipulates that legal reserve and capital reserve may, under certain conditions, be distributed in the form of cash or shares so as to boost flexibility in the utilisation of reserves. The main purpose of the proposed amendments is to follow the corporate governance principles. After the proposed amendments have been adopted into statute book, the accountability of directors will be tightened, and hopefully the protection of shareholders' interests will be enhanced.