• Font Size:
  • S
  • M
  • L
友善列印
WORD

Article Content

Title:

Directions Concerning Securities Market Regulatory Matters for TWSE Listed Companies and Their Directors, Supervisors, and Major Shareholders  CH

Amended Date: 2012.07.00 
1     I.Definition, qualifications, basic rights and responsibilities of the responsible person of a company
  1. Introduction
  2. According to Article 8 of the Company Act, responsible persons of a company are divided into:
    1. De facto responsible person
    2. This refers to the business performance body and representative body of a company as legally required: a shareholder conducting the business of or representing the company in the case of an unlimited company or unlimited company with limited liability shareholders, and a director of the company in the case of a limited company or a company limited by shares.
    3. Responsible person acting within the scope of its duties
    4. A managerial officer or liquidator of a company, or a promoter, supervisor, inspector, reorganizer or reorganization supervisor of a company limited by shares acting within the scope of its duties, is also the responsible person of a company. Where a government agency or a juristic person acts as a shareholder, it may be elected as a director or supervisor, provided that it shall designate a natural person as its representative to exercise duties on its behalf (Company Act §27I). Although a government agency or juristic person may act as a director or supervisor, it must designate a natural person as its representative to exercise duties on its behalf since it is not an actor entity and only a natural person is (Company Act §27I proviso). Said representative may, on account of its duties, be replaced by a person to fulfill the remaining term of office of the predecessor (Company Act §27III). Moreover, to ensure safe transactions, no restriction placed by a government agency or juristic person upon the power or authority of its authorized representative may be used as defense against any bona fide third party (Company Act §27IV).
      Where a government agency or a juristic person acts as a shareholder, its authorized representative may also be elected as a director or supervisor. In the event of multiple authorized representatives, each of them may be so elected, but such authorized representatives may not be selected or serve as a director or supervisor concurrently (Company Act §27II, Securities and Exchange Act §26-3II).
    5. Non-director with civil, criminal and administrative liabilities as a director
    6. This refers to a non-director of a public company who de facto conducts business of a director or de facto controls the management of the personnel, financial or business operation of the company and de facto instructs a director to conduct business, provided such liabilities shall not apply to an instruction of the government to a director it appoints for the purposes of economic development, promotion of social stability, or other circumstances conducive to public interests (Company Act §8III).
  3. Directors and board of directors
    1. Introduction
    2. The purpose of a company limited by shares is to amass funds from a majority of people to create a big capital. A large number of shareholders is therefore detrimental to each of their participation in the business operations of the company, and a business performance body as legally required must be established to be in charge of such operations. Hence the separation of business ownership and business operation which is the essence of a company limited by shares. Pursuant to the Company Act, the business of a company shall be performed pursuant to resolutions to be adopted by the board of directors, except for matters the execution of which shall be effected pursuant to resolutions of a shareholders' meeting as required by this Act or the Articles of Incorporation of the company (Company Act §202). The board of directors may not number less than five persons (Securities and Exchange Act §26-3I) and shall elect a chairman of the board directors from among the directors to represent the company (Company Act §208I, II, III). In other words, the Company Act in force has referred to examples of legislation in the U.S. and Japan in establishing the board of directors as the legally required collective business-performance body of a company limited by shares endowed with discretionary rights in the business operations of the company.
    3. Term of office
    4. The term of office of a director shall not exceed three years; but it may be eligible for re-election. In case no election of new directors is effected after expiration of the term of office of existing directors, the term of office of outgoing directors shall be extended until the time new directors are elected and assume their office. However, the competent authority may, ex officio, order the company to elect new directors within a given time limit; and if no re-election is effected after expiry of the given time limit, the outgoing directors shall be discharged ipso facto from such expiration date (Company Act §195). The term of office of a director must be appropriate. The three-year maximum as stipulated by the Company Act is deemed appropriate. To meet actual requirements, it is further provided that in case no election of new directors is effected after expiration of the term of office of existing directors, the term of office of outgoing directors shall be extended until the time new directors are elected and assume their office. Furthermore, as delay in the election of new directors by contention for the company's management rights is common, outgoing directors are required to be discharged ipso facto from the expiration date, to protect shareholders' rights and interests and ensure sound business operation of the company.
      The tenure of directors should be specified in the articles as a required particular (Company Act §129), or the articles will be invalid.
    5. Qualifications
      1. Qualification
      2. An independent director of a public company shall meet one of the following professional qualification requirements and have at least five years' work experience: a. An instructor or higher in a department of commerce, law, finance, accounting, or other academic department related to the business needs of the company in a public or private junior college, college, or university; b. a judge, public prosecutor, attorney, certified public accountant, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the business of the company; c. work experience in the area of commerce, law, finance, or accounting, or otherwise necessary for the business of the company; or d. may not be involved in any of the circumstances in the subparagraphs of Article 30 of the Company Act or be elected in the capacity of the government, a juristic person, or a representative thereof as provided in Article 27 of the Company Act.
        In addition, during the two years before being elected or during the term of office, an independent director of a public company may not have been or be any of the following: a. An employee of the company or any of its affiliates; b. a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50% of the voting shares; c. a natural-person shareholder who holds shares, together with those held by the person's spouse, minor children, or held by the person under others' names, in an aggregate amount of 1% or more of the total number of issued shares of the company or ranking in the top 10 in holdings; d. a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three subparagraphs; e. a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of issued shares of the company or that holds shares ranking in the top five in holdings; f. a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution that has a financial or business relationship with the company; g. a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof, provided that this restriction does not apply to any member of the remuneration committee who exercises powers pursuant to Article 7 of the Regulations Governing the Establishment and Exercise of Powers of Remuneration Committees of Companies Whose Stock is Listed on the TWSE or Traded on the GTSM.
      3. Disqualification
        1. Article 30 of the Company Act is applicable to directors mutatis mutandis (Company Act §192V). The restrictions set forth in Article 30, Subparagraph 6 of the Company Act on the disqualification of an officer, as enumerated below, are to protect social benefit and corporate interest and applicable to directors mutatis mutandis:
          1. Presumed to have committed an offence under the Statute for Prevention of Organizational Crimes and subsequently adjudicated guilty by a final judgment, and the time elapsed after he has served the full term of the sentence is less than five years;
          2. Having committed the offence in terms of fraud, breach of trust or misappropriation and subsequently punished with imprisonment for a term of more than one year, and the time elapsed after he has served the full term of such sentence is less than two years;
          3. Having been adjudicated guilty by a final judgment for misappropriating public funds during the time of his public service, and the time elapsed after he has served the full term of such sentence is less than two years;
          4. Having been adjudicated bankrupt, and having not been reinstated to his rights and privileges;
          5. Having been discredited by the clearing house, and the term of such sanction has not expired yet; or
          6. Having no or only limited disposing capacity.
        2. A supervisor may not be concurrently a director (Company Act §222, first part).
        3. A civil servant may not be concurrently a director of a private company (Civil Service Act §13I).
        4. A Control Yuan member may not be concurrently a director of a private company (Grand Justices' directive no. Shi Zi 81).
        5. An active serviceman may not be concurrently a director of a company (Civil Service Act §24 and §13).
        6. Neither a legislator nor a Control Yuan member may be concurrently a director of a public enterprise (Grand Justices' directive no. Shi Zi 24).
    6. Election
      1. General directors (non-independent directors)
        1. Election body
          1. Election body of directors of the initial term
          2. Directors of the initial term are elected by the promoters if the company is incorporated by way of promotion (Company Act §131I, second part) and by the inaugural meeting if the company is incorporated by the offer method (Company Act §146I, first part).
          3. Election body after the establishment of the company
          4. Directors after the establishment of the company are elected by the shareholders' meeting. It may not be stipulated in the articles that the right to election of directors be exercised by other body of the company or a third person or that consent from a third person be required for the resolution of the shareholders' meeting on the election of directors to become valid.
        2. Election resolution
        3. The Company Act adopts cumulative voting in the hope that candidates supported by minority shareholders will have a change to be elected as directors. Therefore, in the process of electing directors at a shareholders' meeting, the number of votes exercisable in respect of one share shall be the same as the number of directors to be elected, and the total number of votes per share may be consolidated for election of one candidate or may be split for election of two or more candidates. A candidate to whom the ballots cast represent a prevailing number of votes shall be deemed a director elect (Company Act §198I). Cumulative voting applies not only to the election of directors after the establishment of the company but also to the election of directors of the initial term.
      2. Independent directors
      3. Pursuant to Article 5 of the Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies, the election of independent directors at a public company is subject to the provisions of Article 192-1 of the Company Act in that a candidate nomination system shall be adopted, that such system shall be expressly stated in the articles of incorporation of the company, and that shareholders shall elect independent directors from among the those listed in the slate of independent director candidates. Provisions governing the election body and election resolution in regard to independent directors are the same as those in regard to general directors.
    7. Obligations
      1. The relationship between a director and a company is a non-gratuitous mandate. A director shall carry out the business of the company with the care of a good administrator (Civil Code §535), or it shall be liable for damages to the company.
      2. Noncompete
        1. Content
        2. As part of its noncompete obligation, a director who does anything for itself or on behalf of another person that is within the scope of the company's business shall explain to the meeting of shareholders the essential contents of such an act and secure its approval (Company Act §209I). As a board member, a director may, through participation in decision-making over the business execution of the company, familiarize itself with the internal operations as well as trade secrets of the company. Therefore, if a director is allowed to freely compete with the company outside, it may likely, to the prejudice of the company's interest, derive gain for itself or another person in the exercise of its duties. This thus gives rise to noncompete obligations, to avoid a conflict of interests of the two sides.
        3. Permission
        4. Though owing a duty of noncompetition to the company, a director may engage in competition with the company so long as it has explained to the meeting of shareholders the essential contents of its act and secure the approval of said meeting. The legislative purpose of noncompetition is to protect the company's interest. Once the shareholders of the company determine the competition between a director and the company is not prejudicial to the company's interest, the director may be relieved of the above duty by a resolution adopted by a majority of the voting rights of the shareholders present in a shareholders' meeting attended by shareholders representing two-thirds or more of the total number of its outstanding shares.
        5. Effects of breach
        6. In case a director does anything for itself or on behalf of another person in violation of its duty of noncompetition, the meeting of shareholders may, by a resolution, consider the earnings from such an act as earnings of the company (Company Act §209V). This is called disgorgement, with a one-year limitations period from the realization of such earnings, no longer exercisable after the statute of limitations runs out.
      3. Obligation to sign securities of the company
      4. Share certificates or corporate bonds issued by a company limited by shares shall be affixed with the signatures or seals of three or more directors (Company Act §162I and §257I).
      5. Obligation to report shareholding
      6. Each director elected shall declare to the competent authority the number and amount of the shares of the company being held by it at the time it is elected (Company Act §197I, first part).
    8. Liability of directors
      1. Liability to the company
      2. A director's liability to a company arises out of damage caused to the company by the director's violation of obligations to the company. As the business performance body of a company, a director becomes liable only when it violates its obligations in the course of business execution causing damage to the company. Notwithstanding, while there are circumstances where a director causes damage to the company in the former's performance of business acting on a board resolution, there are other circumstances where it causes such damage, as enumerated below:
        1. Acting on a board resolution:
        2. Where the company sustains damage as a result of a violation by a board resolution of laws and regulations, the articles, or a resolution of the shareholders' meeting, directors participating in the adoption of such resolution are liable to indemnify the company, provided, directors whose disagreement appears on record or is expressed in writing shall be exempted from liability (Company Act §193II).
        3. Failing to act on a board resolution:
        4. As board members, directors shall perform duties in accordance with board resolutions. Any director who fails to exercise the due care of a good administrator and follow board resolutions in conducting the business operation of the company is deemed to have committed subjective negligence and shall indemnify the company (Company Act §23I).
        5. Acting beyond authority
        6. As the relationship between a director and a company is non-gratuitous mandate, a director acting beyond its authority thereby causing damage shall indemnify the company pursuant to Article 544 of the Civil Code.
      3. Liability to a third party
      4. Pursuant to Article 23 of the Company Act, if the responsible person of a company has, in the course of conducting the business operations of the company, violated laws or regulations thereby causing damage to any other person, it shall be liable for indemnify such other person jointly and severally with the company. As a responsible person of a company limited by shares (Company Act §8I), a director is naturally governed by this article. Such claim for damages will be extinguished by prescription if not exercised within two years from the time the damage and the person bound to make indemnification becomes known to the claimant; the same rule applies where ten years have elapsed from the time the wrongful act time is committed (Civil Code §197I). In case a supervisor is liable for damages to a third party and a director is also liable, such supervisor and director shall be joint debtors (Company Act §226).
    9. Authority of the board
      1. The board has decision-making authority over the conduct of business of the company
      2. Business operations of a company shall be executed pursuant to resolutions adopted by the board of directors, except for matters the execution of which shall be effected pursuant to resolutions of the shareholders' meeting as required by this Act or the articles (Company Act §202). This means the board has the authority to indicate its intent as to the business operations of the company, and the intent it decides is carried out by the chairman, vice chairman or managing directors of the board.
      3. Internal supervisory authority
      4. As mentioned, the board has decision-making authority over business execution whereas the actual execution is undertaken by the chairman, vice chairman or managing directors. The board therefore has supervisory authority over the specific business execution of directors. To enable the implementation of the board's internal supervision as described above, the Company Act endows the board with the right to appoint and dismiss the chairman, vice chairman and managing directors (Company Act §208I).
      5. Powers under the Company Act
      6. Besides laying down general provisions on the authority of the board in Article 202, the Company Act further enumerate its powers, chiefly: decision over the appointment and dismissal and the compensation of officers (Company Act §29I), submitting of proposals to a shareholders' meeting for a material change in the business or assets of the company (Company Act §185V), convening shareholders' meetings (Company Act §171), election of the chairman, vice chairman and managing directors of the board from among the directors (Company Act §208I and §208II), being authorized by the articles to adopt resolutions on the distribution of dividends and bonuses in the event of a company whose shares are issued in public (Company Act §240VI), capitalizing the legal reserve (Company Act §241II), decision over the invitation of subscriptions for corporate bonds and requests of subscription payments (Company Act §246 and §254), issuing new stock (Company Act §266II), and filing reorganization applications (Company Act §282II) etc.
    10. Obligations of the board
      1. Obligation to convene shareholders' meetings
      2. The board has the authority to convene shareholders' meetings (Company Act §171). The board is obligated to convene a special shareholders' meeting under the following two circumstances: (1) In case the loss incurred by the company aggregates to one-half of its paid-in capital, the board of directors shall convene and make a report to a meeting of shareholders (Company Act §211I), and (2) When the number of vacancies in the board of directors equals to one-third of the total number of directors, the board of directors shall call, within 30 days, a special meeting of shareholders to elect succeeding directors to fill the vacancies (Company Act §201I).
      3. Obligation to report to shareholders' meetings
      4. The board is obligated to report the cause or subject of a shareholders' meeting to be convened to said meeting. Pursuant to the Company Act, the board shall report to a shareholders' meeting under the following circumstances:
        1. if the loss incurred by the company aggregates to one-half of its paid-in capital;
        2. if the board is authorized by the articles to distribute dividends and bonuses in the event of a company whose shares are issued in public, the board shall report to a shareholders' meeting after the distribution;
        3. if the board is authorized by the articles to capitalize the legal reserve in the event of a company whose shares are issued in public, the board shall report to a shareholders' meeting after the capitalization; and
        4. the board shall report the cause for inviting subscriptions for corporate bonds and relevant matters to a shareholders' meeting after the issue of corporate bonds by the company.
      5. Obligation to petition for bankruptcy of the company
      6. Where the assets of the company are insufficient to set off its liabilities, the board of directors shall apply to court for pronouncement of its bankruptcy immediately (Company Act §211II). "Assets of a company" refers to the net realizable value. "Liabilities" shall include long-term liabilities to investors.
      7. Obligation to give notice and make a public announcement of dissolution of the company
      8. In the event of dissolution of the company, the board of directors shall forthwith notify each of the shareholders of the essentials of the dissolution plan and shall make a public announcement if bearer share certificates are issued, except where the company is to dissolve on account of bankruptcy (Company Act §316IV). The reason is the court shall make a public announcement pursuant to the Bankruptcy Act.
    11. Suppression of the board's violations of law
      1. Suppression by shareholders
      2. In case the board of directors decides, by resolution, to commit any act beyond the registered business scope of the company or in violation of laws or regulations or the articles, any shareholder who has continuously held shares for a period of one year or longer may request the board of directors to discontinue such act (Company Act §194). Such right to claim suppression of violations by the board is to prevent directors from abusing their authority and protect the interest of the company and shareholders.
      3. Suppression by a supervisor
      4. If the board commits an act in the course of business execution in violation of laws and regulations or the articles or operates business beyond the registered scope, a supervisor shall immediately request the board to cease its act (Company Act §218-2II). The legislative purpose is to strengthen the authority and duties of supervisors and mitigate the company's loss.
      In sum, under the framework of the Company Act in force, both shareholders who have continuously held shares in the company for a period of one year or longer or supervisors have the right to suppress acts committed by the board in violation of the articles or laws and regulations. Between these two, there is no order of preference in the exercise of the claim, the reason being that the suppression of board violations is a precautionary measure to be taken in advance and must be carried out in the interest of time.
    12. Board meetings
      1. Significance
      2. The board meeting is a meeting body. To determine its intent, the board must convene meetings, namely board meetings. Board meetings shall be convened by persons with the right to convene according to the prescribed procedure. Meetings convened not in accordance with such procedure are deemed to fail to conform to law, in which event resolutions adopted by the meetings may not be deemed board resolutions.
