Internal transactions within a corporate group, such as those between a parent company and its subsidiary, offer cost savings by reducing the need to search for trading opportunities. Moreover, because the parties involved typically share a substantial foundation of trust, transactions can be expedited. However, related-party transactions carry the risk of abuse due to potential conflicts of interest, which is why Taiwan’s Company Law has established regulatory controls.
 
Article 223 of the Company Act mandates that in case a director of a company transacts a sale with, or borrows money from or conducts any legal act with the company on his own account or for any other person, the supervisor shall act as the representative of the company. The intent is to prevent directors from acting out of fraternity, thereby risking the sacrifice of the company's interests.
 
The " legal act with the company on a director’s own account with the company" mentioned in Article 223 refers to instances where a director is engaging in legal activities with the company they serve. For example, if Director X of Company A wants to sell a land he or she owns to Company A, the transaction cannot be represented by the chairman (whether it's X or another director); instead, a supervisor must represent Company A.
 
Regarding the " legal act with the company for any other person with the company," this pertains to situations where a director acts as a representative or agent for someone else in dealings with the company they serve. For instance, if Director X is the chairman of both Company A and Company B and Company B intends to sell land to Company A, X cannot represent both companies simultaneously. Instead, one of the companies, either A or B, must appoint a supervisor to represent the company in the transaction. Besides, if X is the chairman of Company B and also a director at Company A, and Company B plans to sell land to Company A, then Company A should assign a supervisor to represent it in the dealings.
 
In cases where a company has more than one supervisor, there is a discussion about whether one supervisor alone should represent the company or if all supervisors should do so collectively. On this issue, the governing authority, the Ministry of Economic Affairs(“MOEA”), has taken a more relaxed stance. According to Article 221 of the Company Law, " Supervisor may each exercise the supervision power individually," indicating that a single supervisor can represent the company when a director is engaging in buying, lending, or other legal acts for themselves or others (MOEA letter No. 10102112620 dated September 3, 2012). However, court rulings have suggested that when a company has multiple supervisors, they should jointly represent the company, differentiating the right of representation from the exercise of supervisory power.
 
What then is the validity of a transaction where a director is involved in a situation described by Article 223 and is not represented by a supervisor? Courts have ruled that if a director engages in a loan transaction with the company for their benefit, without adhering to the requirements of Article 223 and without a supervisor representing the company, the transaction is not automatically invalid. It can become effective upon subsequent ratification by the company (Supreme Court Civil Decision No. 1112 ,2022).