The Initial Public Offerings Law Review: Taiwan

Introduction

There are two stock exchanges in Taiwan: the Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEx). Both the TWSE and TPEx are main stock exchanges and are members of the World Federation of Exchanges. Shares traded on the TWSE and TPEx are all settled in New Taiwan dollars (NT$).

In general, companies listed and traded on the TWSE are those with relatively larger market capitalisation and business operations, whereas the TPEx offers a listing platform for companies that may have smaller market capitalisation but with higher growth potential, such as companies in the industries of biotechnology and cultural and creative business.

Since 2008, Taiwan has campaigned for foreign companies to launch their initial public offering endeavours in Taiwan. Two stock exchanges in Taiwan, the TWSE and TPEx, took the initiative of setting up a legal regime aiming to serve this goal.

In general, foreign companies seeking a primary listing on the TWSE or TPEx do so through a listing vehicle set up in offshore jurisdictions, such as the Cayman Islands. As at December 2019, there were more than 100 foreign companies that had successfully completed their listing projects, either on TWSE or on TPEx. These companies come from a variety of countries, such as Mainland China, the United States, Japan, Singapore, Vietnam, Cambodia, Malaysia and Thailand.

According to the relevant market statistics, as at May 2021, 953 companies (including domestic companies and foreign companies) were listed on the TWSE with a total market capitalisation amounting to around NT$52,150 billion; 787 companies were listed on the mainboard of the TPEx; and 263 companies were registered with the Emerging Stock Board (ESB) under the Emerging Stock Market (ESM). The total market capitalisation of companies listed on the mainboard and the ESB of the TPEx amounts to around NT$5,888 billion.

The primary regulator for capital markets and publicly issued companies in Taiwan is the Financial Supervisory Commission (FSC). Applications for listing on the TWSE and TPEx are subject to review and approval by the TWSE and TPEx, respectively. After an application is approved, the application will be reported to the FSC for recordation.

Governing rules

i Main stock exchanges

From the history of the development of Taiwan's stock market, the industries of companies listed on the TWSE or TPEx have been closely related to the government's policies and the trend of overall development of Taiwan. In the early days, listed companies in the textile and petrochemical industries increased rapidly, followed by the high-tech industry (including semiconductor, electronic parts and components manufacturing), information technology and biotechnology in recent years.

TWSE

Since the TWSE has stricter listing requirements for the size of share capital, profitability and years of establishment of the issuer, it attracts more established issuers in the technology industry to apply for listing, such as Taiwan Semiconductor Manufacturing Co, Ltd (TSMC); Hon Hai Precision Co, Ltd; ASE Technology Holding Co, Ltd (ASE); and Delta Electronics, Inc.

TPEx

The mainboard of the TPEx targets small and medium-sized issuers with lower listing requirements and has been committed to fostering innovative enterprises and emerging industries, such as the biotechnology and cultural and creative industries, and actively encouraging those companies to list on its platform. According to statistics published on the TPEx's website, as at June 2021, 93 biotechnology companies were listed on the TPEx, amounting to more than 10 per cent of the total companies listed on the mainboard of the TPEx.

It is not common for domestic issuers to pursue dual listings on foreign exchanges. Certain larger-scale companies, with a view to pursuing international visibility, choose to list their shares in the form of American depository receipts (ADRs), such as TSMC and ASE, or in the form of global depository receipts, such as Delta Electronics, Inc.

ii Overview of listing requirements

The listing requirements of the TWSE and TPEx are described in the tables that follow.