      3. Convention
        1. Convener
        2. Meetings of the board of directors shall be convened by the chairman of the board of directors, except for the first meeting of each term of the board of directors which shall be convened by the director who received a ballot representing the largest number of votes at the election of directors.
          The first meeting of each term of the board of directors shall be convened within 15 days after the re-election. However, in case the re-election of directors was conducted prior to the expiration of the term of office of the directors of the preceding term, and a resolution was adopted not to discharge the directors of the preceding term until the expiration of the term of their offices as directors, the first meeting of the newly elected directors shall be convened within 15 days after expiration of the term of office of the directors of the preceding term. (Company Act §203I and II)
        3. Procedure of convention
        4. In calling a meeting of the board of directors, a notice setting forth therein the subject(s) to be discussed at the meeting shall be given to each director and supervisor no later than seven days prior to the scheduled meeting date. However, in the case of emergency, the meeting may be convened at any time (Company Act §204I). Such notice may be effected by means of electronic transmission subject to consent of the recipient(s) (Company Act §204II). In other words, a meeting notice must be given in writing stating the subject(s) of the meeting and may not be given verbally. If some of the directors are not notified and as a result the outcome of any resolution is likely to be affected, such board resolution is invalid ipso facto.
      4. Meetings
      5. Board meetings are chaired by the board chairman (Company Act §208III) and shall be attended by directors in person (Company Act §205I), provided the Company Act authorizes the articles to allow another director to attend a board meeting as proxy, to meet actual requirements. A director appointing another director to attend a meeting of the board of directors in its behalf shall, in each instance, issue a written proxy and state therein the scope of authority with reference to the subjects to be discussed at the meeting. In case a meeting of the board of directors is held via videoconference, directors taking part in the videoconference are deemed to have attended the meeting in person (Company Act §205II).Where a director residing in a foreign country is unable to attend board meetings in Taiwan on a regular basis, the company concerned may appoint in writing a shareholder residing in Taiwan as its proxy to attend board meetings on a regular basis, provided such appointment shall be registered with the Ministry of Economic Affairs (Company Act §205V and VI).
      6. Resolution
        1. Resolution
        2. There are two ways for the board to adopt resolutions: One is ordinary resolutions, which shall be adopted by a majority of the directors at a meeting attended by a majority of the directors (Company Act §206I). The other is special resolutions, which are adopted by a majority of the directors at a meeting attended by two-thirds of the directors.
          A director who has a personal interest in a matter under discussion at a board meeting shall explain to the board meeting the essential contents of such personal interest (Company Act §206II), and may not vote or exercise voting rights on behalf of another director if said interest is likely to impair the interest of the company (Company Act §206III and §178). The quota of directors shall be duly elected, and the number of directors present at a board meeting is determined by the number of actual incumbents who may attend the meeting as called, less any vacancies created by directors statutorily discharged ipso facto.
        3. Defect in resolutions
        4. The convention procedure of, or ways resolutions are adopted by, a board meeting will certainly affect the validity of its resolutions if defective or in contravention of laws and regulations or the articles. While setting out relevant provisions governing shareholders' meetings, the Company Act is, however, silent on the validity of resolutions adopted by a defective board meeting. Nevertheless, according to the Ministry of Economic Affairs letter of June 12, 1991 No. Jing (80) Shang 214490, no resolution of a board meeting will take effect if the convention procedure of, or ways such resolution is adopted by, the meeting are in contravention of laws and regulations or the articles.
      7. Minutes
      8. Board resolutions are binding on all directors. For the avoidance of doubt, minutes shall be taken of the proceedings of board meetings (Company Act §207). The minutes shall record the date and place of the meeting, name of the chairman, method of adopting resolutions, and a summary of the essential points of the proceedings and results of the meeting; affixed with the signature or seal of the chairman of the meeting; distributed to all directors within 20 days after the close of the meeting; and kept permanently throughout the life of the company (Company Act §183).
  4. Supervisors
  5. A supervisor is a statutory standing supervisory body of a company limited by shares, in charge of overseeing the business execution and auditing the accounts of a company, provided a public company may establish either a supervisor or a audit committee. According to the principle of corporate autonomy, supervision of a company limited by shares is in principle carried out by the company internally, therefore a standing body is set up to oversee the business and financial condition of the company from time to time. This is how the supervisor system comes into being and how supervisors have come to play a critical role in the supervision of corporate autonomy.
    1. Number and term
    2. Supervisors of a company shall be elected by the meeting of shareholders, among them at least one supervisor shall have a domicile in Taiwan (Company Act §216I). This shows there must be more than one supervisor. The actual number is as determined by the articles. The term of office of a supervisor shall not exceed three years, but it may be eligible for re-election. In case election of new supervisors cannot be effected in time after expiration of the term of office of existing supervisors, the existing supervisors shall continue to perform their duties until the new supervisors elect assume their office as supervisors. However, the competent authority may order, ex officio, the company to conduct the re-election of supervisors within a given time limit. If election of new supervisors is still not effected within the prescribed time limit, the existing supervisors shall be discharged ipso facto upon expiry of the time limit (Company Act §217). As such, the term of supervisors is the same as that of directors under the Company Act.
    3. Qualifications
      1. Qualification
      2. Article 216, Paragraph 4 and Article 192, Paragraphs 1 and 3 of the Company Act governing disposing capacity are applicable to supervisors mutatis mutandis. Therefore, a shareholder has disposing capacity if a natural person, and a person with limited disposing capacity, though allowed to operate business with the permission of the legal representative, still may not serve as supervisor.
      3. Disqualification
      4. The first part of Paragraph 4, Article 216 of the Company Act is applicable to supervisors mutatis mutandis, as provided by Article 30. The details of the six subparagraphs of said article are as mentioned above thus not to be elaborated here. Meant to protect public interest, the relevant provision is therefore applicable to directors and supervisors mutatis mutandis. Moreover, no supervisor may serve concurrently as a director, managerial officer or other staff/employee of the company (Company Act §222). As the legislative purpose, it is anticipated that supervisors can exercise powers in an impartial manner.
    4. Election
      1. Election body
        1. Election of supervisors of the initial term
        2. Same as directors, supervisors of the initial term are elected by the promoters if the company is incorporated by way of promotion (Company Act §131I, second part) and by the inaugural meeting if the company is incorporated by the offer method (Company Act §146I, first part).
        3. Election of supervisors after the establishment of the company
        4. Supervisors after the establishment of the company are elected by the shareholders' meeting. It may not be stipulated in the articles that the right to election of supervisors be exercised by other body of the company or a third person or that consent from a third person be required for the resolution of the shareholders' meeting on the election of supervisors to become valid.
      2. Election resolution
      3. Resolutions on the election of supervisors are governed by provisions applicable to directors (Company Act §227) and are mentioned above thus not elaborated here.
    5. Authority
      1. Supervisory authority
        1. Investigate the incorporation of the company
        2. Directors and supervisors elect shall, upon election by the inaugural meeting, immediately investigate the matters identified in Article 145 truthfully and report to the inaugural meeting, if the company limited by shares is incorporated by the offer method (Company Act §146I).
        3. Investigate the business and financial condition of the company
        4. A supervisor shall oversee the business execution of the company, and may investigate its business and financial condition, examine the accounting books and documents, and request the board of directors or officers to make reports thereon (Company Act §218I). This is one of the major supervisory powers of a supervisor.
        5. Audit the accounting statements and records of the company
        6. Supervisors shall audit the various statements and records prepared for submission to the shareholders' meeting by the board of directors and report their findings and opinions at the meeting of shareholders (Company Act §219I). Such statements and records refer to business reports, financial statements, and proposals for the distribution of surplus earnings or set-off of losses prepared by the board of directors at the close of each fiscal year (Company Act §228I), and shall be forwarded by the board to supervisors for their auditing not later than the 30th day prior to a general meeting of shareholders; supervisors may request the board of directors to provide in advance the financial statements and records for auditing (Company Act §228I and III).
        7. Request the board or directors to cease violating acts
        8. Supervisors of a company may attend the meeting of the board of directors to their opinions. In case the board of directors or any director commits any act, in carrying out the business operations of the company, in a manner in violation of the laws, regulations, the Articles of Incorporation or the resolutions of the shareholders' meeting, the supervisors shall forthwith advise, by a notice, to the board of directors or the director, as the case may be, to cease such act (Company Act §218-2).
        9. Investigate non-cash capital contribution in the event of an issue of new shares by the company
        10. When a company issues new shares and such shares are subscribed to by existing shareholders or particular persons by agreement rather than issued to the public, in the event the capital contribution is made in the form of assets, the board shall request a supervisor for inspection and comment and report to the competent authority for approval after the contribution (Company Act §274II). Therefore, in the event a company issues new shares and non-cash capital contribution is made, a supervisor shall examine whether the price or appraisal standard of the property commensurate with the number of shares granted by the company and whether any abuse is involved, and shall provide its comments to the competent authority for reference in its decision making.
        11. Examine the financial statements and records prepared upon the assumption of office of a liquidator
        12. The liquidator shall, after having assumed office, examine the financial condition of the company, prepare the financial statements and inventory of property, and deliver them to the supervisors for examination (Company Act §326I).
      2. Right to represent the company
        1. Engage in lawsuits or negotiations with directors on behalf of the company
        2. In case of a lawsuit between the company and a director, the supervisor shall act on behalf of the company, unless otherwise provided by law; and the meeting of shareholders may also appoint some other person to act on behalf of the company in a lawsuit (Company Act §213). Pursuant to Article 223 of the Company Act, the supervisor shall act as the representative of the company in case a director of a company engages in negotiations with the company on his own account or for any other person.
        3. Retain lawyers and accountants on behalf of the company
        4. In handling the business in Article 218, Paragraph 1 and Article 219, Paragraph 1 of the Company Act, the supervisors may appoint lawyers and accountants on behalf of the company to conduct examination (Company Act §218II and §219II).
        5. Institute actions against directors for the company at the request of minority shareholders
        6. Shareholders who have been continuously holding 3% or more of the total number of the outstanding shares of the company over one year may request in writing the supervisors to institute an action against a director for the company (Company Act §214I).
      3. Power to convene shareholders' meetings
        1. Active convention
        2. Subject to the condition that the board of directors does not or is unable to convene a meeting of shareholders, the supervisors may, for the benefit of the company, call a meeting of shareholders when necessary (Company Act §220).
        3. Passive convention
        4. Shareholders who have been continuously holding three per cent of total number of the outstanding shares of a company for a period of one year or longer may apply to the court for appointment of inspector to inspect the current status business operations, the financial accounts and the property of the company. The court may, when it deems necessary based on the report made by the inspector, order the supervisor(s) of the company to convene a meeting of shareholders. (Company Act §245I and II).
    6. Obligations
      1. Obligations arising out of mandate
      2. The relationship between a supervisor and a company is a non-gratuitous mandate. A supervisor therefore shall perform its duties with the care of a good administrator to the company (Civil Code §535), or it is deemed to have committed subjective negligence and shall indemnify the company against damage suffered. The same applies to acts performed beyond its authority. (Civil Code §544I)
      3. Obligation to report shareholding
      4. Pursuant to Article 277 of the Company Act, which is governed by Article 197 mutatis mutandis, a supervisor elect shall declare to the competent authority the number and amount of the shares of the company being held by it at the time it is elected. In case a supervisor of a company whose shares are issued to the public transfers, during its term of office as a supervisor, more than one-half of the company's shares being held by it at the time it is elected, it shall be discharged ipso facto.
      5. A supervisor may not serve concurrently as a director, managerial officer or other staff/employee of the company (Company Act §222).
    7. Liabilities
      1. Liability to the company
      2. In case a supervisor, in its performance of duties, violates any laws or regulations or the articles, or is negligent of its duties, thus causing damage to the company, it shall be liable for indemnifying the company (Company Act §224). By being negligent of its duties, this means the supervisor fails to perform its supervisory duties with the care of a good administrator. Further, when a supervisor is liable for damages to the company or a third party and a director is also liable, such supervisor and director shall be joint debtors (Company Act §226). When a meeting of shareholders resolves to institute an action against a supervisor, the company shall institute such action within 30 days from the date of adoption of such resolution (Company Act §225I). The person who represents the company in the action instituted may be appointed by the shareholders' meeting from persons other than the directors (Company Act §225II).
      3. Liability to a third party
      4. As mentioned above, a supervisor is a responsible of a company within the scope of its duties. Article 23 of the Company Act is accordingly applicable to it, which stipulates that a supervisor who, in its performance of duties, violates any laws or regulations thus causing damage to any other person shall be liable jointly and severally with the company for indemnifying such other person. In case a supervisor is liable for damages to a third party and a director is also liable, such supervisor and director shall be joint debtors (Company Act §226).
  6. Audit committee
  7. A public offering company shall establish either an audit committee or a supervisor., provided the competent authority may order it to establish an audit committee in lieu of a supervisor in view of the company's scale, type of operations, or other essential considerations (Securities and Exchange Act §14-4I). The audit committee shall be composed of the entire number of independent directors and consist of not less than three persons, one of whom shall be the convener, and at least one of whom shall have accounting or financial expertise (Securities and Exchange Act §14-4II). For a company that has established an audit committee, the provisions regarding supervisors in the Securities and Exchange Act, Company Act, and other laws shall apply mutatis mutandis to the audit committee (Securities and Exchange Act §14-4III).
  8. Remuneration committee
  9. A company whose stock is listed on the stock exchange or traded over-the-counter shall establish a remuneration committee (Securities and Exchange Act §14-6). Pursuant to the Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter, members of the remuneration committee shall be appointed by resolution of the board of directors, number three or more, meet certain professional qualification requirements together with at least five years' work experience, and satisfy requirements of independence; the professional qualification requirements and requirements of independence for such members are consistent with those for independent directors. Article 7, Paragraph 1 of the above regulations further provides expressly that the remuneration committee shall exercise the care of a good administrator in faithfully performing the official powers listed below:
    1. Prescribe and periodically review the performance review and remuneration policy, system, standards, and structure for directors, supervisors and managerial officers.
    2. Periodically evaluate and prescribe the remuneration of directors, supervisors, and managerial officers.
2     II.Offering and issue of securities
  1. Overview
  2. The Securities and Exchange Act ("SEA") is enacted for the purpose of promoting national economic development and protecting investments (Securities and Exchange Act §1), in order to safeguard and strengthen the securities market. The Financial Supervisory Commission ("FSC") is the competent SEA authority (Securities and Exchange Act §3), regulating and supervising the public offering, issuing, and trading of securities according to the SEA, Company Act and other relevant acts (Securities and Exchange Act §2). The term "company" as used in the SEA means a company limited by shares organized under the Company Act (Securities and Exchange Act §4). When the company publicly offers and issues securities, it is an issuer or promoter (Securities and Exchange Act §5). Details concerning the offering and issue of securities are as below:
    1. Definition of securities
    2. The term "securities" as used in the SEA includes government bonds, corporate stocks, corporate bonds, stock warrant certificates, certificates of entitlement to new shares, other FSC-approved securities, and certificates of payment or documents of title to any of the securities above; securities referred to above are still deemed securities even without physical certificates representing the title being printed (Securities and Exchange Act §6).
    3. Application procedure of offering and issue
      1. The Securities and Futures Bureau of the FSC has established a Regulations Governing the Offering and Issuance of Securities by Securities Issuers, which govern the issue of securities unless laws and regulations state otherwise. With the exception of government bonds or other FSC-approved securities, the FSC adopts an effective registration system in reviewing the public offering (Securities and Exchange Act §7I), issue (Securities and Exchange Act §8), and offering to the general public, of securities (Securities and Exchange Act §22I and III).
      2. Approval of a public offering shall not be used for promotional purposes as if that the application materials have been verified or that the value of the securities has been guaranteed (Securities and Exchange Act §40).
      3. Pursuant to Article 28-1, Paragraph 2 of the SEA, the FSC may require 10% of the new issues (unless a higher percentage is determined by a resolution of the shareholders meeting) to be offered at the market value to the public notwithstanding the provision in Article 267, Paragraph 3 of the Company Act which allows the original shareholders the right to priority subscription to new issues. The value of the shares publicly offered in compliance with paragraphs 1 and 2 and the value of the shares in the same issue reserved for subscription by the employees and original shareholders shall be the same. An issuer may issue stocks from the date of approval for company incorporation or the date the new registration license reflecting the issuance of new shares is delivered to the company (Securities and Exchange Act Enforcement Rules §3). An issuer shall deliver the share certificates or bond certificates to the subscribers against the aforesaid certificates of payment within 30 days from the date such stocks or bonds may be issued , and public announcement shall be made prior to the delivery of such certificates.The transfer of stock or bond certificates of payment shall also be made within the above 30-day period (Securities and Exchange Act §34).
      4. Stocks and corporate bonds issued by public companies shall be certified pursuant to the FSC Regulations Governing Certification of Corporate Stock and Bond Issues by Public Companies, provided Article 10, Paragraph 4 of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers stipulate that an exchange-listed, OTC-listed, or emerging stock company that issues stocks or corporate bonds shall deliver them by book-entry transfer in scriptless form.
  3. New issue
    1. Under a structure of authorized capital, a new issue means a post-incorporation issue of the shares out of the total number of shares stated in the articles that were not issued at the time of incorporation or an additional issue upon a share increase according to an amendment to the articles after all the shares stated in the article are issued, as is evident in Article 266, Paragraph 1 of the Company Act. Such new issue only results in an increase to the company's paid-in capital without affecting the total shares stated in the articles therefore does not amend the articles and merely requires a special board resolution (Company Act §266II and III).
