According to Article 26-3 Paragraph 2 of the Security Exchange Act (the “SEA”) and Article 27 Paragraph 2 of the Company Act, for the government or a legal entity which is a shareholder of a company, its legal representatives shall not be elected or serve as a director and supervisor of such company at the same time, regardless such company is a public company or not. However, if it is a company and its wholly-owned subsidiary which are elected as a director and supervisor of another company, whether the above provisions under the SEA and the Company Act apply becomes questionable.
In this regard, the FAQ and the interpretation order announced by the Financial Supervisory Commission (hereinafter referred to as “FSC”) give an affirmative answer, opining that the legal representative appointed by any corporation controlling or being affiliated with the government or a legal entity which is a shareholder of a company also fall within the scope of Article 26-3 Paragraph 2 of the SEA. However, FSC’s FAQ and interpretation order only apply to public companies. It is uncertain whether the same conclusion would be reached for a private company.
The court rulings have touched upon this issue. In the 104-Tai-Shang-Zi-No. 35- Civil Judgement, the Supreme Court concluded that if a representative of a corporate shareholder and a representative of another corporate shareholder wholly-owned by the former corporate shareholder are both elected or serve as directors and supervisors, though such two corporations exist independently in formation, the latter is fully controlled by the former and the representative of the latter corporation is actually appointed by its investor, resulting in the situation which has bears difference with the case where several representatives of the same legal entity are elected or serve as directors and supervisors at the same time, which should be covered by Article 27 Paragraph 2 of the Company Act. In the event of violation, such provisions shall apply mutatis mutandis and the election of the supervisor shall be invalid.”
The above court ruling indicates that the court tends to follow the same rules for the public companies in practice. It remains to be seen whether the Ministry of Economic Affairs, the competent authority, will provide an interpretation letter to clarify and the court would render rulings opining otherwise.
(The article is originally in Chinese which can be found here.)