General requirements for primary listing on the TWSE

RequirementsDomestic issuerForeign issuer
Duration of existenceThe issuer shall have been incorporated and registered under the Company Act of Taiwan for at least three years at the time of the application.The issuer or any of its controlled companies shall have an operational track record of three years or longer.
Company sizeAt the time it applies for listing, its paid-in capital is NT$600 million or more, and the number of shares of its publicly offered and issued common shares is 30 million or more.The company size of the issuer meets one of the following criteria:
  • at the time of application for listing, paid-in capital or net worth is NT$600 million or more; or
  • at the time of listing, market capitalisation is NT$1.6 billion or more.
ProfitabilityThe net income before tax in its financial reports meets any of the following criteria, and it does not have any accumulated deficit in the final accounts for the most recent fiscal year:
  • the net income before tax for each of the most recent two fiscal years represents 6 per cent or greater of the share capital stated in the annual financial reports;
  • the net income before tax for the most recent two fiscal years represents 6 per cent or greater (on average) of the amount of paid-in capital in its final accounts, and the profitability for the most recent fiscal year is greater than that for the immediately preceding fiscal year; or
  • the net income before tax for the most recent five fiscal years represents 3 per cent or greater of the share capital stated in the annual financial reports.
In response to the covid-19 pandemic, for initial public offering (IPO) applications in the 2021 fiscal year, the observation period for profitability can be flexibly adjusted to any two fiscal years in the most recent three fiscal years, provided that the applicant explains the level of impact by the pandemic, the duration of the impact and the recovery status of its operation, supported by a reasonable opinion issued by the underwriter.
Its cumulative net income before tax for the most recent three fiscal years is NT$250 million or more, and its net income before tax for the most recent fiscal year is NT$120 million or more, and it does not have any accumulated deficit.
In response to the covid-19 pandemic, for IPO applications in the 2021 fiscal year, the profitability requirement has been lowered to NT$150 million in cumulative net income before tax for the most recent three fiscal years and a positive net income before tax for the most recent fiscal year, provided that the applicant explains the level of impact by the pandemic, the duration of the impact and the recovery status of its operation, supported by a reasonable opinion issued by the underwriter.
Required sponsorship/ESM trading periodThe issuer's stock shall have been registered on the ESM for more than six months.The issuer is recommended, in writing, by two or more recommending securities firms (RSFs), and the company shall have been under listing sponsorship guidance for not less than six months provided by the lead RSF, or the company's stock shall have been registered on the ESM for more than six months.
Dispersion of shareholdingThe number of registered shareholders is 1,000 or more. Excluding company insiders (i.e., directors, supervisors, managerial officers and shareholders holding more than 10 per cent of the total shares of the issuer) and any juristic persons in which such insiders hold more than 50 per cent of the shares, the number of registered shareholders is at least 500, and the total number of shares they hold is 20 per cent or greater of the total issued shares, or at least 10 million.The same requirements as for domestic issuers.

General requirements for primary listing on the TPEx

RequirementsDomestic issuerForeign issuer
Duration of existenceThe issuer shall have been incorporated and registered for at least two full fiscal years.The issuer or any of its controlled companies shall have been incorporated and registered for at least two full fiscal years.
Company sizeAt the time it applies for listing, its paid-in capital is NT$50 million or more, and the number of shares of its publicly offered and issued common shares is 5 million or more.Its net worth as audited and attested or reviewed by a certified public accountant (CPA) for the most recent fiscal year is equivalent to at least NT$100 million.
ProfitabilityEither (a) or (b) below is satisfied.

(a) The net income before tax in its financial reports for the most recent fiscal year may not be less than NT$4 million, and its ratio of net income before tax to the paid-in capital shall meet one of the following conditions:

  • 4 per cent or more, and it does not have any accumulated deficit in the final accounting for the most recent fiscal year;
  • 3 per cent or more in each of the most recent two fiscal years; or
  • an average of 3 per cent or more in the last two fiscal years, and the profitability of the most recent fiscal year is better than that of the previous year.
(b) The issuer simultaneously meets all the following conditions:
  • net worth stated in the most recent CPA audited and attested or reviewed financial report is NT$600 million or more and is not less than two-thirds of the share capital;
  • operating revenue from principal business for the most recent fiscal year is NT$2 billion or more, and is more than that for the previous fiscal year; and
  • cash flow from operating activities in the most recent fiscal year is net cash inflow.
Either (a) or (b) below is satisfied.

(a) The net income before tax in its financial reports for the most recent fiscal year may not be less than NT$4 million, and its ratio of net income before tax to the amount of equity attributable to owners of the parent company shall meet one of the following conditions:

  • 4 per cent or more, and it does not have any accumulated deficit in the final accounts for the most recent fiscal year;
  • 3 per cent or more in each of the most recent two fiscal years; or
  • an average of 3 per cent or more in the last two fiscal years, and the profitability of the most recent fiscal year is better than that of the previous year.
(b) The issuer simultaneously meets all the following conditions:
  • net worth stated in the most recent CPA audited and attested or reviewed financial report is NT$600 million or more and is not less than two-thirds of the share capital;
  • operating revenue from principal business for the most recent fiscal year is NT$2 billion or more, and is more than that for the previous fiscal year; and
  • cash flow from operating activities in the most recent fiscal year is net cash inflow.
Required sponsorship/ESM trading periodThe issuer is recommended, in writing, by two or more RSFs, and the issuer's stock shall have been registered on the ESM for more than six months.The issuer is recommended, in writing, by two or more RSFs, and the issuer shall have been under listing sponsorship guidance for not less than six months provided by the lead RSF, or the issuer's stock shall have registered on the ESM for more than six months.
Dispersion of shareholdingExcluding company insiders (i.e., directors, supervisors, managerial officers and shareholders holding more than 10 per cent of the total shares of the issuer) and any juristic persons in which such insiders hold more than 50 per cent of the shares, the number of registered shareholders is at least 300, and the total number of shares they hold is 20 per cent or greater of the total issued shares, or at least 10 million.The same requirements as for domestic issuers. Additionally, the number of shares planned to be listed and traded shall exceed 50 per cent of the total issued shares.

Apart from the general listing requirements, to offer listing opportunities for enterprises that have growth potential but have not yet generated the required profits, both the TWSE and the TPEx loosened the requirements on profitability for companies in the high-tech and cultural and creative business industries to facilitate the raising of funds by those companies in Taiwan's capital market.

Listing requirements for companies in the technology and cultural and creative industries on the TWSE

RequirementsDomestic issuerForeign issuer
Duration of existenceNo requirement.The issuer or any of its controlled companies shall have been incorporated and registered for at least one full fiscal year.
Company sizeAt the time it applies for listing, its paid-in capital is NT$300 million or more, and the number of shares of its publicly offered and issued common stock is 20 million shares or more.The company size of the issuer meets one of the following criteria:
  • at the time of the listing application, the paid-in capital or net worth is NT$300 million or more; or
  • at the time of the listing application, market capitalisation is NT$800 million or more.
ProfitabilityAt the time of the listing application, the net worth in the financial report for the most recent year of the company shall not be lower than two-thirds of the paid-in capital.At the time of the listing application, the net worth in the most current financial report of the company shall not be lower than two-thirds of the paid-in capital, and the working capital is sufficient to keep the business operating for 12 months after the listing. For a foreign issuer who issues stocks that have no par value or the par value is not NT$10, the net worth of the issuer shall not be lower than two-thirds of the sum of capital plus share premium reserve (paid-in capital in excess of par value).
Required sponsorship/ESM trading periodThe issuer is recommended, in writing, by the RSF, and the issuer's stock shall have been registered on the ESM for more than six months.The issuer is recommended, in writing, by two or more RSFs, and the company shall have been under listing sponsorship guidance for not less than six months provided by the lead RSF, or the company's stock shall have been registered on the ESM for more than six months.
Dispersion of shareholdingThe number of registered shareholders is 1,000 or more. Excluding company insiders (i.e., directors, supervisors, managerial officers and shareholders holding more than 10 per cent of the total shares of the issuer) and any juristic persons in which such insiders hold more than 50 per cent of the shares, the number of registered shareholders is at least 500.The number of registered shareholders is 500 or more. Excluding company insiders (i.e., directors, supervisors, managerial officers and shareholders holding more than 10 per cent of the total shares of the issuer) and any juristic persons in which such insiders hold more than 50 per cent of the shares, the number of registered shareholders hold 20 per cent or greater of the total issued shares, or at least 5 million shares. The number of shares planned to be listed and traded shall exceed 50 per cent of the total issued shares.

Listing requirements for companies in the technology and cultural and creative industries on the TPEx