    2. Types of new issue
    3. There are various types of new issue after a company is incorporated. Generally, a new issue is divided into two types: one to serve funding purpose directly and the other to serve other purposes. The form is called general new issue while the latter special new issue, such as stock distribution (Company Act §240I and VI), employee bonus (Company Act §240IV), capitalization of legal reserve (Company Act §241), conversion of corporate bonds into shares (Company Act §262), restricted stock for employees (Company Act §267VIII), new issue on account of merger with another company etc. In terms of difference, a general new issue, whose purpose is to raise funds, is conditional upon the offeror paying up the stock payment, therefore results in an increase to the physical property of the company, whereas a special new issue does not lead to such increase since the party to which the new shares are to be issued is pre-determined and the stock payment is paid with the company's existing property.
    4. Ways of new issue
    5. There are two ways of new issue: One is non-public issue and the other is pubic issue. In the former, the new shares are made available to the employees and existing shareholders of the company for subscription fully, with any remaining shares, if the new shares are not fully subscribed as above, to be made available to specific persons for subscription (Company Act §268I, first part), whereas in the latter, the new shares are not fully subscribed by the employees and existing shareholders of the company, and subscription for the remaining shares is solicited from non-specific persons (Company Act §268I, second part). Moreover, to protect the public from damage from subscription in an unfavorable investment condition such as when a company is running poorly or suffering from loss etc., the Company Act prohibits any public issue of new shares under the following circumstances:
      1. A company may not publicly issue special shares with preference where (Company Act §269):
        1. its average net profit of the last three years or, in case the company has commenced its business for less than three years, of the years the company is in operation, after tax, is not sufficient to pay dividends on special shares already issued and intended to be issued, the reason being the company's business capability at this time is already poor;
        2. it has been in default in making regular payment of dividends on special shares already issued.
      2. A company may not issue new shares publicly where (Company Act §270):
        1. it has incurred losses in the last two consecutive years, unless the nature of business requires a longer period for preparation or it has a sound business plan under which its profit-making capability will be improved;
        2. its assets are not sufficient to meet liabilities
      In case the assets of the company are insufficient to set off its liabilities, it may petition for reorganization, and the board of directors shall apply to court for pronouncement of its bankruptcy (Company Act §211II). It is not advisable to allow a company on the brink of bankruptcy to issue new shares publicly to absorb idle capital from the public.
    6. Issue procedure
      1. Special board resolution
      2. The issue of new shares of a company shall be determined by the board by a resolution adopted by a majority vote at a meeting attended by at least two-thirds of the directors (Company Act §266II). The issue of new shares is subject to the board's exclusive resolution, the legislative purpose being to enable the board to raise working capital required by the company swiftly under favorable conditions based on the company's funding need and the status of the capital market at any time.
      3. The board shall prepare forms of subscription
      4. When a company issues new shares publicly, the board of directors shall prepare forms of subscription, setting forth therein the following particulars (Company Act §273I):
        1. Particulars specified in Article 129, Paragraph 1, Subparagraphs 1 to 6, and Article 130, of the Company Act;
        2. The total number of shares originally authorized or the number of shares already issued out of the total number of authorized shares after increase of capital, and the value thereof;
        3. Particulars specified in Article 268, Paragraph 1, Subparagraphs 3 to 11 of the Company Act; and
        4. The time of payment for shares subscribed.
      5. The board shall give notice and make public announcement to existing shareholders, with a notice of forfeiture of right included in the notice
      6. In issuing new shares, a company shall make public announcement and advise, by notice, its original shareholders to subscribe for, with preemptive right, the new shares except those reserved for employee subscription, in proportion respectively to their original shareholding, and shall state in the notice that if the right of any shareholder who fails to subscribe for new shares within the time limit will be forfeited (Company Act §267III).
      7. Subscription by employees and existing shareholders
      8. When a company issues new shares publicly, its employees are entitled to subscription according to the Company Act. Capital may be contributed in the form of property necessary to the business of the company where such shares are subscribed for by existing shareholders rather than issued to the public (proviso of Company Act §272). A form of subscription shall state the names of shareholders who contribute property as capital and the kinds, quantities, values or appraisal standards of such property. Where a fractional percentage of the original shares being held by a shareholder is insufficient to subscribe for one new share, the fractional percentages of the original shares being held by several shareholders may be combined for joint subscription of one or more integral new shares or for subscription of new shares in the name of a single shareholder (Company Act §267III).
      9. Subscription by a third person other than an employee or existing shareholder
      10. New shares issued by a company must be made available to a third party other than an employee and existing shareholder of the company for subscription if not fully subscribed for by the employees and shareholders of the company. In this case, the company may elect to make the new shares available to specific persons for subscription without any new share being open for public issuance or to conduct a public issuance by soliciting subscriptions from the general public.
        1. Non-public issue
        2. Without limitation on their identity and number, specific persons can be either natural or juristic persons. The purpose of opening subscription to them is to avoid the laborious procedure of a public new issue, allowing a swift completion of the issue. The conditions for subscription are subject to agreement between the company and specific persons, and the price and conditions of issue are not required to be the same as the conditions of subscription by employees and shareholders (Company Act §156V). A specific person subscribing for share shall still complete a form of subscription and may contribute property necessary to the business of the company as capital (proviso of Company Act §272).
        3. Public issue
        4. A company issuing new shares shall, unless such new shares are fully subscribed by its existing shareholders and employees or by specific persons by agreement without any new share being open for public issuance, file an application with the authority in charge of securities affairs for approval of public issuance (Company Act §268I). Within 30 days of its receipt of the notice of approval from such authority, the company shall insert in the forms of subscription the serial number and date of approval, and publicly announce the particulars specified in said forms together with the serial number and date of approval, and issue the new shares (Company Act §273II).
      11. Payment demand by the board
        1. Payment demand and forfeiture of right procedure with respect to cash capital contribution
        2. A company issuing new shares shall press each of the subscribers for payment. Where a subscriber delays payment for shares, the board shall fix a period of not less than one month and call upon the subscriber to pay up, declaring that its right will be forfeited in case of default of payment within the stipulated period. The subscriber will be deprived of its right, and the shares it subscribes for will be otherwise sold, if it still fails to pay after the board makes the aforesaid call, provided compensation for damage, if any, may still be claimed against such defaulting subscriber (Company Act §266III and §142).
        3. Performance and verification of non-cash capital contribution
        4. An existing shareholder of a company or specific person subscribing for new shares of the company shall make non-cash capital contribution by the due date specified in the form of subscription if it is to contribute capital in the form of property necessary to the business of the company, and shall assist the company with any transfer registration required. After such non-cash capital contribution is made, the board shall request the supervisor for inspection and comment and report to the authority for approval. If the contribution is excessive or false, the competent authority shall request, by notice, that a response be made within a specified time limit, and may proceed with curtailment or order make-up for the deficiency after assigning personnel to conduct inspection (Company Act §274II), in order to prevent excessive appraisal of non-cash capital contribution.
      12. Withdrawal of subscription by subscribers
      13. Upon expiration of the time limit set forth for payment on new shares, if there are still some not subscribed or some subscribed but withdrawn or not yet paid for, the shareholders who subscribed the new shares and paid for them may set a time limit of over one month to press the company for full subscription and full payment on shares, failing which the shareholders may withdraw their subscriptions and the company shall refund the money paid on shares together with legal interest (Company Act §276I). Directors whose acts are responsible for loss or damage to the company under the aforesaid circumstance shall be jointly liable for compensation (Company Act §276II).
    7. Effects of new issue
      1. Time for a new issue to take effect
      2. A new issue takes effect as soon as all stock payment for the new shares is paid up, after which the subscriber thus becomes a shareholder entitled to exercise shareholder rights, unless it withdraws its subscription subsequently.
      3. Increase of the paid-in capital of the company
      4. A company's paid-in capital increases following each new issue, accordingly, so does its working capital.
  4. Invitation to subscribe for corporate bonds
  5. A company limited by shares may, by a resolution adopted by a majority of directors at a meeting attended by two-thirds or more of the total number of directors, invite subscription for corporate bonds (Company Act §246). Large-scale enterprises usually require huge sums of working capital, and corporate bonds constitutes a long-term fundraising method, therefore the Company Act allows companies limited by shares to invite subscriptions for corporate bonds.
    1. Limitation on the total amount of issue
    2. As limitation, the total amount of corporate bonds shall not exceed the net remainder of all assets in hands of the company after deducing all liabilities and intangible assets (Company Act §247I); the total amount of unsecured corporate bonds shall not exceed one-half of the aforesaid net remainder (Company Act §247II). The term "all assets in hands" means all existing tangible and intangible assets of the company. Intangible assets refer to assets without physical existence but with economic value such as goodwill, trademark rights, patent rights etc.
    3. Ban on issue
      1. Ban on issue of secured corporate bonds (Company Act §250)
      2. A company may not issue corporate bonds under either of the following circumstances:
        1. Where the company has done any act in breach of contract, or has been in default of payment of principal and interest, in respect of previously issued corporate bonds or other debts, and such state of thing still exist; or
        2. Where the company's average annual net profit, after paying tax, last three years or, in case the company has been in operation for less than three years, of the years the company is in operation, does not reach 100% of the total amount of interest payable on corporate bonds intended to be issued, provided, however, that corporate bonds that are issued under bank guarantee shall not be restrained
        A ban on issue is advisable in both of the above circumstances, where the company has lost its good credit standing (in the first circumstance) and its profitability is weak (in the second), save where the bonds in questions have been issued under bank guarantee that the creditors' rights and interests will not likely be prejudiced.
      3. Ban on issue of unsecured corporate bonds (Company Act §249)
      4. A company may not issue corporate bonds under either of the following circumstances:
        1. Within 3 years from the date of settlement, where the company has done any act in breach of contract, or has been in default of payment of principal and interest, in respect of previously issued corporate bonds or other debts, although the debt is now settled; or
        2. Where the company's average annual net profit, after paying tax, of the last three years or, in case the company has been in operation for less than three years, of the years the company is in operation, does not reach 150% of the total amount of interest payable on corporate bonds intended to be issued.
        As far as the first scenario is concerned, the company has experienced a wavering credit standing, hence discretion is advisable. In the second scenario, in order to protect the public, invitation of subscriptions for the corporate bonds is not advised when the company may delay paying principals and interests while the corporate bonds are not secured and the company's debt service depends on its profitability entirely.
    4. Methods of inviting subscriptions for corporate bonds
    5. Pursuant to the Company Act, invitations are divided into direct invitations and indirect invitations, as elaborated below
      1. Direct invitation
      2. Direct invitation means direct invitation by a company issuing corporate bonds to the public of subscriptions for the bonds. This method is rarely used in practice due to the likelihood that the corporate bonds are not established.
      3. Indirect invitation
      4. Indirect invitation means indirect invitation, through others, to the public of subscriptions for the corporate bonds, and is divided into firm commitment underwriting / offering and best efforts underwriting / offering, as below:
        1. Firm commitment underwriting / offering:
        2. In a firm commitment underwriting / offering, the issuer and the securities underwriter agree the latter will undertake the sale of the total amount of corporate bonds. The underwriter receives compensation from the company for such sale, but is to subscribe for the outstanding portion of the issue, if any, after the agreed term of underwriting expires.
        3. Best efforts underwriting / offering
        4. In a best efforts underwriting / offering, the issuer commissions the securities underwriter to sell on the issuer's behalf corporate bonds issued by the issuer. The underwriter may charge a considerable service fee for such sale according to the contract of mandate, and may return any outstanding portion of the issue to the issuer after the agreed period of best efforts underwriting / offering expires.
    6. Procedure of inviting subscriptions for corporate bonds
      1. Special board resolution.
      2. A company may, by a resolution adopted by the board directors, invite subscription for corporate bonds (Company Act §246). In its resolution, the board shall determine the contents of the corporate bonds and particulars of the invitation. The board shall also report the reasons for the invitation as well as other relevant matters to the meeting of shareholders to keep the shareholders' meeting informed.
      3. Deed of trust
      4. To protect creditors of corporate bonds, the Company Act draws reference from instances of legislation in the U.S. and Japan and adopts the trustee system. As such, the board shall apply to the authority in charge of securities affairs for approval of the name of the trustees of all holders of the corporate bonds and the covenants made in the mandates (Company Act §248I), and the trustees are limited to banking and trust enterprises (Company Act §248VI).
      5. Application to the authority in charge of securities for approval
      6. A company inviting subscriptions for corporate bonds shall submit the particulars listed in Article 248, Paragraph 1 of the Company Act to the authority in charge of securities to apply for approval. Upon receipt of the application, said authority shall review the contents of the particulars and base its decision to approve or reject on whether the total amount of corporate bonds exceeds the statutory limit and any of the circumstances under which no such invitation is allowed applies to the company.
      7. Preparation of forms of subscription and public announcement of invitation of subscriptions
      8. The company shall, within 30 days of its receipt of the notice of approval, prepare forms of subscription, setting forth therein the reference number of the approval letter of the authority in charge of securities, to made available to subscribers for subscription purposes, and shall make a public announcement of the invitation (Company Act §252I).
      9. The board shall furnish a list of all subscribers to the trustees of corporate bondholders
      10. Before requesting payments for subscriptions made by subscribers for the corporate bonds, the board shall prepare a complete list, setting forth therein the names, domiciles or residences etc. of all subscribers of registered corporate bonds, and deliver the list to trustees of the corporate bondholders (Company Act §255I).
      11. Payment requests
      12. The board shall, after subscriptions are made by subscribers, request such subscribers to pay in full the amounts they have subscribed (Company Act §254).
3     III.Production and delivery of a prospectus
A prospectus is an explanatory written statement that an issuer provides to the general public for the purpose of offering or selling securities (Securities and Exchange Act §13), for investors to rely on in making investment judgments in subscribing. Below is an analysis on the production and delivery of a prospectus:
  1. Production and particulars:
  2. In its application for approval to publicly offer and issue securities, an issuer is required to submit a prospectus, in addition to items required by the Company Act. The information required to be supplied in the prospectus is as stated in the FSC Regulations Governing Information to be Published in Public Offering and Issuance Prospectuses. Furthermore, where a company applies for listing its securities on a stock exchange or trading them on an over-the-counter market, it shall submit a prospectus, in addition to items required by the Company Act, in its application for approval. he rules governing the information required to be included in the prospectus shall be prescribed by the stock exchange and over-the-counter securities exchange, respectively, and submitted for approval by the FSC (Securities and Exchange Act §30).
  3. Delivery and liability for non-delivery:
  4. In an offer of securities, the issuer or underwriter (Securities and Exchange Act §79) shall first deliver a prospectus to the subscribers, and shall bear civil liability under Article 31, Paragraph 2 of the Securities and Exchange Act for indemnifying investors against damage suffered from their failure to obtain a prospectus and be informed of the financial and business information etc. of the issuer.
  5. Liabilities for false or withholding of information in the prospectus (Securities and Exchange Act §32):
  6. In the event the prospectus contains false or concealed information in its material contents, the following persons shall be held jointly liable with the issuer to any counterpart for damage sustained by from ignorance of such information:
    1. Promoters and their responsible persons (Company Act §8).
    2. Staff of the issuer who have signed or sealed the prospectus proving the whole or part of the content of the prospectus.
    3. Underwriter of the security concerned.
    4. Accountants, lawyers, engineers or other professionals or technical personnel who have signed or sealed the prospectus proving the whole or part of the content of the prospectus or have stated their opinion.
    5. Persons identified in Paragraphs 1 to 3 above, with the exception of promoters, are exempted if, with respect to portions not certified by the professionals in Paragraph 4, they are able to prove they have exercised due care and are satisfied, with good cause, that none of the essential contents of the prospectus are false or concealed or that the certified opinions are true.
4     IV.Exercise of the right of disgorgement against directors, supervisors, officers and Major Shareholders, and ban of insider trading
To prevent insiders such as directors, supervisors, officers and major shareholders holding more than 10% of the shares in the company from endeavoring to exploit insider information thus becoming less intent on operating the company, and also to prevent investors of the securities market from experiencing a loss of confidence which may gravely affect the fairness and function of the securities market, major countries around the world, such as the U.S., U.K., Japan etc., all prohibit insider trading expressly in laws. To make up any deficiency in insider trading regulations and achieve the purpose of banning such trading, the right of disgorgement is designed to grant benefits derived from short-term trading to the company concerned.
  1. Disgorgement - short-swing trading by insiders
  2. A stock issuing company shall claim for the disgorgement of any profit realized by an insider of such company from short-swing trading in the company's TWSE- or GTSM (Gre Tai Securities Market)-listed stock or other securities with the nature of equity (Securities and Exchange Act §157).
    1. Persons whose profits shall be allocated to the company:
    2. These persons refer to insiders of a publicly held company, including its directors, supervisors, officers, and shareholders with more than 10% of its shares. In calculating the shareholding of an insider, shares held by its spouse and minors and those held in another person's name (Securities and Exchange Act Enforcement Rules §2) shall all be included.
    3. Securities traded by insiders in short-swing trading:
    4. Pursuant to Article 157, Paragraph 6 of the Securities and Exchange Act and Article 11, Paragraph 1 of the Securities and Exchange Act Enforcement Rules, these securities shall include common shares and preferred shares listed on the TWSE and GTSM, convertible corporate bonds, corporate bonds with warrants, stock warrants, call (put) warrants, certificates of payment for shares, stock warrant certificates, certificates of entitlement to new shares, bond conversion entitlement certificates, Taiwan depositary receipts, and other equity-type securities.
    5. Forms of short-swing trading:
    6. Short-swing trading means the sale by a company insider of the company's TWSE- or GTSM-listed stocks or other securities with the nature of equity as held by it within six months after acquisition or the repurchase of such securities within six months after their sale, in which event the company may claim disgorgement against the insider of any profit realized from the price difference.
