We often advise clients seeking to establish operations in Taiwan.  One of the first topics of discussion is often determining the optimal Taiwan business form and the best overall (onshore and offshore) corporate structure given the client’s specific business operations and current and future objectives.  Our corporate team has published an article briefly summarizing the various Taiwan business forms.  That article can be found here.

In this article, we take a slightly deeper look at one of the more common Taiwan business forms:  the Taiwan limited company.  This deeper dive into the Taiwan limited company stems from common misunderstandings we have encountered in our practice.  Most of these misunderstandings arise from erroneous assumptions that a Taiwan limited company is completely analogous to a Delaware limited liability company (or similar vehicle).

While a Taiwan limited company does share some similarities with its American cousin, the US style limited liability company (an “LLC”), there are a number of key differences.  We highlight below five (5) of these key differences.

1. No flow-through tax option. Taiwan limited companies do NOT have the option to “check the box” and be treated as a partnership for tax purposes.  A Taiwan limited company will exist as a separate legal person and be taxed accordingly.
2. Limitations on contributions. Unlike an LLC, owners of a Taiwan limited company are restricted as to what type of property they may contribute to the company.  Of particular interest to our startup clients is that a Taiwan limited company may NOT accept contributions in the form of services (i.e., no “sweat equity” is allowed).
3. Ownership interest transfer restrictions. Ownership interests in Taiwan limited companies may not be transferred except as approved by a majority of the voting interests of all other owners. Taiwan limited companies, therefore, may not be appropriate for use as corporate subsidiaries the ownership of which is likely to include interests held by third parties.
4. Directors must be members (or representatives of corporate members). The management of a Taiwan limited company is a hybrid of a member-managed and manager-managed LLC.  A Taiwan limited company is managed by directors; however, each director must be an owner.  Independent, professional directors are not permitted.  However, if a Taiwan limited company has a corporate owner, this corporate owner may appoint a natural person (who is not an owner in their own right) to represent the corporate owner as director.
5. Legal reserve requirement. A Taiwan limited company has a statutory legal reserve requirement.  Each year the company must set aside ten percent (10%) of its after-tax profits as a legal reserve up to an aggregate amount equal to its authorized capital.

The differences described above do not represent an exhaustive list.  If you require additional information related to forming or investing in a business in Taiwan, please contact Greg Buxton at gbuxton@winklerpartners.com.