As part of Taiwan’s continuous endeavor to stimulate Taiwan’s economy, in recent months Taiwan has launched some new initiatives (e.g., proposing a draft bill to simplify the process for and approval of foreign investment, launching an action plan assisting overseas Taiwanese business to return to and invest in Taiwan, and designing a new program to accelerate investments by small and medium-sized enterprises) to attract overseas and domestic entrepreneurs to invest in and do business in Taiwan.[1]  For entrepreneurs interested in doing business in Taiwan, setting up a limited company (or investing in a limited company) is one of the available options which these entrepreneurs may consider.[2]  Under the Company Act in Taiwan,[3] a limited company refers to “a company organized by one or more shareholders, with each shareholder being liable for the company in an amount limited to the amount contributed by him.”[4]  This Article introduces some features of a limited company in Taiwan, and concludes briefly with some advantages and disadvantages of a limited company for the consideration of entrepreneurs interested in doing business in Taiwan.
 
I.  Limited Liability and Equality of Shareholders
 
A significant characteristic of a limited company in Taiwan is that the liability of each shareholder is limited to the amount of capital contributed.[5]  Moreover, the principle of shareholders’ equality plays a key role in a limited company in Taiwan.  Pursuant to the principle of shareholders’ equality, each shareholder of a limited company has one vote, regardless of his capital contribution amount.[6]  This feature of a limited company is different from the voting right of a shareholder in a company limited by shares, where each shareholder has one voting power in respect of each share in his possession.[7]  However, this one-vote-for-each-shareholder feature of a limited company is subject to change if a limited company’s articles of incorporation prescribe that the votes of shareholders shall be allocated in proportion to the capital contributions of the shareholders.[8] 
 
II.  Corporate Governance
 
Unlike a company limited by shares, which has a shareholders’ meeting, there is no shareholders’ meeting in a limited company.[9]  Shareholders of a limited company are not required to hold an annual meeting.[10]  All shareholders in a limited company enjoy the flexibility in reaching their consensus or decision in any manner as long as the shareholders cast their vote or express their opinion on the matters to be decided.[11]
 
In addition, a limited company shall have at least one director, “elected from among the shareholders” and “approved by two thirds or more of votes of all shareholders,” to represent and run the business of the company.[12]  There may be up to three directors for a limited company.[13]  If there are several directors in a limited company, the articles of incorporation of that limited company may stipulate that one of the directors shall be elected “from among the directors by a majority vote of all directors” to act as the chairman of the directors and represent the limited company.[14]   
 
On the other hands, a shareholder who is not a director of a limited company (i.e., a “non-executive shareholder”) has a right to audit.[15]  With this right to audit, a non-executive shareholder may, at any time, inquire the business conditions of a limited company from the shareholders running the business of the company (i.e., the “executive shareholders”), and examine the “assets, documents, books, and statements” of the company.[16]  Furthermore, a non-executive shareholder may, on behalf of the company, retain a lawyer and/or a certified public accountant to assist in exercising his right to audit.[17]
 
III.  Profit Distribution
 
The articles of incorporation of a limited company shall contain the “ratio or standards for profit distribution . . . among all shareholders,”[18] and may expressly stipulate that a surplus earning distribution proposal “may be proposed at the close of each quarter or each half fiscal year.”[19]  The surplus earning distribution proposal of a limited company is part of the reports and financial statements which, upon close of each fiscal year, shall be prepared by the directors and delivered to each of the shareholders for their approval.[20]  “[S]uch approval shall be approved by a majority of voting shares of all shareholders.”[21]  Nevertheless, a limited company shall first cover its losses and set aside its legal reserve before distribution of any dividend or bonus.[22]  In addition, no distribution or bonus is allowed when a limited company has no surplus earnings.[23] 
 
IV.  Capital Increase
 
Under the Company Act, an increase in the capital of a limited company in Taiwan requires approval “by a majority of voting shares of all shareholders.”[24]  However, a shareholder’s consent to the capital increase of a limited company does not obligate the consenting shareholder to contribute to the increased capital proportionally to his original shareholding percentage.[25]  When there is an original shareholder who consents to the capital increase of a limited company but declines to contribute to the increased capital, a new shareholder or some new shareholders may join the limited company with an approval “by a majority of voting shares of all shareholders.”[26]
 
V.  Transfer of Capital Contribution
 
Under the Company Act in Taiwan, a shareholder of a limited company may transfer all or part of his contribution to the company’s capital to another person only if there is a “consent of a majority of voting shares of all other shareholders” to such transfer.[27]  The transfer of a director’s all or part of capital contribution in a limited company to another person requires a “consent of two thirds or more of the voting shares of all other shareholders.”[28]  Any shareholder of a limited company who disagrees with any of the two abovementioned transfers “has priority to accept such transfer” of capital contribution.[29]  A disagreeing shareholder declining to accept such transfer shall be deemed to have given his consent “to the transfer and to amend the [limited company’s] Articles of Incorporation in regard to matters relating to the shareholders and the amount of their contribution to the capital of the company.”[30]
 
VI.  Conclusion
 
Under the Company Act in Taiwan, a limited company is a legal form of a company providing limited liability and flexible corporate governance to its shareholders.  Limited liability for shareholders and “flexibility in terms of structuring its corporate governance” [31] are two advantages of a limited company in Taiwan which may attract entrepreneurs interested in doing business in Taiwan.  On the other hand, a shareholder of a limited company in Taiwan will likely find it difficult to exit the company[32] because the transfer of interest requires the consent of other shareholders.[33]  There is no one-size-fits-all approach for doing business in today’s dynamic world.  Likewise, there is no one particular legal form of a company guaranteeing the success of any business.  An entrepreneur considering to become a shareholder of a limited company in Taiwan may take the features of a limited company in Taiwan into consideration to see whether these features fit his interest for his business. 
 
 

This Article, including the information contained herein, has been prepared only for educational and general information purposes to contribute to the understanding of some features of a limited company in Taiwan.  This Article does not and is not intended to constitute, offer, or convey individual legal advice, legal opinion, or any other professional advice on any subject matters covered herein.  Please obtain specific legal advice before acting on any matters discussed herein.  While the author makes every attempt to ensure that the information covered herein is accurate, the author disclaims any liability for any omissions or errors that may be contained in this Article.