      Short-swing trading is not necessarily insider trading, but provisions governing insider trading and disgorgement apply if the insider makes use of unpublished material information to engage in the short-swing trading.
    7. Persons entitled to claim of disgorgement against insiders:
    8. When an insider engaging in short-swing trading gains a profit, the board or a supervisor shall exercise the right of disgorgement against it on the company's behalf and allocate the profit to the company. If the board of directors or the supervisor fails to exercise the right of claim for disgorgement on behalf of the company, its shareholders may request the directors or the supervisors to so exercise within 30 days; if the directors or supervisors still fail to do so upon the expiration of such period, the requesting shareholders shall have the right to claim for disgorgement against the insider on behalf of the company (Securities and Exchange Act §157II).
      The directors or supervisors shall be jointly and severally liable for damages suffered by the company as a result of their failure to exercise the claim for disgorgement on the company's behalf (Securities and Exchange Act §157III).
    9. Time limit for exercising the right of disgorgement against an insider
    10. Disgorgement may be claimed against an insider within two years after the date the insider realizes a profit and is no longer claimable after the two-year time limit if not exercised within said period (Securities and Exchange Act §157IV).
    11. Calculation of profit to be disgorged: the highest selling price minus the lowest purchasing price (Securities and Exchange Act Enforcement Rules §11II):
      1. The price difference shall be calculated in a manner that the highest selling price matches the lowest purchasing price, the second highest selling price matches the second lowest purchasing price, and so on; losses are not included.
      2. The dividends received by the traded stocks shall be included into the price difference calculation in Subparagraph A.
      3. A 5% legally mandated interest under Article 203 of the Civil Code shall be added into the price difference. Such interest shall be calculated based on the date of last trading until the date of disgorgement to the company, in the case of Subparagraph A, and the date cash dividends are received until the date of disgorgement to the company in the case of Subparagraph B.
      4. The commissions charged by securities firms and the securities transaction tax arising from such trading shall be deducted from the profit in calculating the profit differential in Subparagraph A.
  3. Insider trading:
  4. An insider of a stock issuing company or any person who has learned, by reason of an occupational or controlling relationship, information that will have a material impact on the stock price of the issuing company, is deemed to engage in trading with insider information, or insider trading, if it purchases or sells shares of the company that are listed on an exchange or an over-the-counter market or any other equity-type security of the company prior to the public disclosure of such information or within 18 hours after its public disclosure (Securities and Exchange Act §157-1).
    1. Persons not allowed to engage in insider trading:
      1. Insiders:
      2. Insiders include directors, supervisors, officers, natural persons designated as proxy to exercise the duties of a shareholder in its behalf pursuant to Article 27, Paragraph 1 of the Company Act, and shareholders with more than 10% of the shares of a stock issuing company. In calculating the shareholding of an insider, shares held by its spouse and minors and those held in another person's name (Securities and Exchange Act Enforcement Rules §2) shall all be included.
      3. Persons learning information by reason of an occupational or controlling relationship:
      4. Examples are securities firms, investment consultants, securities analysts, journalists, persons hired by an issuer to handle business, lawyers, accountants etc., and police and investigation and judicial officers learning insider information in the course of their performance of duties in the investigation of Securities and Exchange Act cases.
      5. To prevent malpractice, persons losing the status in Subparagraphs A and B within the last six months are still governed by this article.
      6. Persons learning the information from any of the persons named in the preceding three subparagraphs.
    2. Information that has a material impact on the stock price of the company
    3. As authorized by Article 157-1 of the Securities and Exchange Act on May 30, 2006, and in the Regulations Governing the Scope of Material Information and the Means of its Public Disclosure Under Article 157-1, Paragraphs 5 and 6 of the Securities and Exchange Act amended December 22, 2010 ("Material Information Regulations"), the FSC divides information with a material impact on the stock price of a company into two types. The first type of material information concerns the company's finance and business that has a material impact on the stock price of the company or on the investment decisions of a reasonably prudent investor, including the following information according to Article 2 of the Material Information Regulations:
      1. A matter provided in Article 7 of the Securities and Exchange Act Enforcement Rule.
      2. The company carries out any material transaction of public offering and issuance or private placement of equity-type securities, capital reduction, corporate merger, acquisition, or split, share exchange, conversion, or transfer of shares from others, direct or indirect investment project, or there is any material change in any of the above matters.
      3. The company is in proceedings for reorganization, bankruptcy, dissolution, or application for stock delisting or termination of OTC securities trading, or there is any material change in any of the above matters.
      4. A member of the company's board of directors is subject to a provisional injunction ruling suspending his or her exercise of powers, making it impossible for the board of directors to exercise its powers, or all independent directors of the company are removed from office.
      5. Occurrence of a disaster, group protest, strike, or environmental pollution, or any other material event, where the company incurs a material loss, or where a relevant authority orders suspension of work, suspension of business, or termination of business, or revokes or voids a relevant permit.
      6. Dishonor of a negotiable instrument, filing for bankruptcy or reorganization, or any other similar event of a material nature, with respect to a related party of the company or to a principal debtor or a joint and several guarantor of a principal debtor; or inability by a principal obligor, in favor of whom the company has made an endorsement or guarantee, to settle a matured negotiable instrument, loan, or other obligation.
      7. Occurrence of a significant event of internal control-related malpractice, non arms-length transaction, or defalcation of company assets.
      8. Suspension of part or all of business transactions between the company and a principal client or supplier.
      9. Upon occurrence of any of the following with respect to a financial report of the company:
        1. Failure to make a public announcement or a filing in a manner consistent with the requirements of Article 36 of the Act.
        2. An error or omission in a financial report prepared by the company, with respect to which Article 6 of the Enforcement Rules to the Act requires a correction to and further a restatement of the financial report.
        3. A certified public accountant issues an audit or review report containing an opinion other than an unqualified or modified unqualified opinion. The same does not apply, however, in cases where the certified public accountant issues a qualified audit or review report for the reason of annual amortization of losses, as permitted by law, or for the reason that an amount of long-term equity investment and profit/loss thereupon presented in the first-quarter, third-quarter, or semiannual financial report is calculated on the basis of financial statements of the investee company that have not been audited or reviewed by a certified public accountant.
        4. A certified public accountant issues an audit or review report indicating substantial doubt about the going-concern assumption.
      10. A significant discrepancy between financial forecasts already publicly disclosed and actual figures or between updated (or corrected) financial forecasts and original forecasts.
      11. The company's operating income or income before tax shows a significant change from the same period of the previous year, or shows a significant change compared with the previous period and the change is not caused by seasonal factors.
      12. When any of the following accounting events occurs to the company, and the event, although it does not affect the profit/loss of the current period, has resulted in a material change in the net worth of the current period:
        1. Revaluation of assets.
        2. Valuation of financial instruments.
        3. Foreign currency translation adjustments.
        4. Financial instruments accounted for using hedge accounting.
        5. Net losses not recognized as retirement fund costs
      13. The fundraising plan for corporate bond redemption cannot be carried out.
      14. The company buys back its own shares.
      15. The company makes or suspends a public tender offer to acquire securities issued by a public company.
      16. The company acquirers or disposes of a major asset.
      17. If the company has issued securities overseas, occurrence of a material event that requires prompt public announcement or filing, as provided in the government laws and regulations, or securities exchange market rules and regulations, of the country where the securities are listed.
      18. Other matters relating to the finances or businesses of the company that would have a material impact on its stock price or on the investment decisions of a reasonably prudent investor.
      Pursuant to Article 3 of the Material Information Regulations, the second type of material information refers to information relating to the market supply and demand of such securities that would have a material impact on the company's stock price or on the investment decisions of a reasonably prudent investor, referring to any of the following:
      1. The company's securities traded on the centralized securities exchange market or the OTC securities market are subject to a public tender offer or suspension of a public tender offer.
      2. Any material change in the shareholding of the company or its controlling company.
      3. The company's securities traded on the centralized securities exchange market or the OTC securities market are subject to an event of bidding, auctioning, material default in settlement, change of the original method of trading, or suspension, limitation, or termination of trading, or there is any circumstance that may lead to any such event.
      4. Persons duly charged with exercising searches under the law conduct a search of the company, its controlling company, or any of its major subsidiaries as defined in Article 2-1, Paragraph 2 of the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants.
      5. Any other matter relating to the market supply and demand of such securities that would have a material impact on the company's stock price or on the investment decisions of a reasonably prudent investor.
    4. Information that will have a material impact on the ability of the company to pay principal or interest
    5. This refers to any of the following information save in the event of companies issuing corporate bonds under a bank guarantee:
      1. Any matter set out in Article 7, subparagraphs 1 to 3 of the Securities and Exchange Act Enforcement Rules.
      2. Any matter set out in Subparagraphs E to H, Subparagraph I, Item d, and Subparagraph M, of Article 2.
      3. The company is in proceedings for reorganization, bankruptcy, or dissolution.
      4. The company suffers a material loss, and the loss is likely to result in financial difficulty, suspension of business, or termination of business.
      5. The amount of the company's current assets, with inventory and prepaid expenses deducted and net cash inflows generated before the maturity date of corporate bonds added, is insufficient to cover the principal or interest due in the near future for the most recent period and other current liabilities.
      6. The interest of any already issued corporate bonds is calculated at a non-fixed interest rate, and the interest expenses have risen significantly due to market interest rate fluctuations and affect the ability of the company to pay principal or interest.
      7. Any other matter that could affect the ability of the company to pay principal or interest.
    6. Ways of disclosure of material information:
    7. The ways of disclosure of material information are set forth in Article 6 of the Material Information Regulations. Public disclosure of information defined in Articles 2 and 4 of such regulations (information relating to the finance or business of a company that would have a material impact on its stock price or on the investment decisions of a reasonably prudent investor, or information that will have a material impact on the ability of the company to pay principal or interest) is made when such information is entered on the Market Observation Post System.
      For the purposes of Article 3 of the same regulations (regarding information relating to the market supply and demand of such securities that would have a material impact on its stock price or on the investment decisions of a reasonably prudent investor), public disclosure of information means any of the following:
      1. The company enters such information on the Market Observation Post System.
      2. The Taiwan Stock Exchange Corporation publicly announces the information on the Market Information System website
      3. The GreTai Securities Market publicly announces the information on the Market Information System website.
      4. Coverage of the information in two or more daily national newspapers on non-local news pages, national television news, or electronic newspapers issued by any the aforesaid media. In the case of information publicly disclosed in this way, the period of 18 hours referred to in Article 157-1, Paragraph 1, of the Securities and Exchange Act shall begin with the later of the time of delivery of the newspaper, first broadcasting of the television news, or posting of the news on the electronic website, as the case may be. (The time of delivery of a newspaper referred to in the preceding paragraph means 6 a.m. for morning newspapers and 3 p.m. for evening newspapers.)
    8. Unless they have reasonable cause to believe the information had already been publicly disclosed, persons engaging in insider trading shall be held liable for damages to trading counterparts who unknowingly undertook the opposite-side trade with bona fide intent if such persons violate their recusal or disclosure obligations, whether they gain a profit from the insider trading or not, even if they suffer a loss (Securities and Exchange Act §157-1III), and shall also be criminally liable (Securities and Exchange Act §171).
    9. Statute of limitations for the claim of damages against a person engaging in insider trading:
    10. The right to claim shall be exercised within two years from the time the claimant learns of the cause which entitles him the right to claim, or within five years from the offering, issuance or trading, and is no longer exercisable after such periods expire.
5     V.Registration and public announcement of change and pledge of equity of directors, supervisors, officer and major shareholders
  1. Prior registration:
  2. "Prior registration" is required as a limitation on the assignment of shareholding by an insider of a stock issuing company under Article 22-2 of the Securities and Exchange Act, as analyzed below:
    1. Persons required to file prior registration:
    2. These persons are insiders of a publicly held company, including directors, supervisors, officers and major. shareholders holding more than 10% of the shares in the company. In calculating the shareholding of an insider, shares held by its spouse and minors and those held in another person's name are included. Pursuant to Article 2 of the Securities and Exchange Act Enforcement Rules, the term "shares held in another person's name" means the following:
      1. Directly or indirectly provides stocks to a third party or provides funds to a third party for the purchase of such stocks.
      2. Be entitled to manage, utilize, or dispose the stocks held under the name of a third party.
      3. Be allocated the complete or partial portions of profits or losses of stocks held under the name of a third party.
    3. Ways of assignment of shares by insiders:
      1. assignment to the public following approval from or an effective registration with the FSC, for example, as is common in the event of release of government stock by a state-run enterprise for privatization purpose.
      2. no registration is required of an assignment on a centralized exchange or over-the-counter market of shares totaling not more than 10,000 shares per exchange day; assignment of more than 10,000 shares shall be effected at least three days following registration with the FSC, satisfy the holding period requirement and be within the daily transfer allowance ratio prescribed by the FSC.
      3. assignment by means of private placement to designated persons satisfying the conditions prescribed by the FSC, within three days following registration with the FSC. Any assignment of the assigned stock by such persons within one year shall still be effected in the manner specified in Subparagraph A, B or C, to prevent their swift assignment that may create a legal loophole.
    4. Violation of assignment restrictions by an insider:
    5. An insider of a company shall bear administrative liability in accordance with Article 178, Paragraph 1, Subparagraph 1 of the Securities and Exchange Act if it assigns its shares against this article.
  3. Subsequent filing:
  4. Subsequent filing is stipulated by Article 25 of the Securities and Exchange Act, which provides that an insider of an issuer shall make a filing with or give notice to the issuer after any change in or pledge of its shares, and that the issuer must make a filing with the FSC and make a public announcement, as analyzed below:
    1. Persons required to make a subsequent filing:
    2. Publicly held companies and their insiders. The term "insiders" is as defined in Article 22-2 of the Securities and Exchange Act.
    3. Time of filing and public announcement:
      1. Upon registering the public issuance of its shares, a company shall file with the FSC and announce to the public the class and numbers of the company's shares held by its insiders.
      2. The insiders shall file, by the fifth day of each month, a report with the issuer of the changes in the number of shares they held in the preceding month. The issuer shall compile and file such report of changes with the FSC by the 15th day of each month. The FSC may order an issuer to make public announcement of such information should it deem the measure necessary.
      3. When the shares held by an insider are pledged, the pledgor shall give immediate notice to the issuer; the issuer shall make a filing with the FSC and publicly announce such pledge within five days of the pledge.
    4. Violation of the obligation to make a filing or public announcement:
    5. A company or an insider thereof shall bear administrative liability according to Article 178, Paragraph 1, Subparagraph 2 of the Securities and Exchange Act for any violation of the obligation to make a filing or public announcement under this article. In such case, the FSC shall, in addition to duly imposing an administrative fine, order the company or insider to comply within a prescribed time period; where the company or insider fails to comply within the specified period, the FSC may order a new period for compliance and impose additional an administrative fine for each successive failure to comply (Securities and Exchange Act §178II).
  5. Minimum percentage of stock held by directors and supervisors
  6. To instill a concept of shared interests in a company's directors and supervisors and the company in order to boost operating performance, ensure the soundness of the capital structure of the company, and increase benefits to investors, Article 26 of the Securities and Exchange Act provides that the total shares of registered stocks held by the entire body of either directors or supervisors of a publicly held company shall not be less than the percentage prescribed by the Rules and Review Procedures for Director and Supervisor Share Ownership Ratios at Public Companies:
    1. The prescribed minimum percentage of registered stock held by the entire body of directors and supervisors varies among different companies based on the paid-in capital.
    2. The total registered shares held by the directors and supervisors are determined based on entries inscribed on the shareholders' list or on the proof of shares deposited with a centralized securities depositary, provided shares which have been transferred but the transferee has not completed the transfer procedures shall be deducted.
    3. With the exception of independent directors, all directors and supervisors shall make up any deficiency within a month after assuming office if their shareholding upon their election falls short of the prescribed percentage.
    4. If during their term of office, any director or supervisor transfers its shares or leaves office, such that the total shareholding of all the directors and supervisors as a whole is less than the prescribed percentage, all the directors and supervisors other than independent directors shall make up the shortfall within a month of notice given by the company or FSC.
    5. The FSC may from time to time dispatch personnel to examine and audit records on the change in shareholdings of directors or supervisors and to examine the relevant records and accounts. Violators are punished in accordance with Article 178, Paragraph 1, Subparagraph 6, and Paragraph 2, of the Securities and Exchange Act.
  7. Public tender offer (Securities and Exchange Act §43-1):
    1. Filing of massive acquisition:
    2. To prepare issuers, investors and the FSC for any material change in the equity of a company, any person who acquires more than 10% of the total issued shares of a public company either individually or jointly with other persons shall make a filing according to FSC requirements within ten days after such acquisition, and shall file timely amendment when there are changes in the matters reported. Such stipulation is the same as that under U.S. laws, which only requires a filing be made within 10 days after acquisition, unlike that under Japanese laws, which requires that the filing take effect before the public tender offer may proceed (Securities and Exchange Act §43-1I).
      Violators of the obligation to make a filing are punished in accordance with Article 178, Paragraph 1, Subparagraph 2, and Article 179, of the Securities and Exchange Act.
