Company law passed by Cabinet

Taiwan's Cabinet approved a revised new company law, moving a step further in dismantling what many analysts have said is an outdated legal framework -- which is now proving to be a drag on Taiwan's corporate governance.

The new company law, which in previous revisions did away with the NT$10 share par value and a seven person minimum company ownership, will still have to be approved by the Legislative Yuan to be made into law.

Abandoning the NT$10 par value will help companies -- whose share prices have now fallen below that level -- to raise cash by issuing new shares. The recent downturn in the stock market has pushed the stock price of many traditional industry companies down far below the NT$10 level, seriously restricting their ability to issue additional shares in the market.

Lawrence Liu (劉紹樑), a partner at Lee & Li Attorneys-at-Law (理律法律事務所), said that the government's newly revised law will help facilitate Taiwan's ongoing corporate and financial restructuring.

"The current company law is a creature of the 19th century," he said, adding that the law dates back to 1928.

Legal scholars, however, say that the government must work hard to "shepherd the bill through the Legislative Yuan" as legislators could "easily get overwhelmed by the technical nature of the company law" which includes 190 articles covering everything from capital structure to share buybacks.

Liu, who helped pen the soon-to-be-legislated Taiwan's Financial Holding Company Law (金融控股公司法), is also helping the government chart the corporate merger and acquisitions law which will enable Taiwanese companies to pursue merger and acquisition activities through non-cash methods, such as stock swaps.

The amendment of the Company Law (公司法) has taken over a decade without a major breakthrough. One of the problems is that as many as 190 articles in the Company Law needed to be revised before being reviewed by the Executive Yuan. But due to the complexity of the law, no consensus has been reached on all the articles that need to be revised.

Finally, the Executive Yuan came up the idea of a two-stage revision. The first stage would be those articles that have reached consensus, which have been submitted to the Executive Yuan since the end of March. Those articles that still have not reached consensus would be left for the second stage, for which no timetable has been set.

According to the Executive Yuan, several articles of the Company Law will be made a priority to amend.

These articles include allowing for the establishment of sole proprietorships, allowing equities to be issued with no-par value (無面額股票) and establishing a stock option and warrant system.

In addition, limited by shares companies would be able to determine the function and titles of its managers, hold board meetings via video-conferences, and choose to use treasury stocks or right-issues (現金增資) to issue new shares. In addition, companies would be allowed to issue employee stock options.

Currently the Company Law does not allow local companies to employ any of the aforementioned actions.

Another revision was the result of the National Economic Development Conference (全國經濟發展會議) held back in January, and will allow companies to issue shares at a discounted price below par value.

A third priority amendment centers on eliminating cross-shareholding between parent and subsidiary companies.