The global economic and political uncertainties may have slowed Taiwan’s M&A market. The performance of the Taiwanese stock market remained outstanding during the past 12 months, with the index continuously reaching new highs. This has raised the expected transaction value for companies. Compared to the last year to date, the overall number of M&A transactions in Taiwan have not shown a significant increase in terms of deal value and number.

The transaction value of Taiwan’s M&A deals in the first quarter of 2024 declined compared to the same period in 2023, yet the number of transactions slightly increased. Notwithstanding the foregoing, the transaction value in the technology industry grew from the second half of 2024, showing a revival in the technology M&A market.

Taiwan’s semiconductor market has benefited from the AI boom and the promotion of technology integration during the last 12 months. This has led to a rebound in M&A transactions in the country’s technology industry, with a strong focus on fostering innovation and expanding market reach. Meanwhile, Taiwanese technology companies are actively pursuing global transformation and upgrading, with an increase in overseas investment and cross-border mergers and acquisitions. During the past 12 months, several transactions involved regional mergers and acquisitions, which were driven by the reshaping of supply chains.

As Taiwan’s technology industry continues to thrive, strategic partnerships and acquisitions will play a pivotal role in shaping the future and driving sustainable growth of the industry.

Many start-up companies founded by Taiwanese nationals are initially incorporated in Taiwan. Setting up a company in Taiwan typically takes around two weeks, assuming there are no foreign investors involved. However, while some venture capital investors are open to investing in Taiwanese-based start-ups, many institutional and reputable investors prefer for the target company to re-domicile or restructure to the Cayman Islands or the British Virgin Islands. This preference is driven by the greater flexibility offered by these jurisdictions for venture capital investors to structure special corporate governance and shareholder rights, as well as their more favourable tax regimes. As a result, start-up companies may choose to re-domicile or restructure to the Cayman Islands or the British Virgin Islands when they have matured to a stage where they are seeking funding from institutional investors overseas.

In Taiwan, there are various forms of business entities that can be used to operate a business. However, companies limited by shares and closely held companies (limited by shares) are the primary choices for venture capital investment. These types of companies are allowed to issue preferred shares with different rights and privileges, making them suitable for significant minority investments.

Early-stage financing in Taiwan is typically supported by local investors and government-sponsored funds, but the authors have also noticed an increasing trend of foreign venture capital investors getting involved in funding start-ups at an early stage to assist them in bringing their ideas to market. Share subscription agreements, a shareholders’ agreement, and the articles of incorporation of the target company are typically used to document the investment.

Typical sources of venture capital in Taiwan include large corporations, government-sponsored funds and institutional investors. To be specific, Taiwan has been actively promoting its start-up ecosystem through various government initiatives and endeavours. The government has established incubators, accelerators, and innovation centres to support and nurture early-stage companies. Additionally, Taiwan has been attracting foreign venture capital firms to invest in its start-up ecosystem. These firms bring in not only capital but also expertise, global networks, and market access to Taiwanese start-ups, helping them to expand internationally. Overall, the venture capital landscape in Taiwan is diverse and dynamic, with a range of funding sources and support programmes available to help start-ups thrive and succeed.

The typical documents for a venture capital transaction consist of a share subscription agreement, a shareholders’ agreement, and the articles of incorporation of the target company. While the Cayman Islands and British Virgin Islands model forms are commonly used in Taiwan, they must be adapted and tailored to comply with Taiwanese law.

Venture capital investment is primarily directed towards companies limited by shares and closely held companies (limited by shares). However, if a closely held company has drawn funds from more than 50 shareholders, it must transfer its form to a company limited by shares due to the cap on the number of shareholders. Additionally, start-ups that have international investors may be asked to consider relocating their jurisdiction to the Cayman Islands or the British Virgin Islands in order to align with the corporate governance schemes that are more familiar to international investors.