RequirementsDomestic issuerForeign issuer
Duration of existenceNo requirement.No requirement.
Company sizeAt the time it applies for listing, its paid-in capital is NT$50 million or more, and the number of shares of its publicly offered and issued common shares is 5 million or more.Its net worth as audited and attested or reviewed by a CPA for the most recent fiscal year is equivalent to at least NT$100 million.
ProfitabilityAt the time of the listing application, the net worth in the financial report for the most recent year of the issuer shall not be lower than two-thirds of the paid-in capital.At the time of the listing application, the net worth in the financial report for the most recent year of the issuer shall not be lower than two-thirds of the paid-in capital.
Required sponsorship/ESM trading periodThe issuer is recommended, in writing, by two or more RSFs, and the issuer's stock shall have been registered on the ESM for more than six months.The issuer is recommended, in writing, by two or more RSFs, and the issuer shall have been under listing sponsorship guidance for not less than six months provided by the lead RSF, or the issuer's stock shall have registered on the ESM for more than six months.
Dispersion of shareholdingExcluding company insiders (i.e., directors, supervisors, managerial officers and shareholders holding more than 10 per cent of the total shares of the issuer) and any juristic persons in which such insiders hold more than 50 per cent of the shares, the number of registered shareholders is at least 300, and the total number of shares they hold is 20 per cent or greater of the total issued shares, or at least 10 million shares.Excluding company insiders (i.e., directors, supervisors, managerial officers and shareholders holding more than 10 per cent of the total shares of the issuer) and any juristic persons in which such insiders hold more than 50 per cent of the shares, the number of registered shareholders is at least 300, and the total number of shares they hold is 20 per cent or greater of the total issued shares, or at least 10 million shares.

In March 2018, to respond to the market trend, the TWSE announced a 'diversified listing plan' and amended the relevant listing rules, opening doors for companies with a high valuation (known as 'unicorn' start-ups) to list their shares on the TWSE.

Major requirements for companies applying for diversified listing

RequirementsIssuer with market capitalisation of NT$5 billion or moreIssuer with market capitalisation of NT$6 billion or more
Paid-in capitalNT$600 million or more.NT$600 million or more.
Operating incomeGreater than NT$5 billion and higher than the previous year.Greater than NT$3 billion and higher than the previous year.
Cash flow The cash flow from operating activities in the latest year is positive.The same requirements as in the left-hand column.
Net worthThe net worth is two thirds or more of the paid-in capital.The same requirements as in the left-hand column.
ProspectusWhen applying for listing, the cover of the prospectus should indicate that this issuer is exempted from profitability requirements so as to inform investors.The same requirements as in the left-hand column.

To assist the development of innovative industries, improve fund raising channels and expand the scope of the capital market, the FSC announced in December 2020 that starting in the third qurater of 2021, the TWSE would establish the Taiwan Innovation Board (TIB), and the TPEx would establish the Pioneer Stock Board (PSB) under the ESM.

Major requirements for companies applying for TIB listing on the TWSE

RequirementsDomestic issuerForeign issuer
Duration of existenceThe issuer shall have been incorporated and registered under the Company Act for at least two years at the time of the application.The issuer or any of its controlled companies shall have an operational track record of at least two years.
Company sizeAt the time of the listing application, the amount of the issuer's publicly offered and issued common shares is NT$100 million or more, and the number of its publicly offered and issued common shares is 10 million or more.Same requirements as a domestic issuer.
Market value and financial requirementsAt the time the issuer applies for listing, any of the following is satisfied:
  • it has a market value of NT$1.5 billion or more, its operating revenue in the most recent fiscal year is no less than NT$150 million, and it has sufficient operating capital for 12 months (with proof) following the listing;
  • for any company in the biotechnology and medical industries, the company has a market value of NT$3 billion or more and has sufficient capital (with proof) equivalent to 125 per cent of the operating capital for 12 months following the listing; additionally, for any company in the industries concerning the research and development of new drugs, its core product must have passed Phase 1 clinical trials; or
  • the issuer has a market value of NT$4 billion or more and sufficient capital (with proof) equivalent to 125 per cent of the operating capital for 12 months following the listing.
The same requirements as for domestic issuers.
Required sponsorship/ESM trading periodThe issuer is recommended by two or more RSFs, and the issuer's shares have been registered on the ESM for more than six months.The issuer is recommended by two or more RSFs, and has been under listing sponsorship guidance for not less than six months or the issuer's shares have been registered on the ESM for more than six months.
Dispersion of shareholdingThe number of registered shareholders is 50 or more. Excluding company insiders (i.e., directors, supervisors, managerial officers and shareholders holding more than 10 per cent of the total shares of the issuer) and any company that is controlled by such insiders, the total number of shares owned by registered shareholders is no less than 5 per cent of the total issued shares, or at least 5 million.The same requirements as for domestic issuers.

Compared to the listing requirements set by the leading global exchanges such as the New York Stock Exchange, Nasdaq and the Hong Kong Stock Exchange, there are some features that are particular to the TWSE and TPEx and that may appear unique compared with the others. A few examples are stated below.

