Structure and process, legal regulation and consentsStructure
How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?
The most common structures for private M&A transactions in Taiwan are share purchase, asset purchase and merger (or share exchange).
Share purchases tend to be the most commonly seen structure for private M&A transactions in Taiwan, as they are often more tax efficient for the selling shareholders, and can be closed relatively quickly while maintaining the target company’s corporate structure.
Asset purchases are used where the buyer desires to purchase only a specific asset or business, and seeks to exclude other assets or liabilities from the acquisition. The specific assets or businesses to be acquired will be specified in the transaction documents, but the actual transfer of those assets or businesses may be subject to further consents and procedures, particularly where contracts or employees are to be transferred.
Mergers and share exchanges can be used to acquire full ownership of a Taiwan company in a situation where a minority of shareholders is unwilling or unavailable to sell their shares by means of a share purchase. In a merger, the target company is merged into the buyer, with the buyer as the surviving company (equivalent to a forward merger in other jurisdictions); and in a share exchange, the target company becomes a wholly-owned subsidiary of the buyer (equivalent to a reverse triangular merger in other jurisdictions).
Additionally, certain hybrid or alternative approaches, such as a statutory spin-off or a general assumption of assets, may be available depending on the specific circumstances of the target company.
Timetables for private M&A transactions can vary widely in Taiwan, particularly with respect to due diligence and pricing negotiations. Any required regulatory approvals or third-party consents will also delay the closing of the transaction. Otherwise, once a deal has been reached and the definitive agreements are signed, a share purchase is typically the quickest to close, as it requires only that the selling shareholders be available to transfer and deliver their shares to the buyer. Mergers and share exchanges require that the target company convene a shareholder meeting, with notice periods prescribed by statute, and thus take somewhat longer. The timetable for asset purchases is very case-dependent, and largely hinges on the consents and procedures needed to transfer the particular target assets.Legal regulation
Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?
Depending on the structure of the transaction, mergers and acquisitions involving private companies in Taiwan are governed by several laws and regulations, including:
- the Company Act, which provides the basic framework for transactions involving Taiwan companies, including provisions regarding transfers of shares, mergers, and sales of assets;
- the Business Mergers and Acquisitions Act, which governs mergers, share exchanges, spin-offs, and certain other statutory acquisitions;
- the Statute for Investment by Foreign Nationals and the Act Governing Relations between the People of the Taiwan Area and the Mainland Area and the rules thereunder, which apply to transactions that involve foreign investments or dispositions, and in particular, investments from mainland Chinese investors (ie, China);
- the Fair Trade Act, which sets the thresholds and procedures for antitrust review; and
- the Labour Standards Act, which governs employee matters.
While the parties are free to specify their choice of governing law in the transaction documents, the actual act of transferring shares, a businesses or assets in Taiwan, as well as any corporate actions to be taken by a Taiwan company, will nonetheless be subject to Taiwan law, and thus it is typically advisable to use Taiwan law as the governing law for consistency.Legal title
What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?
In Taiwan, buyers can expect to acquire full legal title to target shares or assets, and sellers are expected to give representations and warranties that they have full legal title to the target shares or assets, free from encumbrances, and that they have capacity and authority to execute such transfer.
Shares of private companies in Taiwan are typically transferred by means of physical share certificates, which must be chopped (endorsed) by the seller and delivered to the buyer. Title to shares is legally transferred upon the completion of these steps, but the target company should also update its company registration (to the extent applicable) with the relevant authority, to publicly reflect any applicable changes to the target company (such as changes in the directors).
Transfers of assets are typically reflected by the parties signing a transfer agreement and physically transferring possession of those assets to the buyer. In the case of certain assets such as real estate, vehicles and intellectual property, there are specific applications and registrations that need to be made with the relevant authority.
Beneficial ownership is recognised only to a limited extent under Taiwan law, and thus a buyer must acquire legal title to be assured of having full rights over shares or assets in Taiwan.Multiple sellers
Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?
In a share purchase where the company has issued share certificates, each selling shareholder must execute the transaction documents and physically endorse and deliver its share certificate to the buyer. This can be logistically difficult where the target company has a large number of shareholders. However, private companies in Taiwan are frequently closely held by a few groups of friends and relatives, and it is not uncommon for the controlling shareholders to have taken steps that can mitigate these issues, such as holding the share certificates in central custody or obtaining powers of attorney from minority shareholders to negotiate and act on their behalf.
If there are minority shareholders who are unwilling or unavailable to sell their shares, the buyer can acquire full ownership of the target company by means of a merger or share exchange using cash as consideration. In the case of a private company, a merger or share exchange requires the approval of a majority of shareholders at a shareholder meeting where at least two-thirds of the shares are present. Once approved and effected, the buyer acquires either all of the assets and liabilities of the target company (in the case of a merger) or all of the shares of the target company (in the case of a share exchange). Any minority shareholders that dissent to the merger or share exchange are entitled to exercise appraisal rights, in which case the company would be required to petition a Taiwan court to determine a fair price for their shares.Exclusion of assets or liabilities
Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?
In an asset purchase, the parties are generally free to specify the assets and liabilities to be included or excluded at their discretion. Any assets or liabilities that are not specifically transferred to the buyer can be presumed to remain with the seller. An exception is where a statutory spin-off or general assumption is used, in which case there are certain shared liabilities required by statute.
The transfer of certain assets such as real estate, vehicles and intellectual property require specific applications and registrations that need to be made with the relevant authority. If employees are to be transferred to a new entity, their consent will be required; similarly, the assignment of any contracts to a new entity also typically requires consent from the counterparty, depending on the provisions of the contract.Consents
Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?
Foreign buyers are required to obtain foreign investment approval prior to acquiring a Taiwan company, including when acquiring a minority interest or forming a new Taiwan company. Foreign investment is generally permitted in Taiwan, except in a limited number of industries where foreign investment is restricted or prohibited for national security reasons, such as telecommunications, mass media and certain transportation sectors.
Investment from China is subject to a separate set of restrictions and very high scrutiny. In contrast with other foreign investment, Chinese investment in Taiwan is generally prohibited except in particular industries that have been specifically opened by the government. Even in these cases, the interpretation of the rules and the level of expected scrutiny can vary depending on the prevailing political climate, and experienced Taiwan counsel is essential for buyers who may have any degree of Chinese ownership (including minority, indirect or beneficial ownership).
Antitrust review may also present an obstacle in private acquisitions. Taiwan’s antitrust thresholds include both revenue and market share criteria, so companies with low revenue but relatively high market share may still trigger the requirement. Issues regarding market share can sometimes prolong the review, as there is often considerable ambiguity regarding what should define a particular company’s market share.
Additional regulatory authorities may be involved in certain regulated industries, such as financial institutions, telecommunications and media. Pre-approval from the Central Bank of Taiwan may also be required if the closing of the transaction requires a large amount of foreign currency to be exchanged into Taiwan dollars.
Are any other third-party consents commonly required?
In a share purchase or share exchange, the target company retains its corporate structure, and thus third-party consents are typically not needed unless specifically required, for example in the case of a change of control provision in a contract or under the terms of a particular licence or permit.
In an asset purchase where the business is being transferred to a new entity, employees will need to consent to be transferred to the new entity; similarly, the assignment of any contracts to the new entity also typically requires consent from the counterparty, depending on the provisions of the contract.Regulatory filings
Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?
Regulatory requirements are discussed in question 6.