When investors in a start-up in Taiwan are considering a liquidity event, they may be more likely to expect to take the company public, in light of the potential for greater visibility, access to capital, and enhancement in the valuation that can follow with an IPO.

However, the current trend in Taiwan is leaning towards a dual-track process, where investors explore all the possibilities at the outset, and choose the path that best aligns with their interest, ultimately depending on various factors such as the company’s growth stage, industry dynamics, or market conditions.

In most cases, when a Taiwanese company decides to do a listing, it is more likely to consider listing on a local exchange including the Taiwan Stock Exchange and the Taipei Exchange. The reasons are the familiarity with local environments and regulations, and the ease of access to local investors and stakeholders who better understand the company’s operations and products. By listing on a local exchange, the company can also enhance its visibility and reputation in the local industry. Other considerations include the ease of communications with the regulators/investors and the relatively low listing/maintaining costs, etc.

A few Taiwanese companies also choose to do a dual listing by issuing GDR (Global Depositary Receipt), which allows them to access both local and international capital markets and to diversify their investor base. This approach can also enhance the company’s global visibility and facilitate the development of its overseas business.

Listing rules vary according to stock exchanges in different countries. If a company chooses to list on a foreign stock exchange, it must thoroughly understand relevant regulations that might come into play in order to properly evaluate the potential implications for and impact on the company’s future operations and M&A transactions.

Companies are usually required to comply with the laws and regulations of both their place of incorporation and the foreign exchange. A Taiwanese company seeking to list on a foreign exchange will conduct a restructuring first to tailor to the foreign exchange’s regulations.

If the sale of the company is chosen as a liquidity event, it will mostly be conducted in a bilateral negotiation with a chosen buyer, rather than through an auction. In Taiwan’s local M&A transactions, auctions are mainly seen in the financial sector; in the technology industry, auctions are more likely to be used in asset sales than share deals.

In Taiwan, for a sale of a privately held technology company that has a number of VC investors, a sale of the entire company is more commonly seen than a sale of controlling stake, as there are usually drag-along and tag-along provisions in the investment agreement. Generally, buyers also consider it efficient to acquire the entire company as this could simplify the transaction process and avoid complexity and uncertainty in the future.

Cash is most commonly used as the consideration for a sale of a privately held venture capital-financed company in Taiwan, as VC investors typically expect a cash return on their investment.

Nevertheless, it is also possible to use shares or a combination of cash and shares as the consideration, particularly where the buyer is a listed company, depending on the nature of the transaction, the preference of the parties and the approval from competent authorities.

Consistent with the global transaction practice, founders are generally required to stand behind representations and warranties and certain liabilities for the company, while VC investors typically only give representations and warranties regarding their ownership and title to shares. An escrow/holdback is customary for these purposes if such arrangement acts in favour of the VC or PE. While representations and warranties insurance may be sought for larger cross-border transactions, it remains less common in local inbound investment deals.

There have been a few spin-offs in the technology industry in Taiwan, but they are not considered common. Structuring the transaction as a spin-off may involve the segregation of a partial independently operable business of the seller as opposed to selling the entire business, or it may be done for reasons such as the consideration being directly paid to the seller’s shareholders. A spin-off can be more complex than a share deal in terms of carveout and transition procedures, particularly when the business requires special permits and involves the spinning off of manufacturing sites.

In general, the major tax implications of a spin-off are as follows: (i) a business tax (VAT) will be imposed at 5% of the consideration, and (ii) the seller will be subject to corporate income tax at a rate of 20% on any gains (ie, the difference between the transaction price and book value) arising from the transfer of its assets and liabilities to the buyer.

On the other hand, tax exemption applies; if at least 65% of the consideration paid by the buyer is voting shares in the buyer’s company, the aforementioned business tax may be exempted. Additionally, if at least 80% of the consideration paid by the buyer is voting shares in the buyer’s company, and the seller transfers all the acquired shares to its shareholders, the aforementioned corporate income tax may also be exempt.