ESM registration

The ESM of the TPEx, comprising the existing ESB and the incoming PSB starting Q3 2021, is established for companies to prepare themselves for going public before they are eligible to be listed on the TWSE or TPEx. The ESB applies to companies in all industries whereas the PSB is exclusively for companies in (1) the information and digital industries; (2) the information security industry that combines 5G, digital transformation and national security; (3) the biomedical technology industry; (4) the national defence and strategic industries; (5) the green and renewable energy industry; (6) the strategic stockpile industries relating to the provision of key supplies; or (7) other innovative industries.

The shares of the companies registered on the ESM are traded over the counter. A domestic issuer must be registered on the ESM for at least six months before applying for listing on the main board of the TWSE or TPEx.

This requirement is not mandatory for foreign issuers. They can choose to be registered on the ESM for six months or be sponsored by the lead underwriter for not less than six months before applying for listing on the main board of the TWSE or TPEx.

Protection of minority shareholders

Retail investors contribute to a substantial part of trading in the Taiwanese stock exchanges, so the government has always been cautious in respect of the protection of minority shareholders in listing companies.

Out of the same rationale, the TWSE and TPEx require that foreign companies applying for listing amend their articles of association so that certain matters prescribed in the Checklist of Shareholders Rights Protection (the Checklist) promulgated by the TWSE or TPEx can be built into the applicants' charters. The matters prescribed in the Checklist basically reflect material provisions regarding shareholder rights protections provided under the Company Act and the Securities and Exchange Act.

iii Overview of law and regulations

TWSE review rules

The requirements for listing on the TWSE (for both domestic issuers and foreign issuers) are set forth in the Taiwan Stock Exchange Corporation Rules Governing Review of Securities Listings (the TWSE Listing Rules), the Taiwan Stock Exchange Corporation Procedures for Review of Securities Listings and the Operational Procedures for the Review of Foreign Securities for Listing by the Taiwan Stock Exchange Corporation.

TPEx review rules

The requirements for domestic issuers' listing on the TPEx are set forth in the Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx, while the requirements for foreign issuers' listing on the TPEx are set forth in the Taipei Exchange Rules Governing the Review of Foreign Securities for Trading on the TPEx.

For registration with the ESM by both domestic issuers and foreign issuers, the requirements are set forth in the Taipei Exchange Rules Governing the Review of Emerging Stocks for Trading on the TPEx.

Corporate governance requirements

Before filing the listing application, a foreign company applying for listing on the TWSE or TPEx is required to comply with certain corporate governance requirements. Some material requirements are described below.

Implementation of certain internal rules

A foreign company applying for listing is required to adopt the following internal rules: (1) rules of procedure for board of directors' meetings; (2) rules for the election of directors; (3) rules for shareholders' meetings; (4) operational procedures for endorsements and guarantees; (5) operational procedures for lending funds; and (6) rules and procedures for the acquisition and disposal of assets.

Election of independent directors

The foreign company must have at least three independent directors accounting for not less than one-fifth of the total number of directors.

Audit committee

The board of directors of the foreign company must establish an audit committee. All independent directors shall be members of the audit committee, and the audit committee shall comprise solely independent directors. Among the independent directors, at least one of them shall have accounting or financial expertise, and at least one of them shall be domiciled in Taiwan.

The responsibilities and powers of the audit committee shall comply with those specified in the relevant Taiwan laws and regulations. For example, certain material corporate matters, such as the foreign company's annual and semi-annual financial reports, require the majority consent of all audit committee members before being submitted to the board of directors for resolution.

Compensation committee

The board of directors of the foreign company must establish a compensation committee comprising at least three members, one of whom shall be an independent director. The professional qualifications of the committee members and its responsibilities and powers shall comply with those provided in relevant Taiwan laws and regulations. For example, the compensation of the directors and managers of the foreign company shall be assessed by the compensation committee before being submitted to the company's board of directors for resolution.

The offering process

i General overview of the IPO process

Below is a brief overview of the IPO process in Taiwan. The time frames set forth in the table reflect common practice. Specific time frames for individual applicants may vary depending on surrounding circumstances.

