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16 October, 2018
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 will perform evaluation on anti-money laundering and terrorist financing control in Taiwan this November, 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 futher 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 shareholderf 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 titile 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.
For further information, please contact:
Yen Chen,Tsar & Tsai Law Firm
law@tsartsai.com.tw