A spin-off followed by a business combination is possible in Taiwan. However, a transitional arrangement may need to be structured to ensure there is no business disruption to the operation.

The timing of a spin-off can vary depending on the specific circumstances of the company and the complexity of the transaction. However, a typical timeframe for completing the process is six to ten months, taking into account the timeline required for the shareholders’ meeting, foreign investment and other regulatory approvals, and the transfer of manufacturing sites.

It is considered common for an investor to acquire a stake in a public company prior to making an offer in Taiwan to secure the votes to approve an M&A transaction. Any person who, either individually or jointly, acquires more than 5% of the total issued shares of a public company must report to the Financial Supervisory Commission (FSC), stating the purpose of the acquisition. Any change in the shareholder’s holding of 1% or more of the total issued shares of the public company should also be reported. Directors, supervisors, managerial officers and shareholders holding more than 10% of the total issued shares of the public company are also subject to regular reporting obligations. On the other hand, there is no requirement for the buyer to make a proposal that it will not be making a proposal within a specified period of time.

A mandatory tender offer would be required if anyone, alone or in concert with others, plans to acquire 20% or more of the issued shares of a public company within 50 days unless any exceptions apply. An acquisition will be deemed in concert with others if the acquirers acquire such shares by means of a contract, agreement, or other form of agreements for a joint purpose.

Privatisation through a two-step transaction – ie, a tender offer followed by a share exchange using cash as the consideration (cash squeeze-out), is a commonly adopted transaction structure in Taiwan’s M&A market. Additionally, M&A transactions between Taiwan companies and Cayman Islands companies are often structured through a reverse triangular merger, which also results in the public companies being the surviving companies and wholly owned by the acquirer after the merger.

In general, cash is more commonly used as consideration in public M&A transactions in Taiwan. In a tender offer, if the consideration is in cash, the offer documents must include a performance guarantee from a financial institution or a written confirmation from a qualified financial adviser or CPA must be included in the offer documents as proof of funding. If the consideration is in the form of shares, such shares must be domestic securities traded on the Taiwan Stock Exchange or the Taipei Exchange, or foreign securities prescribed by the FSC. Typically, the tender offer price would be set higher than the market price to incentivise public shareholders to tender their shares. In public M&A transactions, an independent expert’s fairness opinion is required to validate the fairness of the transaction price. The directors of the companies involved in the transaction must fulfill their fiduciary duties by carefully reviewing and negotiating reasonable terms and conditions. In cases where there are discrepancies between the parties in transactions with high valuation uncertainty, post-closing earn-out payments may be structured as a contingent transaction price in M&A transactions.

Common conditions of a tender offer are (i) the threshold for the tender offer and (ii) required regulatory approvals.

A tender offer conditioned on the bidder obtaining financing is not permissible. A bidder should disclose in the offer details of its funding source for the consideration, substantiated by relevant documents. Moreover, a bidder cannot withdraw or cease a tender offer once it has been launched, except with the FSC’s approval in one of the following circumstances:

• the bidder has proven a material change in the financial or business conditions of the target company;
• the bidder is subject to bankruptcy or reorganisation, death, or declaration of incompetency; or
• other reasons specified by the FSC.

In practice, a bidder will often seek commitment from major shareholders to vote in favour of the deal at the shareholders’ meeting and to tender the shares. Whether to request other deal protection provisions (such as break fees, match rights, force-the-vote provisions, non-solicitation, etc) will be subject to the parties’ negotiation on a case-by-case basis. Where the principal shareholder is also a director of the target company, a fiduciary-out provision will often be included.

A transaction agreement is required by law for transactions such as share exchanges, mergers, spin-offs, etc. There is no specific boundary for a target company to undertake certain obligations. It is common practice for a public company to give customary representations and warranties in a combination transaction.