Domestic issuers

StepParticularsTime frame
Pre-listing preparation
  • The company engages two or more RSFs, of which one should act as the lead RSF and the other as co-RSF; CPA; and legal counsel.
  • Initial due diligence is carried out by the lead RSF.
  • Establishment of the issuer's internal control and audit systems with CPA assistance is completed.
  • Restructuring of the company's group companies (or readjustment of the company's investment structure) is carried out.
  • The lead RSF and the CPA assess the eligibility for listing.
Apply for public issuance of shares
  • A company is required to become a publicly issued company before it can apply for registration of shares with the ESM.
  • The application for public issuance of shares should be submitted to the TPEx. The application will be deemed to be approved by the TPEx 12 business days after it receives the application (the TPEx may, at its sole discretion, halt the calculation of the 12-business-day period if it requires the company to provide supplemental information or reply to its enquiries regarding the application documents).
12 business days.
Sponsorship guidance
  • The lead RSF files sponsorship guidance documents to the TWSE or TPEx.
  • There is no required period for the lead RSF's sponsorship guidance documents.
Apply for registration with the ESM
  • The application for registration with ESM should be filed to the TPEx.
  • The TPEx will only conduct a documentation review of an ESM registration application and will usually grant its approval three business days after receiving the application from a publicly issued company and 12 business days after receiving the application from a company that applies for PSB listing.
  • Shares of the applicant company can be traded on the ESM on the sixth business day after receiving TPEx approval.
3 business days (or 12 business days) + 5 business days.
Submit listing application
  • The listing application to the TWSE or TPEx can only be filed after the applicant company's shares have been traded on the ESM for six months.
Review procedure
  • Formal document reviews are conducted by in-charge officers of the TWSE or TPEx.
  • Review is conducted by the Securities Listing Review Committee of the TWSE or TPEx.
6 to 10 weeks.
RatificationAfter the Securities Listing Review Committee of the TWSE or TPEx grants its approval, the listing application will be submitted to the board of directors of the TWSE or TPEx for ratification.
Public underwriting and listing
  • The applicant company is required to apply to the TWSE or TPEx for public issuance of new shares for cash capital increase before listing.
  • The application for public issuance of new shares for cash capital increase will be deemed to be approved by the TWSE or TPEx seven business days after it receives the application.
  • The applicant company can then proceed to the IPO underwriting process and determine the listing date.
2 to 3 months.

Foreign issuers

StepParticularsTime frame
Pre-listing preparation
  • The company engages a lead RSF, a CPA and legal counsel.
  • Initial due diligence is carried out by the lead RSF.
  • Establishment of the company's internal control and audit systems with CPA assistance is completed.
  • Restructuring of the company's group companies (or readjustment of the company's investment structure) is carried out.
  • The lead RSF and the CPA assess the eligibility for listing.
Sponsorship guidance
  • The lead RSF files sponsorship guidance documents to the TWSE or TPEx.
At least six months.
[Optional] Apply for public issuance of shares and registration with the ESM
  • A foreign company may apply for registration with the ESM after completing the six-month sponsorship period.
  • If the foreign company decides to register with the ESM before submitting the listing application to the TWSE or TPEx, it is required to apply to the TPEx for public issuance of all shares and registration of shares with the ESM concurrently.
  • The application process for public issuance and ESM registration is the same as that for domestic companies.
12 business days + 3 business days + 5 business days.
Submit listing application
  • The listing application to the TWSE or TPEx can only be filed after the foreign company has completed the six-month sponsorship period.
  • The foreign company is required to file applications to the TWSE or TPEx and the Central Bank of the Republic of China (Taiwan) (CBC) concurrently.
Review procedure
  • Formal document reviews are conducted by in-charge officers of the TWSE or TPEx.
  • Review is conducted by the Securities Listing Review Committee of TWSE/TPEx.
  • Concurrent review of the application documents is conducted by the CBC.
6 to 10 weeks (for receiving CBC approval and TWSE/TPEx board ratification).
Ratification
  • After the Securities Listing Review Committee of the TWSE or TPEx grants its approval, the listing application will be submitted to the board of directors of the TWSE or TPEx for ratification.
Public underwriting and listing
  • The applicant company is required to apply to the TWSE or TPEx for public issuance of all shares and cash capital increase by issuance of new shares before listing (if the foreign company has registered with the ESM before submitting a listing application to the TWSE or TPEx, only the application for cash capital increase of new shares is required at this stage).
  • The application for public issuance of shares and cash capital increase will be deemed to be approved by the TWSE or TPEx 12 business days after it receives the application.
  • The applicant company can then proceed to the IPO underwriting process and determine the listing date.
2 to 3 months.

