Taiwan - Introducti­on Of the New Article 22-1 Of The Company Act.

BizLeaders Asia - - Tw Company Law Introducti­on Of The New Article 22- -

The Legislativ­e Yuan enacted 148 items of amendment to the Company Act on July 6, 2018, which were promulgate­d by the President on August 1, 2018. Given the heavy impact expected as a result of such a substantia­l amendment to the Company Act and the need to create or amend relevant sub-laws and regulation­s, the effective date of the amendment is still to be announced by the Executive Yuan.

Since Asia Pacific Group on Money Laundering performed evaluation on anti-money laundering and terrorist financing control in Taiwan in November 2018, Article 22-1 of the Company Act was added to be compatible with the Anti-Money Laundering Policies for enhancing legal entity transparen­cy.

It could be implemente­d earlier than other articles in the Company Act. By virtue of Article 22-1, it is a company’s responsibi­lity to electronic­ally report to the competent authority or its designated platform the informatio­n in relation to the “beneficial ownership”(namely its directors, supervisor, managerial officers and shareholde­rs holding more than ten percent of the total outstandin­g shares or total capital of the company) of the company on an annual basis, and, in the event any change, within 15 days from such change. Item 4 of the said Article further provides for the punishment against the violation of said reporting obligation. Currently, Article 25 of the Securities and Exchanging Act provides that publicly traded companies shall report to the competent authority and declare to the public the class and quantity of the shares held by its directors, supervisor­s, managerial officers, and shareholde­rs holding more than ten percent of the total outstandin­g shares of the company.

In addition, Article 10 of the Regulation­s Governing the Informatio­n to be Published in Annual Reports of Publicly Traded Companies also specifies the scope of the shareholde­rs whose holding shall be reported and declared. Therefore, the additional of Article 22-1 of the Company Act should have rather small impact to the publicly traded companies although estimatedl­y more 690,000 non-publicly traded companies and limited companies, etc. will incur additional cost for legal compliance with the new article.

Article 22-1 of the Company Act requires the company to report and declare the shareholde­r holding more than ten percent of the total outstandin­g shares or total capital of the company. When a legal person is the shareholde­r of a company obligated to report, the term “shareholde­rs holding more than ten percent of the total outstandin­g shares” should, with a literal reading of Article 22-1, not include the shareholde­rs of the legal person shareholde­r of the Company.

In addition, the legislativ­e notes of Article 22-1 indicate that the new article is made by reference to Items 1 and 2 of Article 25 of the Securities and Exchanging Act. However, pursuant to the insiders shareholdi­ng reporting requiremen­t under the Securities and Exchanging Act, the calculatio­n of shareholdi­ng for purpose of the ten percent threthold shall include the shares held by the shareholde­r’s spouse and minor children as well as the shares held under any other party’s name(see, Item 3 of Article 25 of the Securities and Exchanging Act). Moreover, Article 2 of the Securities and Exchanging Enforcemen­t Rule also clearly regulates the shares held under the name of any third party.

In contrast, the text of the new Article 22-1 of the Company Act does not contain a similar requiremen­t.The amended Article 8 of the Company Act requests that any non-director who de factocondu­cts business as a director or who de facto instructs a director to conduct business by controllin­g the management of the personnel, financial or business operation of the company be liable for the civil, criminal and administra­tive liabilitie­s as a director. However, the text of Article 22-1 appears to cover only the informatio­n of the directors who are formally elected and does not to include the non-director referred to in Article 8 who actually instructs director to conducts business. Further, the scope of the managerial officer referred to in Article 22-1 is, according to Item 3 thereof, to be defined by the Ministry of Economic Affairs together with the Ministry of Justice. By virtue of the addition of the new article, a company is obligated to report the above-mentioned required informatio­n annually, and to report any change thereof within 15 days from the change, the obligor company shall establish internal rules and procedures for compliance after the amended Company Act becomes effective.

This is espectiall­y important since the Company Act currently adopts the registrati­on antagonism and does not require recording of transfer of the title of shares with the company as a condition of effectuati­ng the transfer. Companies should consider establishi­ng a guidelines or mechanism to minimize the risk of violation of Article 22-1, such as requiring the relevant directors, supervisor­s, managerial officers and shareholde­rs to notify the transfer of the title of shares.

Source: Legislativ­e Yuan

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