Given that under the Taiwanese law, material decisions require the approval from shareholders representing two-thirds of the voting shares present at a shareholders’ meeting, in order to gain an absolute control of a public company, an acquirer should aim to acquire or control at least 67% of the shares to secure necessary corporate approval. However, in practice, it may be sufficient for one investor to control 30% to 40% of the voting rights in a public company in order to influence the management or operation. The level of control largely depends on the dispersion of the shareholding of the public company.

A major shareholder may squeeze out minority shareholders through a merger or share exchange for which the consideration should be in the form of cash. In general, affirmative consent by holders of two-thirds of the total issued shares of the public company is required to approve a squeeze-out privatisation transaction.

The takeover offer should be launched by the acquirer itself and not by the financing banks. However, the acquirer must obtain a bank guarantee for its performance of the payment of the offer consideration or a letter of confirmation from a CPA confirming the acquirer’s ability to pay. Since the funds for the completion of the tender offer should be guaranteed before the launch of tender offer are available, obtaining financing cannot be a condition of a takeover offer.

Break-up fees have sometimes been used as a deal protection tool in public deals in recent years. Additionally, it is common in Taiwan for major shareholders to sign a side agreement covenanting to endorse the deal at the shareholders’ meeting in order to ensure a successful outcome.

The Taiwan Company Act prescribes a list of matters requiring the approval of a majority (a majority vote meeting at least 50% quorum) or supermajority (a majority vote meeting at least two-thirds quorum) of the shareholders or the board of directors. As a result, as long as the bidder can obtain the controlling voting power at the shareholders’ meeting and the board, the bidder will generally obtain the governance powers in public companies.

While the courts in Taiwan do not deem all voting agreements to be valid, the Business Mergers and Acquisitions Act (the “M&A Act”) allows shareholders to enter into a written agreement on the joint exercise of their voting rights and related matters when a company enters into a merger or acquisition. In practice, agreements whereby major shareholders commit to vote in favour of the deal at the shareholders’ meeting and to tender shares are common. Negotiations on such agreements and transaction documents usually take place concurrently. The undertakings usually include irrevocable commitments to tender or vote by the principal shareholders of the target company, typically subject to board and/or regulatory approvals. However, the manager shareholders would require a fiduciary-out if a better offer is made.

Under the public tender offer rules, a public announcement and offer to purchase the shares must be made and the prospectus and other relevant documents must be filed with the FSC before the date of launching the tender offer. The FSC will review the offer price or other terms for formality, such as whether a fairness opinion has been obtained and whether any transaction terms required to be disclosed have not been properly disclosed in the prospectus. The usual timeframe for a public tender offer is 20 to 50 days, which can be extended by up to another 50 days by a one-off filing with the FSC if the regulatory approval required to complete the tender offer is not obtained within the initial 50 days or there is a competing bid.

Delays in obtaining regulatory/antitrust approvals are a legitimate reason for extending the tender offer period by another 50 days. However, if the necessary regulatory/antitrust approvals are still not obtained during the extension period, the tender offer will fail and become final. Therefore, in transactions requiring multi-jurisdictional merger clearance, the bidder will normally opt to obtain regulatory approvals prior to launching the offer.

Generally speaking, there are no specific prior permit, approval or licensing requirements for the establishment and operation of a technology company in Taiwan, except for certain regulated industries. Prior permit, approval or licensing requirements may be needed if the technology company operates certain businesses, such as:

• electronic payment services regulated by the FSC;
• the manufacture, export/import, distribution or sale of medical devices regulated by the Ministry of Health and Welfare; and
• manufacturing or importing of radio-frequency controlled telecommunications devices regulated by the National Communications Commission.

The length of time to obtain prior permit, approval or licence varies across the various regulatory authorities and depends on the type of prior permit, approval or licence applied for.

The Securities and Futures Bureau of the FSC, the government agency responsible for public companies, is the main regulatory body in charge of public M&A transactions. Additionally, the Taiwan Stock Exchange and the Taipei Exchange are delegated by FSC to promulgate and enforce the listing rules and regulations for public companies.