ii Pitfalls and considerations

The TWSE or TPEx conduct a thorough and substantive review of IPO application documentation during the IPO process. According to rules governing the review of securities and foreign securities for trading on the TWSE or TPEx, the TWSE or TPEx shall deny approval for a company's application if any of the following circumstances exists:

  1. the applicant company has conducted any activities in violation of the principle of good faith in the most recent five years, or its directors, general manager or de facto responsible person violated the same principle in the most recent three years (for a TPEX listing application, the five-year period for the applicant company is shortened to three years);
  2. the board of directors or supervisors of the applicant company are not able to independently perform their functions; or
  3. in respect of an applicant company that has been registered with the ESM since the most recent fiscal year, any of its incumbent directors or material shareholders (those who hold 10 per cent or more of the total issued shares) traded the company's shares not on the ESM platform.

Other major concerns that the TWSE or TPEx may have about an applicant company's application, and for which the TWSE or TPEx may deny approval, include but are not limited to the following:

  1. the finance or business of the applicant company is not independent from those of certain other persons (e.g., the business of an applicant heavily relies on one or two buyers);
  2. the applicant company has had material labour disputes or environmental pollution issues and has not made any improvement;
  3. the applicant company has had material transactions not on an arm's-length basis and has not made any improvement;
  4. the applicant company has failed, in a material respect, to effectively implement its accounting system, internal control system or internal audit system, or has failed to prepare financial reports in accordance with relevant laws and regulations and generally accepted accounting principles; and
  5. there has been a serious deterioration in the applicant company's business operations.

iii Considerations for foreign issuers

Necessity of using a listing vehicle

While the common practice for a foreign company to come to Taiwan for listing is to set up a listing vehicle in an offshore jurisdiction, such as the Cayman Islands, legally speaking, a foreign company is not required to do so and may make the listing application with the company that operates its main business.

However, in reality, owing to the requirement to amend the articles of association for minority shareholders' protection as described in Section II.ii, using a listing vehicle has proved to be a more viable approach. As of today, all foreign companies (except for one) that ever came to Taiwan for listing are all using listing vehicles incorporated in the Cayman Islands.

PRC elements

Under Taiwan law, a PRC investor refers to any individual, juristic person, organisation or any other institution from Mainland China. It also includes any company located in a third area (an area other than Mainland China and Taiwan) and invested in by PRC investors whereby (1) the shares held or capital contributed directly or indirectly by PRC investors in aggregate exceed 30 per cent of the total number of shares or total amount of capital contribution of the third-area company, or (2) PRC investors have control over the third-area company.

If more than 30 per cent of a company's total issued shares are owned by PRC investors, it is not allowed to apply for listing in Taiwan. Similarly, the TWSE and TPEx will not approve a foreign company's listing application if PRC investors have majority seats in the company's board or have control over the company's management or operation.

Post-IPO requirements

Similar to all major stock exchanges around the globe, the TWSE and TPEx also have a disclosure requirement. To ensure that the disclosure requirement will be properly followed after the occurrence of an event having a material effect on the shareholders' equity or the trading price of a listing company, both TWSE and TPEx listed companies are required to publicise the material information on the Market Observation Post System (an electronic platform established by the TWSE) within the prescribed time limits.

Such material information includes, among other things: (1) any material change on the finance or business of a listed company or its responsible person; (2) entry or termination of material business contracts; (3) change of auditors for a reason other than regular replacement; and (4) appointment of or change in the chair or general manager of a listed company.

Outlook and conclusion

In recent years, the government has continued to encourage foreign companies to apply for listing on the TWSE or TPEx. To attract more foreign applicant companies, the FSC has taken measures such as (1) speeding up the review process of the TWSE and the TPEx and shortening the review time from eight weeks to six weeks; and (2) waiving the profitability requirements for primary listing for emerging innovative enterprises that are performing well on the scale of operations.

Thanks to the above policy, the TWSE and TPEx are more open-minded to companies intending to apply for listing in Taiwan and are more willing to discuss with an applicant company its issues relating to the listing application. As such, a healthy increase in IPO activity in Taiwan is expected in 2021.

Footnotes

1 Abe T S Sung is a partner at Lee and Li, Attorneys-at-Law.

The Law Reviews content