    3. Regulation:
    4. Any public tender offer to purchase the securities of a public company bypassing the centralized securities exchange market or the over-the-counter market is governed by Article 43-1, Paragraph 2, Articles 43-2 to 43-5, of the Securities and Exchange Act, as analyzed below:
        A.Meaning and scope of public tender offer
        1. Meaning:
        2. Article 43-1, Paragraph 4 of the Securities and Exchange Act amended February 2002 grants the FSC the power to establish the Regulations Governing Public Tender Offers for Securities of Public Companies ("Public Tender Offer Regulations"), authorizing the FSC to prescribe the scope, conditions, period, related parties, and particulars for filing and public announcement of a public tender offer, as well as the percentage and conditions of a compulsory public tender offer. As defined by Article 2I of the Public Tender Offer Regulations, public tender offer means purchase of securities from unspecified persons bypassing the centralized securities exchange market or the over-the-counter (OTC) markets, and instead using public announcement, advertisement, radio broadcast, telecommunication, letters, telephone, presentation show, explanation delivering or other methods to make a public offer.
        3. Securities governed by the Public Tender Offer Regulations:
        4. Issued shares, new shares entitlement certificates, warrants, preferred shares attached with warrants, convertible corporate bonds, corporate bonds attached with warrants, depositary receipts, and any other securities approved by the FSC of a company which has already completed the public issuance or supplemental public issuance of the above-mentioned securities in accordance with the Public Tender Offer Regulations (Public Tender Offer Regulations §2II).
        5. Any public tender offer to purchase the securities of a public company bypassing the centralized securities exchange or over-the-counter market, in principle, may be conducted only after being reported to the FSC and publicly announced (Securities and Exchange Act §43-1II).
      1. Summary public tender offer: A public tender offer is not required to be reported to the FSC and publicly announced under the following circumstances (exceptions in Securities and Exchange Act §43-1II):
        1. The number of securities proposed for public tender offer by the offeror plus the total number of securities of the public company already obtained by the offeror and its related parties do not exceed 5% of the total number of voting shares issued by the public company.
        2. The securities purchased by the offeror through the public tender offer are securities of a company of which the offeror holds more than 50% of the issued voting shares.
        3. Other circumstances in conformity with the regulations prescribed by the FSC.
      2. Compulsory public tender offer
      3. To avoid massive acquisition which may affect the prices of individual stock markets, the amendment of the Securities and Exchange Act in February 2002 has drawn reference from U.K. instances of legislation and incorporated a provision on compulsory public tender offers: Any person who individually or jointly with another person(s) intends to acquire within 50 days shares accounting for 20% or more of the total issued shares of a public company shall employ a public tender offer to do so (Securities and Exchange Act §43-1III and Public Tender Offer Regulations §11).
6     VI.Restriction or prohibition of competition and agent service
    Articles 32 and 209 etc. of the Company Act are general provisions prohibiting competition by insiders of a company while Article 51 of the Securities and Exchange Act is a special provision prohibiting a director, supervisor, or officer of a securities firm from serving concurrently in any position at another securities firm, to enable insiders to execute their business professionally and avoid any conflict of interest; as an exception, a director, supervisor, or managerial officer may, subject to the approval of the FSC, nevertheless serve concurrently as the director or supervisor of the invested securities firm when there is an investment relationship (Securities and Exchange Act §51).
7     VII.Reporting and publication of financial reports
  1. Prepare, report and publish financial reports according to requirements (Securities and Exchange Act §36):
    1. To facilitate the FSC's regulation of issuers and enable investors to make investment analyses, an issuer shall compile financial statement pursuant to the Regulations Governing the Preparation of Financial Reports by Securities Issuers promulgated by the FSC in accordance with Article 14, Paragraph 2 and to the Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises under Article 369-12 of the Company Act, and is responsible for filing and publicly announcing such statements on a periodic basis as below:
      1. An issuer shall, within three months after the close of each fiscal year shall, publish and report to the FSC annual financial reports that have been audited and attested by certified public accountants, approved by the board of directors, and acknowledged by the supervisors.
      2. Within 45 days after the end of the first, second and third quarters of each fiscal year, it shall publish and report to the FSC financial reports that have been reviewed by certified public accountants and presented to the board of directors (enforced as of the 2013 fiscal year).
      3. It shall publish and report the operating status of the preceding month before the tenth day of each month, operating status meaning, according to Article 5 of the Securities and Exchange Act Enforcement Rules: total invoiced amount and business revenue, total amount of endorsements and guaranties provided for third parties, and other items as prescribed by the FSC.
    2. A listed company that adopted the International Financial Reporting Standards early, with the approval of the FSC, prior to the commencement day of FY2012, shall prepare consolidated financial reports for each period of 2012 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers amended by the FSC July 7, 2011. Its interim consolidated financial reports for the first and third quarters shall be reviewed by certified public accountants and published and reported within a month of the close of the first and third quarters of the fiscal year.Its biannual consolidated financial reports shall be audited and attested by certified public accountants, approved by the board of directors, and acknowledged by the supervisors, and published and reported within two months of the close of business of each half year. The above-mentioned one-month and two-month periods may extend for 15 days.
    3. The aforementioned company shall prepare an annual report and distribute it to all shareholders at the regular meeting of shareholders convened within six months of the close of each fiscal year. The particulars to be covered in the annual report are governed by the FSC Regulations Governing Information to be Published in Annual Reports of Public Companies.
    4. During a reorganization period of an issuer, the authorities of the board of directors and the supervisors are exercised by the reorganizers or the reorganization supervisors.
    5. In the event of a discrepancy between the annual financial reports ratified by the regular meeting of shareholders convened within six months of the close of each fiscal year and those published and reported to the FSC, or in the event of any of the circumstances under Article 7 of the Securities and Exchange Act Enforcement Rules which has a material impact on shareholders' equity or securities prices, the issuer shall publish the event and report to the FSC within two days from the date of occurrence of the event.
    6. Transcripts of the above-mentioned published and reported particulars and annual reports shall be sent to the stock exchange and Taiwan Securities Association in case the securities are listed on the stock exchange and to the Taiwan Securities Association to be made available for public review in case the securities are traded over-the-counter.
    7. The financial reports required to be published and filed above shall include the particulars set out in Article 4 of the Securities and Exchange Act Enforcement Rules. Where such reports are not prepared in accordance with applicable laws and regulations and shall be corrected, the filing party shall correct them on its own within the time limit prescribed by the FSC and restate or publish the corrected reports in accordance with Article 6 of the Securities and Exchange Act Enforcement Rules.
    8. According to Article 14, Paragraph 3 of the Securities and Exchange Act, the financial reports shall be signed or stamped with the seal of the chairperson, managerial officers, and accounting officers, who shall also produce a declaration that the report contains no misrepresentations or nondisclosures.
    9. It must further be noted that banks, bills finance companies and financial holding companies of Taiwan shall file audited financial reports within two months of the close of every six months. Individual financial reports of financial holding companies and their subsidiaries are governed by Article 11 of the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies. A financial holding company shall also file within 45 days of the close of each quarter the financial reports of the first and third quarters and make correction within 60 days. (Order No. Jin Guan Yin Fa Zi 10110002230, with effect from January 1, 2013)
  2. Acquisition and disposal of assets (Securities and Exchange Act §36-1):
  3. The applicable scope, work procedures, required public announcements, required filings, and other matters for compliance for major financial or operational actions of public companies such as acquisition or disposal of assets, derivatives trading, extension of monetary loans to others, endorsements or guarantees for others, and disclosure of financial projections are governed by the FSC Regulations Governing the Acquisition and Disposal of Assets by Public Companies.
  4. (III)Violation of the obligation to prepare, file and publish financial reports:
    1. Administrative liability: The issuer is fined pursuant to Article 178, Paragraph 1, Subparagraphs 2 to 4, the latter part of Subparagraph 7; and Article 178, Paragraph 2, of the Securities and Exchange Act.
    2. Criminal liability: In the event of false statements made in financial reports or other reports filed or published, the responsible person of the act and signatories are criminally liable pursuant to Article 174, Paragraph 1, Subparagraphs 4 to 6; and Article 179, of the Securities and Exchange Act.
    3. Civil liability: Pursuant to Article 20-1 of the Securities and Exchange Act, an issuer shall bear liability for damages suffered by bona fide purchasers or sellers of the securities concerned if any document presented by the issuer contains misrepresentations or nondisclosures.
8     VIII.Disclosure of information
  1. Material information required to be disclosed
    1. Pursuant to Article 3, Paragraph 1 of the TWSE Procedures for Verification and Disclosure of Material Information of Companies with Listed Securities, a listed company under any of the following circumstances (Article 2I of the above procedures) shall input the content or explanation of the material information concerned onto the Internet information reporting system designated by the TWSE before the commencement of trading hours of the trading day following the date of occurrence or media reportage of the event:
      1. Dishonor of a negotiable instrument due to insufficient deposits and notation of settlement subsequent to dishonor of a negotiable instrument, being discredited by the clearing house, or other loss of credit of a listed company or a responsible person, parent company, or subsidiary thereof, or a material change in shareholding of the parent company; or, after dishonor of a negotiable instrument of a listed company due to insufficient deposits or being discredited by the clearing house, any alteration of trading method, suspension of trading, or delisting of the stock thereof, and the status of any application to the original conditions.
      2. Any material effect on company finances or business resulting from any litigious or non-litigious matter, administrative disposition, contentious administrative procedure, provisional attachment, provisional injunction, or compulsory execution, with respect to a listed company or a responsible person thereof; or a chairperson or managerial officer of the company violates the Securities and Exchange Act, Futures Trading Act, Company Act, Banking Act, Insurance Act, Act Governing Bills Finance Business, Financial Holding Company Act, or Commercial Accounting Act, or is indicted for a crime of corruption malfeasance in office, fraud, breach of trust, or misappropriation.
      3. Any material eff restoreect on company finances or business resulting from any serious decrease in output or complete or partial suspension of work, leasing out of a company plant or principal equipment, or pledge or mortgage of all or a principal portion of a company's assets.
      4. Any event set forth in Article 185, paragraph 1 of the Company Act of the Republic of China (ROC).
      5. Reorganization or bankruptcy procedure of a listed company or parent or subsidiary thereof, and any and all events occurring in the course of such procedure, including any petition made to a court and any notice given or ruling handed down by a court, or any ruling prohibiting transfer of shares or any precautionary measure ordered by a court under relevant laws, or any material change in any of the above matters.
      6. Appointment of or change in chairman, general manager, a juristic-person director or supervisor or representative thereof, an independent director, a natural-person director or supervisor, or a member of the functional committee established pursuant to the Securities and Exchange Act, or change in one-third or more of directors, or in the case of a primary listed company, where there is no independent director with a registered household address in the ROC.
      7. Change of certified public accountant (CPA) for any reason other than internal adjustments within the certifying accounting firm.
      8. A change of spokesperson, acting spokesperson, principal financial officer, principal accounting officer, research and development officer or chief internal auditor of the company.
      9. Change in accounting year.
      10. Any material effect on company finances or business resulting from any signing, amendment, termination, or rescission of an important memorandum of understanding, a plan for a strategic alliance or other business cooperation or mutual non-competition commitment, or an important contract, change in any material respect of a business plan, completion of development of a new product, or successful development and formal entry into the full-scale production stage of an experimental product.
      11. Resolution by the board of directors to carry out a capital reduction, merger or consolidation, division, acquisition, exchange or conversion of shares or transfer of shares from another, dissolution, issue of new stock for capital increase, record date of a capital reduction or cash capital increase, issue of corporate bonds, issue of employee stock option certificates, issue of new restricted employee shares, issue of other securities, private placement of securities, participation in the establishment of or conversion into a financial holding company or investment holding company or subsidiary thereof, or any material change in any of the above matters; or failure by companies participating in a merger, consolidation, division, acquisition, or transfer of shares from another, to convene on the same day and pass resolutions by their boards of directors or shareholders meetings, or inability to convene a subsequent shareholders meeting of a company participating in a merger, consolidation, division, acquisition, or transfer of shares from another, or veto by either side of the proposal for merger, consolidation, division, acquisition, or transfer of shares from another; or resolution of the board of directors to cancel a merger or consolidation during the implementation of the merger or consolidation plan following the initial board resolution in favor of the merger or consolidation.
      12. The date and relevant financial and business information in connection with any disclosure through a press conference or investor conference held by a company or by any other means, that has not been entered into the Market Observation Post System.
      13. Resolution by the board of directors to publish financial forecast information, inapplicability of the above financial forecast information, or correction or updating of such financial forecast information, or, in the case of a company that has published complete financial forecasts, the difference between the self-assessed income before tax as publicly disclosed and filed within a month after the close of the year and the financial forecast as last publicly disclosed and filed reaches 20% or above, and the sum involved reaches NT$30 million and 0.5% of the paid-in capital, or the difference between the income before tax stated in the publicly disclosed and filed annual financial report and the self-assessed income before tax of the previous year as publicly disclosed and filed within a month after the close of the year reaches 20% or above, and the sum involved reaches NT$30 million and 0.5% of the capital. In the case of a foreign issuer whose shares have no par value or a par value other than NT$10, the aforesaid 0.5% of the paid-in capital shall be substituted by 0.25% of the shareholder equity.
      14. Resolution by the board of directors to distribute or not to distribute dividends, or a change in dividend distributions by a resolution of the board of directors or a shareholders meeting, or resolution of a record date for dividend distribution.
      15. Resolution by the board of directors or a shareholders meeting to directly or indirectly carry out an investment plan of an amount reaching not less than 20% of the company's paid-in capital or NT$1 billion, or any material change in any of the above matters. In the case of a foreign issuer whose shares have no par value or a par value other than NT$10, the aforesaid 20% of the paid-in capital shall be substituted by 10% of the shareholder equity.
      16. A change by resolution of the board of directors in a plan for capital increase by cash or offering of corporate bonds after such plan has become effective upon registration, or a change by resolution of the board of directors in a plan for private placement of securities after passage of the plan by a resolution of the board of directors or a shareholders meeting.
      17. Resolution of the board of directors on the date for convening an ordinary shareholders meeting or special shareholders meeting, the cause or subjects of such a meeting, or the date of suspension of changes to entries in the shareholders' roster.
      18. Important resolution of a regular shareholders meeting or special shareholders meeting.
      19. There is any material event of internal control fraud, non arms-length transaction, or defalcation of assets.
      20. An acquisition or disposal, by the listed company or by a subsidiary whose shares have not been publicly issued domestically, of assets within the scope of Article 3 of the Regulations Governing Acquisition or Disposal of Assets by Public Companies adopted by the competent authority and where the circumstances of Article 30 or 31 of those Regulations require public disclosure and filing, except where public disclosure has already been made of a merger, consolidation, division, acquisition, or transfer of shares from another pursuant to Article 2, Paragraph 1, Subparagraph 11 of these Procedures and he the information pertains to derivatives trades that must be reported each month. An acquisition by a listed company of any type of domestic open-end fund that is not privately placed is not required to disclose material information. Public disclosure and filing is required in the event of any unrealized losses on derivatives trading amounting to 3% or more of the shareholder equity.
      21. Resolution by the board of directors (or a shareholders meeting) to permit a managerial officer (or director) to engage in competitive conduct, or knowledge by the company that a managerial officer is operating the same kind of business independently or on behalf of another person, or a director is involved in conduct within the company's scope of business independently or on behalf of another person, and the investment or business that the managerial officer or director is engaged in is a Mainland-area enterprise, and there has been any failure to duly obtain permission from the board of directors (or a shareholders meeting), or there is any material change in any of the above matters.
      22. Public disclosure and filing of endorsements and guarantees by the listed company as required under Article 25 of the Regulations Governing Loans of Funds and Endorsements and Guarantees by Public Companies.
      23. Public disclosure and filing of monetary loans to other persons by the listed company as required under Article 22 of the Regulations Governing Loans of Funds and Endorsements and Guarantees by Public Companies promulgated by the competent authority.
      24. Acquisition or disposal of privately placed securities by a listed company or a subsidiary thereof.
      25. Suspension of business transactions in part or in whole between the listed company and a major purchaser or supplier, where the purchaser or supplier accounted for 10% or more of the company's total amount of sales or purchases in the last fiscal year.
      26. Occurrence of a disaster, group protest, strike, environmental pollution event, or any other material event, where the company incurs a material loss, or where a relevant authority orders suspension of work, suspension of business, termination of business, or revokes or voids a permit pertaining to pollution, or where the administrative fines amount to NT$1 million or more.
      27. Finalization of negotiation results of a negotiation meeting called between the listed company and a creditor bank.
      28. Dishonor of a negotiable instrument, filing for bankruptcy or reorganization, or any other similar circumstance, on the part of a related party of the listed company or principal debtor to the company or a joint and several guarantor of a principal debtor; or inability by a principal obligor, in favor of whom the listed company has made an endorsement or guarantee, to settle a matured negotiable instrument, loan, or other obligation.
      29. Any re-filing and public disclosure of the regular annually filed internal control system statement due to any change in the content thereof; or obtaining of the Internal Control Special Audit Report for the special audit of internal controls conducted by the CPA.
      30. Failure to make a public disclosure or a filing within a prescribed time limit; an error or omission in a financial report prepared by a listed company, with respect to which Article 6 of the Enforcement Rules to the Securities and Exchange Act requires a correction to and further a restatement of the financial report; a CPA issues an audit or review report containing an opinion other than an unqualified or modified unqualified opinion on a publicly disclosed and filed financial report, except where annual amortization of losses is permitted by law or the CPA issues an audit or review report containing a qualified opinion when the amount and gains and losses of long-term equity investments in the financial reports of the first and third quarters and the semiannual financial reports as calculated on the basis of the investee company's financial reports have not been audited or reviewed by a CPA.
      31. Mass media reports or information provided by investors are sufficient to affect the market price of securities of a listed company.
      32. Insufficient centralized custody ratio after stocks have been placed in centralized custody pursuant to regulations and prior to expiry of the custody period, as the result of withdrawal, due to a court execution order or some other reason, of stocks of personnel whose stocks had been placed in centralized custody.