Foreign (Non-PRC) Investment

Foreign investors (as distinguished from investors from Mainland China) who wish to purchase or invest in shares of Taiwanese companies (other than portfolio investment in exchange traded securities) are required to obtain foreign investment approval from the Department of Investment Review, Ministry of Economic Affairs of Taiwan (DIR) under the Statute for Investment by Foreign Nationals in advance. In general, foreign investors can invest in most business sectors in Taiwan. The “negative list” promulgated by Taiwan regulators specifies prohibited and restricted investment areas for foreign nationals. No foreign investment can be made in the “prohibited industries”. For those classified as “restricted industries”, special permits or licences from relevant authorities must be obtained before investment, and additional restrictions may apply.

PRC Investment

A PRC investor, under the Regulations Governing Investment from the People’s Republic of China (PRC), refers to any individual, juristic person, organisation, or any other institution from Mainland China (a “Mainland Person”) that invests in Taiwan. A PRC investor also includes any company located in any third area (an area other than the PRC or Taiwan) and invested in by Mainland Person(s) whereby (i) the shares held or capital contributed directly or indirectly by Mainland Person(s) in aggregate exceed 30% of the total number of shares or the total amount of capital contribution of the third-area company, or (ii) any Mainland Person has control over the third-area company. A PRC investor is only permitted to invest in a Taiwanese company if prior approval from the DIR is obtained, and only if the investment is consistent with the business scope restrictions and limitations on Taiwan’s “positive list” for investment from Mainland China as promulgated by Taiwan regulators from time to time.

National Security Review

An investor is prohibited from investing in businesses in Taiwan that could harm national security, public order, good customs and practices, or public health, as well as such activities that are prohibited by law. Certain industries and companies will undergo special scrutiny due to national security concerns. In these cases, the DIR will forward the foreign investment application to other government agencies for their comments and approval before making a final decision. Industries and companies that may fall under the intra-governmental consultation process include:

• financial holding companies, banking, insurance, securities firms, securities investment trusts or consulting firms;
• telecommunications;
• media and broadcasting;
• agriculture;
• transportation; and
• energy.

Export Control

An export of items falls under the scope of strategic high-tech commodities (SHTC) and the provision to a foreign party of the relevant technologies to develop, manufacture, or use the product requires proper permits. The criteria to determine the strategic high-tech commodities include:

• whether the items are on the export control lists for SHTC issued by the International Trade Administration, Ministry of Economic Affairs (ITA);
• whether the customers are included on the SHTC Export Entity List as announced by the ITA; and
• whether there exists any of the red-flag situations (eg, the customers are not willing to provide the end-use or end-users of the items) or the use or end-user of the items is likely for production or development of nuclear or biochemical weapons, missiles or other military weapons.

If a combination may lead to a combined market share or revenue exceeding the prescribed filing thresholds, the enterprises participating in such proposed combination must obtain prior approval from the Taiwan Fair Trade Commission (TFTC) before the combination. The “combination” refers to any one of the following conditions:

• mergers;
• holdings or acquisitions of at least one-third of the voting shares of or interest in another enterprise;
• transfers or leases of all or a substantial part of an enterprise’s business or assets;
• having an arrangement with another enterprise for joint operation on a regular, ongoing basis, or the management of another enterprise’s business based on a contract of entrustment; or
• having direct or indirect control over the operation or personnel of another enterprise.

A notification would be required for a combination in the following circumstances:

• if, as a result of such combination, any of the participating enterprises will obtain at least one-third of the market share;
• if any of the enterprises participating in the combination holds at least one-quarter of the market share before the combination; or
• if the preceding fiscal year’s turnover of the participating enterprises, calculated on a group-wide/consolidated basis, exceeds the amount set forth by the TFTC, as follows:
1. the aggregate global turnover of all the participating enterprises in the preceding fiscal year exceeds NTD40 billion, and at least two of the participating enterprises had a turnover in Taiwan of at least NTD2 billion in the preceding fiscal year;
2. for a combination among non-financial enterprises, one of the participating enterprises generated a turnover in Taiwan of at least NTD15 billion in the preceding fiscal year, while the other participating enterprise generated a turnover in Taiwan of at least NTD2 billion in the preceding fiscal year; or
3. for a combination between financial enterprises, one of the participating enterprises generated an annual turnover of at least NTD30 billion, while the other participating enterprise generated an annual turnover of at least NTD2 billion.

