Setting up and operating a joint venture

Structure

Are there any particular drivers in your jurisdiction that will determine how a joint venture is structured?

There is no particular driver in Taiwan that determines how a joint venture is structured. However, joint venture parties would usually consider the voting rights, restrictions on share transfers and dividends policy in determining their joint venture structure.

Tax considerations

When establishing a joint venture, what tax considerations arise for the joint venture parties and the joint venture entity? How can tax charges be lawfully mitigated?

If the joint venture parties form a company in Taiwan, the joint venture company will be subject to the taxes applicable to all companies in Taiwan. Foreign joint venture parties may further consider the withholding tax when the joint venture company declares dividends and repatriates dividends offshore to foreign joint venture parties. If foreign joint venture parties are incorporated in a country that has signed a tax treaty with Taiwan, a lower withholding tax rate may apply.

Asset contribution restriction

Are there any restrictions on the contribution of assets to a joint venture entity?

There is no restriction on the contribution of assets to a joint venture entity. A joint venture party may contribute machinery, equipment, intellectual property rights, technologies and any other assets that are required by the joint venture entity for its operation. A joint venture party may even convert its claims against the joint venture entity into the equity of the joint venture entity.

Interaction between constitution and agreement

What is the interaction between the constitution of the joint venture entity and the agreement between the joint venture parties?

The bylaws (ie, the Articles of Incorporation) of the joint venture entity will must be registered with the government authority and may be public information. The Articles of Incorporation must include the provisions required under the Company Act. The joint venture parties may also sign a joint venture agreement stipulating the joint venture entity's corporate governance and the joint venture parties' rights and obligations. In the event of any discrepancy between the Articles of Incorporation and the joint venture agreement, the Articles of Incorporation will prevail.

Party interaction

How may the joint venture parties interact with the joint venture entity? Are there any restrictions?

Under the joint venture agreement, joint venture parties may stipulate that the joint venture entity is required to provide certain information to them on a regular basis. In addition, if a joint venture partner's representative is elected as a director or supervisor of the joint venture entity, the joint venture partner may also receive information on the joint venture entity from its representative.

Exercising control

How may the joint venture parties exercise control over the joint venture entity’s decision-making?

The joint venture parties should stipulate under the joint venture agreement and the articles of incorporation how to vote at board and shareholders' meetings. Minority shareholders may demand to have a veto right over certain matters so as to protect their interests in the joint venture entity.

Governance issues

What are the most common governance issues that arise in connection with joint ventures? How are these dealt with?

The most common governance issue with joint ventures seems to be the convening of board and shareholders' meetings. Joint venture parties would usually stipulate in detail the procedures for convening these meetings and the quorum and voting thresholds.

Nominee directors

With an incorporated joint venture, what controls exist in your jurisdiction in relation to nominee directors? How should a nominee director balance the potentially conflicting interests of the joint venture company and the appointing shareholder?

Joint venture parties may appoint their respective representatives to be elected as the directors of the joint venture entity. In such a case, a director will bear fiduciary duties to both the joint venture entity and the appointing shareholder. Hence the directors must exercise the powers and perform duties in a fair way to avoid damaging either party's interest.

Competition law

What competition law considerations are engaged by the formation and operation of the joint venture? Is approval needed?

If the formation of a joint venture constitutes a 'combination' under the Fair Trade Act, the Fair Trade Commission's clearance must be obtained before its formation. To be specific, if any joint venture party holds one-third or more of the equity or shares in the joint venture entity, jointly runs the business of the joint venture entity, or directly or indirectly controls the business operation or appointment or discharge of staff in the joint venture entity, and if the market share or turnover threshold is met, the Fair Trade Commission's prior clearance will be required. If the Fair Trade Commission's clearance is required, the joint venture parties will have to form the joint venture entity after receiving the clearance.

Provision of services

What are the key considerations in your jurisdiction in structuring the provision of services to the joint venture entity by joint venture parties?

The key considerations in structuring the provision of services to the joint venture entity usually depend on the purpose of the joint venture and the joint venture parties' capability and strength in terms of contributing to the joint venture entity.

Employment rights

What impact do statutory employment rights have in joint ventures?

An employee's employment rights in a joint venture entity are the same as those that he or she is entitled to in a joint venture party. If a joint venture partner would like to assign an employee to the joint venture entity, the joint venture partner and the employee must reach a consensus on the assignment terms and conditions (eg, recognition of seniority and additional compensation).

Intellectual property rights

How are intellectual property rights generally dealt with on the creation, operation and termination of a joint venture in your jurisdiction?

In practice, for any intellectual property created by the joint venture entity's employees, the rights thereto belong to the joint venture entity according to the employment agreement between the joint venture entity and the employees. In the event that the joint venture is terminated, the joint venture entity will be liquidated and the intellectual property rights will be allocated to the joint venture parties based on the liquidator's allocation. However, if a joint venture party acquires the equity or shares held by the other joint venture party upon the termination of the joint venture, the intellectual property rights will remain with the joint venture entity unless the joint venture parties agree otherwise.

Law stated date

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9 September 2020