      33. Occurrence of any of the changes in shareholding set forth in Article 369-8, Paragraph 1 or 2 of the Company Act and receipt of notice of the same.
      34. A director or supervisor is subject to a provisional injunction suspending it from the exercise of their powers; or a director is subject to a provisional injunction suspending it from the exercise of powers, and the board of directors is thereby rendered unable to exercise its powers.
      35. Any matter required to be publicly disclosed and filed by the company pursuant to the Regulations Governing Share Repurchase by Listed and OTC Companies or the TWSE Regulations Governing Repurchase of Listed Securities by Foreign Issuers.
      36. On account of a capital reduction, completion of amendment registration of a change to capitalization, passage of a plan for share replacement operations, any subsequent failure to execute such share replacement plan, or at the time of announcement of the financial report, the listing procedures for the new shares replacing the old ones due to the capital reduction have yet to be completed, resulting in a discrepancy between the number of common shares used as the calculation basis for net worth per share in the financial statement and the number of outstanding shares.
      37. Issuance of an undertaking upon applying for listing and subsequently inability to perform the undertaking; failure to carry out remedial procedures within three months of the day of the aforesaid occurrence.
      38. Any matter required to be publicly disclosed and filed pursuant to the Regulations Governing Tender Offers for Purchase of the Securities of a Public Company.
      39. Revocation by the competent authority of the permit of a financial holding company, or penalization of said company by the competent authority for violation of the Financial Holding Company and relevant regulations; or the loss by such company of controlling shareholding in a subsidiary, as defined by Article 4, Subparagraph 1 of the Financial Holding Company Act, where the competent authority has ordered remediation within a certain time limit.
      40. Increase or decrease in the number of held companies of an investment holding company.
      41. Resolution by the board of directors or a shareholders meeting to apply for termination of listing for trading of its securities, or any material change in such a matter.
      42. Objection or expression of reservation by an independent director or a member of the remuneration committee about a resolution by, respectively, the board of directors or a remuneration committee meeting, that has been included in a record or stated in written; for a listed company that has established an audit committee, any matter adopted with the approval of two-thirds or more of all directors without having been passed by the audit committee; any remuneration passed by the board of directors that is more favorable than the suggestion by the Remuneration Committee.
      43. Forfeiture by the directors and supervisors as a whole of subscription rights to shares in a number reaching one-half or more of subscribable shares upon cash capital increase of a listed company, and opening of the shares for subscription by a specific person or persons through negotiation.
      44. Where a listed company holds more than 70% of the total issued shares or total share capital of a TWSE listed (or GTSM listed) subsidiary thereof; or where 70% of the total issued shares or total share capital of a listed company is held by another TWSE listed (or GTSM listed) company.
      45. If a listed company issues securities outside of Taiwan, the making of any adjustment for differences in the overseas financial report due to inconsistency in the accounting principles applied in the two places with respect to financial information filed for any period in the place of overseas listing; or if the financial report of a primary listed company is not prepared according to the accounting principles adopted by the ROC, the differences in items between the accounting principles employed and those of the ROC and the monetary amounts affected, and the certifying CPA's opinion on the aforementioned matters.
      46. If the circumstances set forth in Article 53-25 of the TWSE Operating Rules exist. If the TWSE listed company is required to carry out share replacement operations due to a capital reduction, and the transferee company of the demerger is neither a TWSE listed nor a GTSM listed company, then three business days before the date on which trading will resume, public disclosure and filing shall be made of the following information for the demerged company and the transferee company of the demerger for the day prior to the record date of the demerger: the unaudited or CPA-reviewed share capital, net worth, and net worth per share, and the CPA-attested (or reviewed) earnings per share for the most recent period.
      47. Any other material policy resolution of the board of directors of a listed company or an affiliate thereof, or other circumstances having a material effect on the shareholders' equity or securities prices.
    2. Material information of a non-TWSE and non-GTSM listed major subsidiary of a listed company shall be deemed material information of the listed company where any circumstance under Paragraph 1 applies to such subsidiary. The term "major subsidiary" means a subsidiary conforming to the definition in generally accepted accounting standards to which any of the following circumstances has applied in the last two years or a subsidiary that the CPA deems to have a significant effect on the audited entity's financial reports:
      1. Where that subsidiary alone serves as a source of 30% or more of the operating revenue of the listed company.
      2. Where that subsidiary alone serves as a source of 50% or more of the quantity or total purchase amount of the major raw materials or major merchandise of the listed company.
      3. Where that subsidiary alone serves as a source of 50% or more of total output value (including self-manufacture, outsourcing, and purchasing from third parties) of the listed company.
      4. Where the listed company has original investments in that subsidiary alone in an accumulated amount up to 40% of the capital stock of the listed company and also NT$300 million or more, as shown in the financial reports of the listed company. In the event of a foreign issuer with no par value or a par value other than NT$10, the aforesaid 40% of capital stock shall be substituted by 20% of shareholder equity.
      5. Where the listed company has loaned funds and provided endorsements/guarantees in favor of that single subsidiary in a total amount up to 40% of the listed company's net worth and also NT$300 million or more.
      6. Where the income before tax of that subsidiary alone accounts for 50% or more of that of the listed company as shown on the consolidated financial statements of the listed company and also NT$300 million or more.
  2. Circumstances calling for a press conference
    1. Pursuant to Articles 2 and 3 of the TWSE Procedures for Press Conferences Concerning Material Information of Listed Companies, if any circumstance below applies to a listed company or it discovers any mass media reportage of the following diverges from facts, the listed company shall complete a "Report to Convene a Press Conference Concerning Material Information," specifying the content of the information, and deliver such report to the TWSE for handling:
      1. Dishonor of a negotiable instrument due to insufficient deposits, being discredited by the clearing house, or other loss of credit of a listed company or parent company or subsidiary thereof.
      2. Any litigious or non-litigious matter, administrative disposition or contentious administrative procedure, with respect to a listed company or a responsible person thereof, which has a material effect on the finances or business of the company
      3. Serious decrease in output or complete stoppage of work.
      4. Any event set forth in paragraph 1 of Article 185 of the Company Act of the Republic of China.
      5. Resolution by the board of directors of a listed company or parent or subsidiary thereof to petition a court for bankruptcy or reorganization, or a petition by a third party to a court for bankruptcy or reorganization; or a court ruling prohibiting transfer of the company's shares pursuant to relevant laws and regulations.
      6. Signing or rescission of an important memorandum of understanding, strategic alliance, plan for business cooperation or important contract, or change to important content of a business plan or completion of development of a new product.
      7. Resolution by the board of directors for capital reduction, merger or consolidation, cancellation of merger or consolidation, spin-off, acquisition, acquisition of shares, dissolution, participation in the establishment of or conversion into a financial holding company or investment holding company or subsidiary thereof; or inability to convene a subsequent shareholders' meeting of a company participating in a merger, consolidation, spin-off, acquisition, or acquisition of shares, or veto of the proposal for merger, consolidation, spin-off, acquisition, or acquisition of shares; provided, this shall not apply to cases under the following two circumstances:
        1. A merger conforming to Article 18, Paragraph 6 of the Business Mergers and Acquisitions Act, where the merged/acquired enterprise is a company not listed on the TWSE or GTSM and has a paid-in capital of less than NT$1 billion, or a merger/acquisition conducted in accordance with Article 19 of the Business Mergers and Acquisitions Act. If the merged/acquired enterprise is a foreign issuer with shares having no par value or a par value other than NT$10, the above-mentioned paid-in capital shall be substituted by shareholder equity.
        2. Capital reduction by a major subsidiary
      8. Occurrence of a material event of internal control-related malpractice, non arms-length transaction, or defalcation of assets.
      9. Finalization of negotiation results of a negotiation meeting called between the listed company and a creditor bank
      10. Transactions between the listed company and related parties:
      11. Acquisition or disposal of securities investments, real property and other fixed assets and claims of financial institutions, where the monetary amount of each transaction or of cumulative transactions with a same trading counterpart within one year reaches 20% of the company's paid-in capital or NT$300 million or above; in the event of a construction contractor, acquisition or disposal of real property for business use, where the monetary amount of each transaction or of cumulative transactions with a same trading counterpart within one year reaches 20% of the company's paid-in capital or NT$500 million or above. In the case of a foreign issuer with shares having no par value or a par value other than NT$10, the above-mentioned 20% of paid-in capital shall be substituted by 10% of shareholder equity. However, this requirement shall not apply to the following circumstances:
        1. A financial holding company, banking enterprise, insurance enterprise, securities enterprise, or any subsidiary thereof, acquiring or disposing of publicly offered R.O.C. open-end funds issued by an associated company, or engaging in bill or bond transactions.
        2. Capital increase of a subsidiary.
      12. Occurrence of a disaster, group protest, strike, environmental pollution event resulting in a disposition by a competent authority, where the anticipated insurance-indemnified loss exceeds 20% of the company's paid-in capital or NT$300 million or more. In the case of a foreign issuer with shares having no par value or a par value other than NT$10, the above-mentioned 20% of paid-in capital shall be substituted by 10% of shareholder equity.
      13. A report in the mass media or any information provided by any investor sufficient to affect the price of securities of the listed company.
      14. Voidance of the permit of a financial holding company by the competent authority thereof, or loss by a financial holding company of statutory controlling shareholding in a subsidiary thereof, where the competent authority has ordered remediation within a certain time limit.
      15. Resolution by the board of directors or a shareholders' meeting to apply for termination of listing for trading of its securities
      16. Where a listed company holds more than 70% of the total issued shares or total share capital of a TWSE (or GTSM) listed subsidiary thereof; or where 70% of the total issued shares or total capital of a listed company is held by another TWSE (or GTSM) listed company.
      17. Any other circumstance with a material effect on shareholders' equity or securities prices or any major policy resolutions of the board of directors of the company.
    2. In the event of a subsidiary of a listed company that meets the standards in Article 2-1 of the Procedures for Verification and Disclosure of Material Information of Companies with Listed Securities, or in the event of the parent company of a listed subsidiary, Where any circumstance above applies to such subsidiary's R.O.C. parent company which is non-TWSE and non-GTSM listed, it shall be deemed material information of the listed company, in which case the listed company shall hold a press conference.
9     IX.Provisions governing initial listing, suspension of trading, change of trading method, and termination of listing of securities of a listed company
  1. Listing and trading of securities (Securities and Exchange Act §140-143)
    1. To create a fair stock exchange market and ensure the quality of listed securities, the FSC has laid down stringent listing regulations for supervisory purposes. To regulate the rights and obligations of listed companies and the TWSE, the Securities and Exchange Act therefore stipulates in Article 140 that the TWSE shall adopt rules governing review of securities listings and contracts for public listing and file such rules with the competent authority for its approval. The TWSE shall also review an application by an issuer for listing and trading of the latter's securities to ascertain whether such application satisfies the listing conditions, and shall enter into a contact for public listing of securities with said company; the content of such contract shall not contradict the rules on contracts for public listing, and such contract shall be filed with the competent authority for recordation (Securities and Exchange Act §141). The charges and fee for the listing of securities shall be specified in the contract for public listing, with the rates to be filed by the TWSE with the competent authority for approval (Securities and Exchange Act §143).
    2. An issuer becomes a listed company after the TWSE approves its application for listing of its securities and the contract for listing is signed and takes effect (Operating Rules §43I), and it may then listed and trade its securities on the exchange. After the contract takes effect, the company shall pay a listing fee of the securities to the TWSE upon their initial listing and within a month of the commencement of each year thereafter, pursuant to the listing fee schedule of securities set forth in the TWSE Securities Listing Fee Schedule.
    3. Upon notice of the TWSE, a listed company shall upload an electronic file of its prospectus onto the website of the Securities and Futures Institute, deliver 2,000 copies of the prospectus to the TWSE to be distributed to securities firms, report information related to the listing to the Internet information reporting system designated by the TWSE one day prior to the day agreed with the TWSE for the listing of such securities, and send the downloaded information to the TWSE (Operating Rules §43I and §47).
    4. The public announcement referred to in the preceding paragraph shall include the name of the company, type of listed securities, volume, rights, obligations, date of listing, date, and document reference number of the issuance approval letter issued by the Competent Authority, name of the agency handling share transfer matters, name of the underwriter, underwriting period, price, volume, and other matters to be publicly announced (Operating Rules §43II). The listed securities shall be assigned by the TWSE a code number and an abbreviated name for uniform use (Operating Rules §43V).
    5. If, after the contract for listing takes effect, the issuing company applying for initial listing fails to list its stock for trading within three months from the date of the written notice of the TWSE, its listing case shall be voided, and the matter shall be reported to the competent authority for recordation, provided the above-mentioned period may be extended for a single term of three months if the TWSE considers the extension justified by good cause, and the extension shall be reported to the competent authority for recordation. However, the TWSE may proceed to provisionally postpone the listing and trading of the stocks if a circumstance under any subparagraph of the TWSE Rules Governing the Review of Securities Listings that renders listing inappropriate occurs (Operating Rules §43III).
  2. Placing listed securities under an altered trading method
  3. The TWSE may place the listed securities of a listed company under an altered trading method if any of the following circumstances applies to the listed company, and shall make a filing with the competent authority for recordation within a month of the action taken (Operating Rules §49):
    1. The latest financial reports as published according to law (including annual, semiannual and quarterly reports show that its net worth is less than one-half of its paid-in capital.
    2. A shareholders meeting is not held within six months of the end of the business year, except where one is held within the extended time limit granted by the Ministry of Economic Affairs.
    3. The attesting CPA issues an audit report with qualified opinion on the company's annual or semiannual financial reports which have been published and filed according to law, for the reason that the audit is restricted or the CPA deems the management's choice of accounting policies or disclosure in the financial statements inappropriate.
    4. Violation of relevant bylaws or rules concerning the material information of a listed company, and failure to rectify the situation within the specified time after being notified to proceed with disclosure process, and such violation is material.
    5. Two-thirds or more of the directors or supervisors are provisionally ordered to suspend performance of their authorities and duties.
    6. An application for reorganization is filed with court according to law.
    7. Half or more of the directors have changed such that the shareholding is too concentrated to meet the shareholding dispersion criteria, or any of the incumbent directors, supervisors or president has been in violation of the principle of good faith in the last five years, and no cure is made within the specified time period ordered by the TWSE.
    8. The company is unable to punctually pay for the common corporate bonds or convertible corporate bonds which have matured or which the creditors requested it to redeem.
    9. Dishonor of a negotiable instrument by a financial institution because of insufficient funds on deposit, where the TWSE is aware of such dishonor.
    10. After a demerger, the paid-in capital of an ordinary company or a technology company fails to comply with Article 4, Paragraph 1, Subparagraph 2 or Article 5, Subparagraph 1, respectively, of the Rules Governing the Review of Securities Listings.
    11. The number of companies held by an investment holding company falls below two; provided this shall not apply within one year from the date of listing for trading in the event of investment holding companies created as a result of share conversion, general assignment or transfer of business.
    12. Failure to abide by an undertaking to purchase the shares held by minority shareholders of a TWSE listed (or GTSM listed) subsidiary in which it has shareholding of more than 70%.
    13. In the handling of stock affairs, Article 44, Paragraph 3 of the Securities and Exchange Act is not observed, or the Taiwan Depository and Clearing Corporation discovers upon audit a material irregularity and the company fails to correct the irregularity within the prescribed time limit.
    14. Explanations given in a press conference concerning material information fail to clarify points in question, and the TWSE deems it necessary to protect the rights and interests of investors.
    15. As deemed necessary by the TWSE for other reasons.
  4. Suspension of trading of listed securities
    1. In the event an issuer of listed securities on the TWSE is found to be in violation of the Securities and Exchange Act or orders thereunder, the FSC may, for the purpose of protecting the public interest and the interest of investors, order the TWSE to suspend the trading (Securities and Exchange Act §148).
    2. If any of the following occurs in respect of TWSE-listed securities, the FSC may issue an order suspending their trading completely or partially, or restricting the trade by brokers and dealers in such securities, when there is a likelihood that the event will affect the market trading order or be prejudicial to public interest (Securities and Exchange Act §156):
      1. The company issuing the securities becomes involved in litigation or other non-litigious matters which is sufficient to result in its dissolution, or changes in its corporate organization, capital, business plan, financial condition, or suspension of production.
      2. The company issuing the securities becomes involved in major disasters, signed major agreements, confronted with special circumstances, initiated major changes in its business plan, or had its checks dishonored, the result of which is sufficient to result in a significant material change in the financial condition of the company.
      3. The company issuing the securities engages in deceptive, dishonest, or illegal practices, the result of which is sufficient to affect the prices of its securities.
      4. The market price of the securities has undergone continuous, major rises or declines, resulting in abnormal fluctuations in the prices of other securities.
      5. Other events of material significance
    3. If any of the following circumstances applies to a listed company, the TWSE shall, in accordance with Article 147 of the Securities and Exchange Act, suspend the trading of such securities and report to the competent authority for recordation, or the listed company may apply for delisting pursuant to Article 50-1, Paragraph 5 of the Operating Rules (Operating Rules §50):
      1. Failure to produce and file and publicly announce financial reports or financial forecasts by the deadlines provided in laws and regulations.
      2. The company petitions to court for reorganization and the court rules to prohibit the transfer of its shares.
      3. Any document or information that has been submitted is suspected to be untrue, and upon the request of the TWSE to explain the matter, no explanation is provided within the prescribed time period
      4. The securities transfer institution established at the location of the TWSE is withdrawn, or a dummy transfer institution is established such that no transfers are processed, and upon the order of the TWSE to correct the situation within a time period, no correction is made.