In the event of a merger or asset transfer, the acquiring company must notify employees who will be retained at least 30 days before the completion of the transaction. Employees who receive a retention notice must inform the acquiring company of their decision to accept or decline the offer within ten days. Failure to respond will be considered as consenting. If employees decline the offer or are not retained, the target company may lay them off on the grounds of redundancy. The target company must provide pension or severance pay and give prior notice to these employees. Mass redundancies must comply with the notice requirements and negotiation procedures as per regulations.

In the case of a tender offer or share exchange, employees do not need to be notified, as there will be no change in employer. Any redundancy lay-off is subject to the labour law requirements.

Taiwan regulates foreign exchange transactions. There is no limit on the total investment amount for foreign investors as long as the investment is approved by the DIR or through trading in Taiwan’s securities market. However, for substantial investment or repatriation amounts that could significantly impact the exchange rate of New Taiwan Dollars, the Central Bank of Taiwan may impose restrictions on the daily conversion quota.

A significant recent court decision related to M&A involved the minority shareholder challenging the resolutions adopted by the board of directors and the shareholders’ meeting. In 2022, Far EasTone, one of Taiwan’s biggest telecoms companies, entered into a merger agreement with a rival player, Asia Pacific Telecom, whereby Far EasTone will be the surviving listed company and Asia Pacific will delist and merge into Far EasTone. Both shareholders’ meetings of Far EasTone and Asia Pacific Telecom approved the merger in 2022 and the transaction was pending merger clearance. However, a minority shareholder of Asia Pacific Telecom filed a claim in the court, asserting that the resolutions adopted in the shareholders’ meeting of the company should be revoked due to a procedural flaw. Despite the TFTC granting conditional clearance for the merger filing, a court ruling in 2023 deemed that the resolutions adopted in the shareholders’ meeting of Asia Pacific Telecom must be revoked. The ruling of the court was made on the grounds that:

• certain directors with conflicts of interest did not abstain from voting;
• certain directors with conflicts of interest did not make disclosures to the board; and
• the shareholders’ meeting did not explain their reasons for supporting or opposing the proposal, and there were certain procedural and substantive flaws in the fairness opinion issued by an independent expert.

Asia Pacific Telecom was compelled to reconvene a shareholders’ meeting in order to rectify the procedural flaws and eventually adopted the new resolutions pertaining to the approval of the merger. This contentious case serves as a stark reminder that even technical procedural flaws in a resolution can have adverse consequences on the outcome of a public deal.

In the realm of M&A transactions involving public companies, it is important to consider insider-trading restrictions. According to the “disclose or abstain” rule, individuals who have access to material non-public information must either disclose that information or refrain from trading on it. Therefore, a public company should exercise caution when sharing material information with potential bidders that is not publicly accessible and cannot be disclosed before the execution of the transaction, in order to avoid any potential obstacles to executing the transaction.

The Personal Data Protection Act (PDPA) is the main statute governing personal data protection in Taiwan. The PDPA applies to all data collection and processing activities in Taiwan, regardless of the nationality of the data subjects. Generally, international data transfers are permitted under the PDPA, unless prohibited or restricted by the regulators. Consent from data subjects is required for the collection, processing, and use of their personal information, with some exceptions or additional restrictions based on circumstances. Due to these restrictions, when providing due diligence documents, a target company, such as a technology company, would remove personally identifiable information. This means that the acquirer will only learn the identity of the target company’s employees, independent contractors, or individual co-operating partners near or at the completion of the transaction.