      5. The financial reports publicly announced and registered as required are not produced pursuant to relevant laws and regulations and generally accepted accounting principles, and such violation is material and corrections or rewrites are not made within the specified time period; or the CPA attesting the annual or semiannual financial reports as publicly announced and registered issues a disclaimer of opinion or an adverse opinion in the audit report, or issues an adverse opinion or disclaimer of opinion in the review report.
      6. Violation of relevant bylaws or rules concerning the material information of a listed company, such violation is material and it is necessary to suspend trading in its securities.
      7. The listed company breaches an undertaking it gives when applying for listing
      8. The listed company, a major enterprise engaging in national economic infrastructure projects, materially delays its construction work or materially violates the concession contract.
      9. The company is unable to punctually pay for the common corporate bonds or convertible corporate bonds which have matured or which the creditors requests it to redeem, and still fails to repay the debt or reach a settlement agreement with the creditors within three months after its listed securities are placed under an altered trading method.
      10. The listed company has a negotiable instrument dishonored because of insufficient funds on deposit and is still unable to settle the debt under the negotiable instrument and produce a direct or indirect note in evidence of settlement from the clearing house within three months of the trading day following the change of the trading method.
      11. The listed company loses controlling interest, as defined in Article 4, Subparagraph 1 of the Financial Holding Company Act, in a subsidiary, and is ordered by the competent authority of the Financial Holding Company Act to make corrections within a certain period.
      12. Violation of Article 49, Paragraph 1, Subparagraph 10, 11, 12 or 13 of the Operating Rules and inability to achieve compliance with Paragraph 2, Subparagraph 10, 11, or 12 of the same article within three months from the trading day following the change of the trading method.
      13. Other events warranting a need to suspend trading in the securities.
  5. Delisting:
    1. The TWSE may, pursuant to acts and regulations, or the provisions of the contact for public listing, terminate the public listing of securities, and such termination shall be filed with the competent authority for recordation (Securities and Exchange Act §144).
    2. The TWSE shall draft procedures for the handling of delisting applications and submit the procedures, and any subsequent amendments thereto, to the competent authority for approval (Securities and Exchange Act §145).
    3. In the event an issuer of listed securities on the TWSE is found to be in violation of the Securities and Exchange Act or rules and regulations promulgated under said act, the competent authority may, for the purpose of protecting public interest and the interest of investors, order the TWSE to suspend the trading or terminate the listing of said securities (Securities and Exchange Act §148).
    4. If any of the following circumstances applies to a listed company, the TWSE shall delist its securities in accordance with Article 144 of the Securities and Exchange Act and report to the competent authority for recordation (Operating Rules §50-1):
      1. Any circumstance specified in Article 9, 10, 11, 17, Paragraph 2, Article 315, Paragraph 1, Subparagraphs 1 through 8, or Article 397 of the Company Act or Article 21 or 54 of the Financial Holding Company Act occurs, and the relevant competent authority revokes its company license, orders its dissolution, or voids its approval.
      2. The relevant authority revokes its approval due to the occurance of any circumstance specified in Article 251 or 271 of the Company Act or other reasons.
      3. Confirmation of bankruptcy by court.
      4. Court's confirmation of reorganization or denial of reorganization motion.
      5. The TWSE considers the continuation of listing of the securities for trading inadvisable due to a material change in the scope of business of the company.
      6. The total amount of its listed preferred shares is less than NT$200 million.
      7. Any of the circumstances under which the TWSE requires trading of the listed securities be suspended still persists six months after the suspension.
      8. The company has a record of being discredited by the clearing house and is still unable to settle the debt under the negotiable instrument and produce a direct or indirect note in evidence of settlement from the clearing house within six months of the trading day following the suspension of trading.
      9. Where the last financial reports of the company, or the individual financial reports in the event of a non-holding company or the consolidated financial reports in the event of a holding company, as publicly announced and registered according to law, shows a negative net worth.
      10. The business of the company has completely stopped and is unable to commence quickly or has no business revenue, except where the company is a major enterprise engaging in national economic infrastructure projects and has no business revenue during the period of construction under the concession contract.
      11. Any circumstance specified in Article 156 of the Securities and Exchange Act exists and the FSC orders the suspension of trading of all its securities for at least three months.
      12. A merger with another company does not satisfy, the requirements for continued listing under Article 51 of the Operating Rules.
      13. Material breach of the contract for listing.
      14. Final confirmation by a judicial authority that any of the following circumstances applies to the listed company:
        1. The financial reports, accounting books, etc. provided by the company during the application for listing contain false and concealed items, and upon discounting for such false and concealed items, its profitability does not conform to the listing requirements; provided, the above shall not be applicable if five years have passed between the listing date and the date of confirmation by a judicial authority.
        2. The proviso of Sub-item a above is satisfied, and the false and concealed accounting items still exists at the time of the final confirmation of judgment, and upon discounting for such false and concealed items, its current revenue generating ability does not conform to the listing requirements.
      15. Over 70% of its total issued shares or total capital is held by another financial holding company.
      16. Circumstance set forth in Article 50, Paragraph 1, Subparagraph 12 of the Operating Rules and inability to achieve compliance with Paragraph 2, Subparagraph 12 of the same article within six months from the trading day following the suspension of trading.
      17. The competent authority for the target industry duly appoints a receiver for the financial institution.
      18. Other circumstances requiring delisting.
  6. Irregularty (Articles 3 and 4 of the TWSE Rules Governing Implementation of the Stock Market Surveillance System)
  7. Upon discovery that abnormal trading in securities has occurred and reached a certain level in the centralized securities exchange market, the TWSE may publicly announce the names of the securities and trading information to the market to alert investors and further take the following measures:
    1. Conducting trade matching for the securities with manually controlled trade matching terminals.
    2. Restricting the amount of the securities that securities firms can buy and sell
    3. Instructing securities brokers to precollect buy-side payment or sell-side securities up to a certain percentage from all principals or from those who place large numbers of orders with securities brokers for securities that are being traded abnormally.
    4. Notifying all securities firms to make an additional submission to the Clearing and Settlement Fund when trading the security involved in irregular trading.
    5. Temporarily suspending margin purchases and short sales of the given security.
    6. Reporting to and obtain the permission of the Competent Authority to suspend the trading of such securities for a prescribed period.
    When the TWSE considers the irregularity in the trading of securities is likely to affect the security of market settlement, or under other necessary circumstances, the measures listed in Paragraph 1 or other measures adopted by the resolution of the Surveillance Operations Oversight Committee may prevail.
10     X.Guidelines on the convention of shareholders' meetings
  1. Significance:
  2. The shareholders' meeting is a meeting body. Its authority is exercised only by a shareholders' meeting composed of all shareholders. Shareholders' meetings shall be convened by persons with the right to convene according to the prescribed procedure.
  3. Time of meeting:
  4. The time to convene a shareholders' meeting varies depending on whether it is a egular or special meeting. A regular meeting of shareholders is held at least once every year, within six months after the close of each fiscal year, unless otherwise approved by the competent authority for good cause shown. A special meeting of shareholders is held when necessary. (Company Act §170)
  5. Persons with the right to convene
    1. Board of directors:
    2. A shareholders meeting is convened by the board of directors unless the Company Act otherwise provides (Company Act §171).
    3. Shareholders with minority shareholder rights (Company Act §173):
    4. Shareholders continuously holding 3% or more of the total number of outstanding shares for a period of one year or longer may, by filing a written proposal setting forth therein the subjects for discussion and the reasons, request the board of directors to call a special meeting of shareholders. If the board of directors fails to give a notice for convening a special meeting of shareholders within 15 days after the filing of the request, the proposing shareholder may, after obtaining an approval from the competent authority, convene a special meeting of shareholders on his own.
    5. When the board of directors fails or cannot convene a shareholders' meeting on account of share transfer or other causes, shareholders holding 3% or more of the total number of outstanding shares of the company may, after obtaining an approval from the competent authority, convene a shareholders' meeting. As such, shareholders may still convene a shareholders' meeting subject to approval obtained, without being affected, when all the directors and supervisors are discharged on account of a transfer of all their shares.
  6. Supervisors:
    1. Subject to the condition that the board of directors does not or is unable to convene a meeting of shareholders, the supervisors may, for the benefit of the company, call a meeting of shareholders when necessary (Company Act §220).
    2. Shareholders continuously holding 3% of total number of the outstanding shares for a period of one year or longer may apply to court for appointment of an inspector to inspect the current status business operations, financial accounts and property of the company. The court may, based on the report made by the inspector, order the supervisors of the company to convene a meeting of shareholders when it deems such meeting necessary. (Company Act §245I and II)
  7. Reogranizers:
  8. Reorganizers of a company shall complete the reorganization plan within the implementation schedule specified therein; and upon completion of the reorganization plan, shall apply to the court for a court ruling of recognition of the completion of the reorganization, and shall, after such court ruling became final, convene a meeting of shareholders for election of directors and supervisors (Company Act §310)
  9. Liquidators:
  10. A liquidator has the same rights and obligations as the directors within the scope of its functions in liquidation (Company Act §324), and shareholders' meetings still exist in a company in liquidation. AS such, a liquidator may convene a shareholders' meeting.
  11. Convention procedure
    1. Time to give notice and publicly announce of a shareholders' meeting (Company Act §172 and Securities and Exchange Act §26-1):
      1. A notice to convene a regular meeting of shareholders shall be given to each shareholder no later than 20 days prior to the scheduled meeting date; while a public notice shall be given to holders of bearer share certificates no later than 30 days prior to the scheduled meeting date. A notice to convene a special meeting of shareholders shall be given to each shareholder no later than 10 days prior to the scheduled meeting date; while a public notice shall be given to holders of bearer share certificates no later than 15 days prior to the scheduled meeting date.
      2. For a company offering its shares to the public, a notice to convene a regular meeting of shareholders shall be given to each shareholder no later than 30 days prior to the scheduled meeting date, and to the holders of bearer share certificates no later than 45 days prior to the scheduled meeting date. In case a company offering its shares to the public intends to convene a special meeting of shareholders, a meeting notice shall be given to each shareholders no later than 15 days prior to the scheduled meeting date, and to the holders of bearer share certificates no later than 30 days prior to the scheduled meeting date.
      3. In view of constant capital increases and stock distributions over the years, shareholders with under 1,000 shares of nominal stocks of a publicly held company have become numerous. Sending meeting notices to such huge number of odd-lot shareholders by registered mail creates tremendous burden on both human and material resources. To alleviate such burden on an issuer, Article 26-2 of the Securities and Exchange Act therefore stipulates that the notice of the shareholders meeting to be given by an issuer to shareholders who own less than 1,000 shares of nominal stocks may be given in the form of a public announcement, 30 days in advance of a regular shareholders' meeting and 15 days in advance of a special shareholders' meeting.
      4. A company is deemed to have fulfilled its duty to give notice so long as it is able ot prove it has given notice to the shareholders named, at the addresses shown, in the shareholder roster within the aforementioned period. The "20-day" period etc. above shall count from the day prior to the day of the meeting, excluding the day of the meeting.
      5. Where a meeting of shareholders resolves to postpone the meeting for not more than, or to reconvene the meeting within, five days, no notice or public announcement as in Paragraphs A to C above is required (Company Act §182). Postponement means rescheduling of the shareholders' meeting to a later day as resolved, after the commencement of the meeting and prior to the calling of orders of the day. Reconvention means continuation of the shareholders' meeting on another day as resolved, after the commencement of the meeting and call for orders of the day, for the reason that decisions are not made in time on the day of the meeting on all the issues presented.
    2. Causes or subjects of the meeting to be specified in the notice and public announcement (Company Act §172V and Securities and Exchange Act §26-1):
    3. Matters pertaining to election of new directors and supervisors, amendment of the articles of incorporation, dissolution, merger, spin-off, approval of the shareholders' meeting in regard to noncompetition of directors in Article 209 of the Company Act, approval of the shareholders' meeting for the distribution of dividends in the form of new shares to be issued in Article 240, Paragraph 1 of the Company Act, and approval of the shareholders' meeting for the capitalization of the legal reserve in Article 241, Paragraph 1 of the Company Act are material events that shall be itemized in the causes or subjects of the meeting and may not be brought up as extemporary motions. The purpose is to protect shareholders' rights and interests, aleret shareholders and encourage active participation in shareholders' meetings on their part.
11     XI.Distribution of profits
  1. Restrictions on the setting aside and use of reserves:
  2. Reser ves as devided into two kinds: legal reserves and capital reserves. Reserves are set aside for the purposes of capital maintenance and solidifying the asset base of the company to protect is creditors. To strengthen the capital structure of an issuer, the Securities and Exchange Act sets forth provisions in Article 41 on the setting aside and use of reserves that are even more stringent than those of the Company Act:
    1. Mandatory special reseerve
    2. Where the FSC deems it necessary, it may order an issuer to set aside a certain proportion of its earnings as special reserve in addition to the allocation for legal reserve required by law. The purpose is to control the distribution of profits to stabilize stock prices (Securities and Exchange Act §41I).
    3. Restrictions on the capitalization of reserve
    4. An issuer issuing securities pursuant to the Securities and Exchange Act may not capitalize its reserve until after making up its deficit, otr it will be deemed in violation of law. To enable a sound capital structure of the company, a cap of certain percentage shall be provided in the event capitalization is to be realized from capital reserve. Securities and Exchange Act §41II. As regards the term "certain percentage," pursuant to Article 72-1 of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, when capital reserve is capitalized in accordance with Article 41, Paragraph 2 of the Securities and Exchange Act, the combined amount of any portions capitalized in any one year in accordance with Article 241, Paragraph 1, Subparagraph 1 or 2 of the Company Act may not exceed 10% of paid-in capital. However, where a company undergoes an organizational change (such as a merger, acquisition, or reorganization) that results in the capitalization of undistributed earnings after the organizational change, this restriction does not apply (I). An amount transferred to capital reserve in accordance with Article 241, Paragraph 1, Subparagraph 1 of the Company Act may not be capitalized until the fiscal year after the competent authority for company registrations approves registration of the capital increase or whatever other matter generated that portion of capital reserve (II).
  3. Public announcement of ex-rights or ex-dividend trading (Operating Rules §46):
    1. Where a listed company closes the books on changes to the shareholders register in accordance with Article 165 of the Company Act, it shall, before the last date the shareholders register may be changed and within the time period required by the TWSE, publicly announce on the website reporting system designated by the TWSE the reason for the suspension, date of suspension, amount of dividends and bonuses to be distributed, and allocation of rights. However, in special circumstances, where the reasons are stated, the company may simply publicly announce in advance the reasons for convening a shareholders meeting and the date of the meeting. In such cases, it shall follow up, at least 40 days prior to the date of the shareholders meeting, with a public announcement on the above-mentioned website designated by the TWSE of the amount of dividends and bonuses to be distributed or rights to be allocated.
    2. If there is subsequently any change in information publicly announced by a listed company under the preceding paragraph, or the public announcement is not made by the listed company within the time period specified by the TWSE, then the listed company shall bear full liability for any resultant trade dispute or damage suffered by a party to a trade
    3. The provisions governing listed companies shall apply mutatis mutandis for the book closure period during which the shareholders list, beneficiaries list, and foreign bond holders list may not be changed due to the distribution of stock dividends, bond interest, bonus, or other interests in accordance with the laws of its country, in respect of stocks or bonds issued by a foreign issuer or its agent institution or foreign securities represented by Taiwan Depositary Receipts issued by a foreign issuer or its depositary institution.
12     XII.Obligation to accept to undergo FSC inspection and furnish related information and reports
  1. FSC inspection:
  2. In order to protect public interest and the interests of investors, the FSC may, prior to the approval of a public offer or issuance, either require the issuer, securities underwriters, or other related parties to submit reference materials or reports, or make a direct examination of relevant documents and accounts. The FSC may further, at any time after the issuance of securities, order the issuer to submit financial and business reports or makes a direct examination of the financial and business conditions of the issuer (Securities and Exchange Act §38).
  3. When the FSC deems it necessary, it may from time to time appoint a certified public accountant, lawyer, engineer, or any other professionals or technicians to examine the financial and business conditions and related documents, statements, and account books of the issuer, securities underwriter, or other related parties and to submit reports or opinions to the FSC, at the expense of the examinee. When shareholders continuously holding, for a period of one year or longer, 3% or more of the total number of the outstanding shares of a company whose stock is listed on the stock exchange or traded over-the-counter deem that a specific matter materially damages their interests, they may apply to the FSC with reasons, related evidence, and an explanation of the necessity of an inspection provide, requesting for inspection of the specific matter, related documents, and account books of the issuer. If the FSC deems it necessary, it will proceed pursuant to the preceding paragraph (Securities and Exchange Act §38-1).
  4. FSC disciplinary actions:
  5. During its examination of the disclosed financial reports and other reference materials or reports of the issuer, or by its direct investigation of the financial and business conditions of the issuer, the FSC may issue a corrective order and additionally impose penalties pursuant to Article 174, Paragraph 1, Subparagraph 4 or 5 of the Securities and Exchange Act if it finds that the issuer has failed to comply with an act or regulation (Securities and Exchange Act §39).
  6. TWSE request for information:
  7. In accordance with regulations or upon valid reasons, the TWSE may request a listed company to provide information related to the listed securities within a limited time. Any financial or business reports or information filed by a listed company may be publicly announced or displayed, in original or abstract form, by the TWSE for viewing by the public. The listed company shall be responsible for any false or untrue statements made in the preceding reports or information (Operating Rules §53).
13     XIII.Others
  1. Prohibition of trading outside of centralized market (Securities and Exchange Act §150):
  2. Trading of listed securities shall be conducted on a centralized securities exchange market operated by TWSE, or violators are to bear criminal liability pursuant to Article 177, Paragraph 1, Subparagraph 1 of the Securities and Exchange Act, except in the following situations:
    1. Trading in government bonds.
    2. Due to the operation of an act or regulation, the transacting parties are unable to acquire or dispose the ownership of the securities through trading on the centralized securities market, for example, in the case of inheritance.
    3. Direct private transfer of securities not in excess of one trading unit, and the interval between any two such transfers is not less than three months. Pursuant to Article 10 of the Securities and Exchange Act Enforcement Rules, an interval of less than three months between two transfers is identified as below:
      1. Each direct sale and purchase between private parties shall count as one act, provided a sale or purchase of the same security within the same day may count as one act so long as the accumulated number does not exceed one round lot.
      2. A direct private transfer on the same day commences from the date the purchase and sale occurs. Where the date of the act of transfer cannot be proven, the act is deemed to commence from the date it takes place. In case this cannot be shown, the date of transfer shall be based on the date the transferee files the request with the company to amend the shareholders registry.
      3. other transactions that conform to FSC stipulations, for example, where a shareholder requests the company pursuant to Article 317 of the Company Act to acquire the shareholder's shares, a listed company engages in a share conversion pursuant to Article 12 of the Business Mergers And Acquisitions Act or Articles 24, 26 and 32 of the Financial Holding Company Act, or proceeds with public tender offer pursuant to Article 43-1, Paragrapgh 2 of the Securities and Exchange Act.
  3. Mandatory dispersal of shareholding:
  4. In view of the widespread existence of family businesses in Taiwan, where both ownership and management rights are highly consolidated in most cases, dispersal of shareholding is stipulated for the purposes of diversification of enterprises and popularization of invenstments:
    1. Issuance of new shares to increase the capital by an issuer (Securities and Exchange Act §22-1):
    2. The FSC may prescribe the shareholding dispersal standards for the issuance of new shares to increase the capital by an issuer under the Securities and Exchange Act. The Regulations Governing the Administration of Shareholder Services of Public Companies shall be prescribed by the FSC.
    3. Percentage of newly issued shares to be allocated for public offer (Securities and Exchange Act §28-1):
      1. In cash offering of new shares, a publicly held company whose stocks are neither listed on a stock exchange nor traded on the over-the-counter market and whose ownership dispersal fails to meet the standards prescribed by the FSC pursuant to Article 22-1, Paragraph 1 of the Securities and Exchange Act, shall set aside 10% (unless a higher percentage is determined by a resolution of the shareholders meeting) of its new issues to be publicly offered, unless such a public offering is deemed unnecessary or inappropriate by the FSC; Article 267, Paragraph 3 of of the Company Act which allows the original shareholders the rights to priority subscription to new issues, is not applicable.
      2. In cash offering of new shares by a public issued company whose stocks are either listed on a stock exchange or traded on the over-the-counter market, the FSC may require 10% (unless a higher percentage is determined by a resolution of the shareholders meeting) of its new issues to be offered at the market value to the public; in such circumstance, Article 267, Paragraph 3 of of the Company Act, which allows the original shareholders the rights to priority subscription to new issues, is not applicable.
      3. The value of the shares publicly offered in compliance with Paragraphs A and B and the value of the shares in the same issue reserved for subscription by the employees and original shareholders shall be identical.
  5. Change of content of listed securities (Operating Rules §45):
    1. Application procedure:
    2. Where the name, type of securities, price per unit, outstanding shares, or other contents are changed, the changes shall be processed in accordance with laws and regulations, and thereafter the "Application for Amending the Listed Securities Registers" shall be completed and sent together with the "Plan for Exchange of Securities Certificates" to the TWSE to apply for change of content of the listed securities. After the TWSE reports the case to the FSC for recordation, the listed company shall send the required documents to the TWSE and file a report on the Internet information reporting system designated by the TWSE within the time period specified by the TWSE, and before the last day the shareholders list may be changed. The content of the Plan for Replacement of Share Certificates is governed by the TWSE Procedures for Replacement of Securities Certificates by Listed Companies.
      1. In the case of change of the company name, within three years from the approval date of such change, all the issued securities and other information to be published as required shall be disclosed in the new name as well as the old name. For three consecutive months after the company name change, said information shall be publicly announced in the material information on the Market Observation Post System on the TWSE website.
      2. In the case of capital reduction registration, the procedural provisions for delivering the new replacement securities by scripless book-entry transfer shall be carried out within 3 months from the date on which the exchange plan in the "Plan for Exchange of Securities Certificates" submitted to the FSC is approved. Thereafter, the said exchange plan shall be actually implemented. If the issuance of new replacement shares resulting from capital decrease is likely to fall behind schedule or there might be any abnormal situation, the TWSE shall be notified in writing in advance; provided, however, that issuance of new replacement shares may be waived in the case of buy back of treasury stocks and cancellation of shares under Article 28-2 of the Securities and Exchange Act.
    3. Listing date of newly replaced stocks:
      1. Until the volume of the total newly replaced stocks reaches 30% of its total listed shares, the listed company may not designate the listing date of the new shares (identical to the last day of trading of old shares) and submit an application to the TWSE, for public announcement and implementation after review and approval by the TWSE.
      2. Where the volume of the total newly replaced stocks fails to reach 30% of total listed shares of the listed company, if the listed company makes a written undertaking that starting from the date the new shares are traded, the replacement procedures will be commenced and any old shares received will be replaced with new shares on the same date, the procedures in Paragraph A above shall apply. If it does not issue the written undertaking, the designation of the listing date of the new shares (identical to the last day of trading of old shares) shall not at the latest be later than 30 days after the first date on which the old shares are replaced with new shares. Further, commencing from the above date, it shall continue with the replacement procedures and issue new replacement shares on the same date on which it receives the old shares.
    4. Change of content of securities of a foreign company
    5. The procedures in 1 and 2 above will apply to any change in connection with stocks issued by a secondary listed company or securities of a foreign company represented by Taiwan Depositary Receipts issued by a foreign issuer and its depositary institution.
14     XIV.Material penalty
The Securites and Exchange Act provides for criminal, administrative and civil liabilities for violation of laws and regulations:
  1. Criminal liability: A person who commits any of the following offenses will be imprisoned, detained and/or fined:
    1. Article 171 of the Securities and Exchange Act:
      1. Article 20, Paragraphs 1 and 2; Article 155, Paragraphs 1 and 2; or Article 157-1, Paragraphs 1 and 2, of the Securities and Exchange Act, are violated
      2. A director or supervisor directly or indirectly causes the company to conduct transactions to its disadvantage and not in the normal course of operation, thus causing substantial damage to the company.
      3. A director or supervisor acts contrary to its duties or misappropriates company assets with intent to procure a benefit for itself or for a third person.
    2. Article 174 of the Securities and Exchange Act:
      1. Article 30 of the Securities and Exchange Act, which requires an issuer to submit a prospectus in addition to items required by the Company Act in its application for approval to publicly offer and issue securities, is violated.
      2. False information is made and disseminated to the public with regard to the market value of securities, or with regard to the material aspects of the approved public offering.
      3. A prospectus contains false information or omissions in its required contents, in which case the issuer or its responsible person or employees shall be held liable to any bona fide counterpart for damage suffered, with no exemption allowed.
      4. The account books, forms/statements, documents, or other reference or report materials produced pursuant to an FSC order contain false statements.
      5. The account books, forms/statements, vouchers, financial reports or any other business documents produced pursuant to the Securities and Exchange Act or FSC orders issued pursuant thereto contain false statements.
      6. The managerial officer or chief accounting officer who signs or chops the financial report above makes false statements in the content of the financial report.
      7. An investment decision is made relating to an issuer or specific securities transactions based on false information and is disseminated on any newspapers and magazines, written materials, broadcasts, films or by other means.
      8. A directors loans company funds to another person, uses company assets to provide security or a guarantee for another person, or endorses a negotiable instrument in violation of laws and regulations or the articles of incorporation or beyond the scope authorized by the board of directors, causing substantial damage to the company.
      9. Working papers or relevant records or documents are forged, altered, destroyed, concealed or obscured with intent to impede inspection by the competent authority or investigation by a judicial agency.
    3. Article 175 of the Securities and Exchange Act:
      1. A company repurchases its own shares in violation of Article 28-2, Paragraph 1 of the Company Act.
      2. Article 43-1, Paragraph 3, and Article 43-5, Paragraphs 2 and 3 of the Securities and Exchange Act governing FSC public tender offers, or Article 43-6, Paragraph 1 of the Securities and Exchange Act governing private placements, is violated.
    4. Article 177 of the Securities and Exchange Act:
      1. Securities are not delivered within the prescribed time limit, as in violation of Article 34 of the Securities and Exchange Act.
      2. Listed securities are not traded on a centralized securities exchange market, as in violation of Article 150 of the Securities and Exchange Act.
    5. Article 179 of the Securities and Exchange Act:
    6. It is generally held that no criminal punishment may be meted out against a juristic person, therefore, the punishment should shift to its responsible person when it is to be punished.
  2. Administrative liability: A person who commits any of the following is fined pursuant to Article 178 of the Securities and Exchange Act
    1. Article 14, Paragraph 3 of the Securities and Exchange Act, which states the following, is violated: Financial reports shall be signed or stamped with the seal of the chairperson, managerial officers, and accounting officers, who shall also produce a declaration that the report contains no misrepresentations or nondisclosures.
    2. Article 14-1, Paragraphs 1 and 3 of the Securities and Exchange Act, which state that financial and operational internal control systems shall be established and that an Internal Control System Statement shall be filed with the competent authority within four months of the close of each fiscal year, are violated.
    3. No independent directors are appointed and no by-election of independent directors is held, as in violation of Article 14-2, Paragraphs 1 and 5 of the Securities and Exchange Act.
    4. Article 14-3 of the Securities and Exchange Act, which states that in the event of a company that has selected independent directors, the matters listed shall be submitted to the board of directors for approval by resolution unless approval has been obtained from the competent authority, is violated.
    5. Article 14-4, Paragraphs 1 and 2 of the Securities and Exchange Act, which state the following, are violated: A company that has issued stock in accordance with this Act shall establish either an audit committee or a supervisor. The FSC may, however, in view of the company's scale, type of operations, or other essential considerations, order it to establish an audit committee in lieu of a supervisor. The audit committee shall be composed of the entire number of independent directors. It shall not be fewer than three persons in number, one of whom shall be convener, and at least one of whom shall have accounting or financial expertise.
    6. Article 14-5, Paragraphs 1 and 2 of the Securities and Exchange Act, which state the following, are violated: For a company that has issued stock in accordance with this Act and established an audit committee, the matters listed shall be subject to the consent of one-half or more of all audit committee members and be submitted to the board of directors for a resolution.
    7. The restrictions on stock transfer in Article 22-2, Paragraphs 1 and 2 of the Securities and Exchange Act are violated.
    8. Article 25 of the Securities and Exchange Act governing the filing of stock transfers, changes and pledges is violated.
    9. The restrictions in Article 26-1 of the Securities and Exchange Act governing shareholders' meeting and extempore motions are violated.
    10. The board of directors numbers less than five persons or no by-election is held when the number of directors falls below five, as in violation of Article 26-3, Paragraphs 1 and 7 of the Securities and Exchange Act.
    11. Article 36, Paragraph 4 of the Securities and Exchange Act providing for periodic filing and publication of financial reports and material information is violated.
    12. Article 41 of the Securities and Exchange Act, which states that the FSC may order an issuer to set aside a certain proportion of its earnings as special reserve in addition to the allocation for legal reserve required by law, is violated.
    13. Article 43-1, Paragraph 1 of the Securities and Exchange Act, which states the following, is violated: Any person who acquires, either individually or jointly with other persons, more than ten percent of the total issued shares of a public company shall file a statement with the FSC within ten days after such acquisition, stating the purpose and the sources of funds for the purchase of shares and any other matters required to be disclosed by the FSC; such persons shall file timely amendment when there are changes in the matters reported.
    14. Article 43-6, Paragraphs 5 to 7 of the Securities and Exchange Act governing private placement of securities are violated.
    15. The company refuses, obstructs or evades FSC inspections or fails to furnish related information requested by the FSC.
    16. The company fails to produce, file, publish, make available or retain related information requested by the FSC.
    17. The provisions of Article 25-1 of the Securities and Exchange Act governing the qualifications of proxy solicitors, proxy agents and persons handling proxy solicitation matters on behalf of an issuer, methods of solicitation and acquisition, and refusal to provide FSC requested information, are violated.
    18. The rules regulating the minimum percentage to be held by the directors and supervisors of a publicly held company, prescribed by the FSC pursuant to Article 26, Paragraph 2 of the Securities and Exchange Act, are violated.
    19. No rules for the conduct of meetings are established pursuant to Article 26-3, Paragraph 8 of the Securities and Exchange Act; provisions stipulated by the FSC pursuant to said paragraph governing the content of deliberations, procedures, matters to be recorded in meeting minutes and public announcement etc. are violated; or rules established by the FSC pursuant to Article 36-1 of the Securities and Exchange Act governing the applicable scope, work procedures, required public announcements and required filings for major financial or operational actions such as acquisition or disposal of assets, engaging in derivatives trading, extension of monetary loans to others, endorsements or guarantees for others, and disclosure of financial projections, are violated.
    20. Article 28-2, Paragraphs 2, 4 to 7 of the Securities and Exchange Act or FSC rules governing the procedures, prices, quantitites, ways of repurchase, methods of assignment, and matters to be filed and published, are violated.
    21. Article 43-2, Paragraph 1; Article 43-3, Paragraph 1; or Article 43-5, Paragraph 1 of the Securities and Exchange Act, or FSC rules established pursuant to Article 43-1, Paragraph 4 of the Securities and Exchange Act governing the scope, conditions, periods, interested parties, and matters to be filed and published in respect of the acquisition of securities, are violated.
  3. Civil liability:
    1. Article 20, Paragraph 3 of the Securities and Exchange Act:
    2. Anyone who during the public offering, issuing, private placement, or trading of securitie has made a misrepresentation, committed fraud, or performed any other acts which are sufficient to mislead other persons, shall be held liable for damages sustained by bona fide purchasers or sellers of the said securities.
    3. Article 20-1 of the Securities and Exchange Act:
    4. When the essential contents of the financial reports or financial or business documents in Article 20II of the Securities and Exchange Act, or those of the financial reports filed or publicly disclosed pursuant to Article 36I of said act, contain misrepresentations or nondisclosures, liability for damages suffered by bona fide purchasers, sellers, or holders of securities issued by the issuer shall be borne.
    5. The prospectus contains misrepresentations or nondisclosures, as in violation of Article 32 of the Securities and Exchange Act.
    6. A public tender offer violates the relevant provisions under Articles 43-2 and 43-3 of the Securities and Exchange Act.
    7. Article 155, Paragraph 3 of the Securities and Exchange Act:
    8. Anyonen who manipulates and affects the market order or trading prices of securities on the centralized securities exchange market shall be held liable to compensate bona fide purchasers or sellers of said securities for damage suffered.
    9. Article 157 of the Securities and Exchange Act:
      1. In the event any director, supervisor, managerial officer, or shareholder holding more than 10% of the shares of a company sells the listed securities within six months after its acquisition, or repurchase the securities within six months after its sale, the company shall claim for the disgorgement of any profit realized from the sale and purchase.
      2. Profit to be disgorged is calculated by subtracting the lowest purchasing price from the highest selling price pursuant to Article 11, Paragrpah 2 of the Securities and Exchange Act Enforcement Rules.
    10. Article 157-1 of the Securities and Exchange Act:
      1. Upon knowing of any information that will have a material impact on the price of the securities of the issuing company, after the information is precise, and prior to the public disclosure of such information or within 18 hours after its public disclosure, the following persons may not purchase or sell shares of the company that are listed on an exchange or an over-the-counter market, or any other equity-type security of the company: a. director, supervisor, and/or managerial officer of the company, and/or a natural person designated to exercise powers as representative pursuant to Article 27, Paragraph 1 of the Company Act; b. shareholders holding more than 10% of the shares of the company; c. any person who has learned the information by reason of occupational or controlling relationship; d. a person who, though no longer among those listed in [one of ] the preceding three subparagraphs, has only lost such status within the last six months; e. any person who has learned the information from any of the persons named in the preceding four subparagraphs. In calculating the shareholding of the persons in Subparagraphs a and b above, shares held by their spouse and minors and those held in another person's name are included.
      2. Violators shall be held liable, to trading counterparts who on the day of the violation undertook the opposite-side trade with bona fide intent, for damages in the amount of the difference between the buy or sell price and the average closing price for ten business days after the date of public disclosure.
15     XV.Laws and regulations for reference
  1. Securities and Exchange Act and Securities and Exchange Act Enforcement Rules
  2. Company Act
  3. Business Mergers and Acquisitions Act
  4. Financial Holding Company Act
  5. Financial Institutions Merger Act
  6. Fair Trade Act
  7. Civil Code
  8. Regulations Governing the Offering and Issuance of Securities by Securities Issuers
  9. Regulations Governing Certification of Corporate Stock and Bond Issues by Public Companies
  10. Rules and Review Procedures for Director and Supervisor Share Ownership Ratios at Public Companies
  11. Regulations Governing Public Tender Offers for Securities of Public Companies
  12. Regulations Governing the Administration of Shareholder Services of Public Companies
  13. Regulations Governing Share Repurchase by Listed and OTC Companies
  14. Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Public Companies
  15. TWSE Rules Governing the Review of Securities Listings
  16. TWSE Operating Rules
  17. TWSE Procedures for Verification and Disclosure of Material Information of Companies with Listed Securities
  18. TWSE Rules Governing Implementation of the Stock Market Surveillance System