A public company is required to disclose any material contracts, letters of intent and memorandums that it executed. Additionally, any resolutions adopted by the board of directors of a public company that have a significant impact on the share price or the investment decision of the investors are required to be disclosed. In practice, on the date of a board meeting approving a merger or an acquisition or on the date of executing a binding legal document between the public company and the other party to the merger or acquisition, an announcement must be made on the Market Observation Post System.

In a tender offer where the consideration is in the form of shares, such shares must be (i) domestic securities traded on the Taiwan Stock Exchange or the Taipei Exchange or (ii) foreign securities prescribed by the FSC. A prospectus is required for the issuance of new shares of the offeror in a tender offer.

A public company is required to obtain the bidders’ financial statements so as to determine the fair price of a transaction in the case of a stock-for-stock transaction, while whether or not the financial statements should be prepared based on GAAP or IFRS is not specially required.

The parties are required to file copies of the transaction documents for certain governmental reviews, including applications for the merger, investment approval, tender offer, corporate registration, etc.

Directors must fulfil their fiduciary duties, which include the duty of loyalty and the duty of care in a business combination. They must act in the company’s best interests and make decisions on whether to approve a deal on an informed basis. Directors have a duty to indemnify the company for any loss arising from a breach of these fiduciary duties. The board of directors must fulfil their duty of care by complying with pertinent laws, the company’s articles of incorporation, and shareholders’ resolutions. Directors who fail to fulfil their duties, thereby causing loss or damage to the company, are liable for damages if they approved the resolution that led to such loss.

In Taiwan, directors owe a duty of loyalty solely to the company. Shareholders can bring a derivative action on behalf of the company if the directors’ breach of this duty results in harm to the corporation. However, recent amendments to the Taiwan Company Act have begun to incorporate the public interest into corporate governance goals. Consequently, whether directors owe duties to stakeholders remains a subject of ongoing scrutiny.

The M&A Act requires public companies to form special or ad hoc committees to facilitate business combinations.  These committees are tasked with evaluating the fairness and reasonableness of the proposed merger or acquisition plan and transaction. The findings of such evaluations are then reported to the board of directors and the shareholders’ meeting for further review.

Where a public company has already established an audit committee under the Securities and Exchange Act, the audit committee will undertake the duties typically assigned to the special committee. Furthermore, if directors have a conflict of interest with respect to business combinations, the Securities and Exchange Act requires that the audit committee’s approval be obtained before the matter is submitted to the board of directors for resolution.

Under Taiwanese law, directors are required to act in the best interests of the corporation in M&A transactions and to exercise the diligence expected from a prudent manager. Therefore, the board is expected to actively participate in the negotiation of M&A transactions to seek the best terms of a transaction, as opposed to passively endorsing or opposing the deal.

There have been lawsuits filed by minority shareholders against companies to challenge the board’s decision to recommend an M&A transaction. In recent years, some Taiwanese courts have adopted the business judgement rule from US case law in adjudicating cases involving claims of breach of fiduciary duty. This rule is used to assess whether directors’ business decisions in the context of mergers and acquisitions are in the best interests of the corporation. Some courts have posited that directors may be relieved of liability if they meet the following conditions: (i) the director has no personal interest in the transaction, (ii) the director reasonably believes that they have all the information necessary to make the decision, and (iii) the director reasonably believes that their judgement aligns with the best interests of the company.

Under the M&A Act, a public company is required to establish an ad hoc committee prior to the resolution of any M&A transaction by the board of directors. This committee is tasked with evaluating the fairness and reasonableness of the proposed plan and transaction. To fulfil this responsibility, the committee must engage an independent expert to provide a fairness opinion as to the consideration involved.

Moreover, it is customary for the board of directors to seek financial and legal advice from external experts in M&A transactions. This practice ensures that the board of directors is well informed and able to make decisions that are in the best interests of the company and its stakeholders.