The supervisory power which may be exercised by shareholders who do not execute business is an inherent right derived from their capacity as shareholders, is different from that of the supervisors of a company limited by shares, and is, therefore, not constrained by their concurrent positions as the company’s managers or other concurrent positions (Taiwan)

2018.10.25
Jonathan Chao

The Supreme Court rendered the 107-Tai-Shang-1608 civil decision on October 25, 2018 (hereinafter, the “Decision”), holding that the supervisory power which may be exercised by shareholders who do not execute business is an inherent right derived from their capacity as shareholders, is different from that of the supervisors of a company limited by shares, and is, therefore, not constrained by their concurrent positions as the company’s managers or other concurrent positions.

According to the facts underlying this Decision, the Appellant filed a complaint alleging as follows. The Appellee was a director of Company A, a limited company, and was a shareholder executing business for the company, while the Appellant was a shareholder of such company who did not execute business and could exercise the supervisory power under Article 109 of the Company Act, to which Article 48 applies mutatis mutandis.  The Appellant issued a letter to the Appellee on March 4, 2015, requesting to review relevant documents of Company A.  However, the Appellee refused.  Therefore, a complaint was filed to compel the Appellee to provide relevant documents for his review.  The original trial court reversed the first instance decision rendered in favor of the Appellant and instead rejected the Appellant’s first instance complaint.  Dissatisfied, the Appellant filed this appeal.

According to the Decision, a limited company is required to set up at least one director to execute business and represent the company and may set up as many as three directors, who should be elected among shareholders with disposing capacity by way of at least two thirds of the shareholders’ voting rights cast in favor of the directors. All shareholders who do not execute business may exercise the supervisory power, and the exercise of the supervisory power is governed mutatis mutandis by Article 48 of the Company Act, as specifically stipulated in the first part of Article 108, Paragraph 1 and Article 109 of the same Act.  The so-called “shareholders of a limited company who do not execute business” refer to shareholders who are not directors.  In addition, the supervisory power that may be exercised by shareholders who do not execute business is based on the power inherent to the capacity of shareholders and is different from that of a supervisor of a company limited by shares, who is elected in the shareholders’ meeting and is specially prohibited by law to serve concurrently as a director, managerial officer or any other employee of the company.  Therefore, such supervisory power is certainly not constrained by the shareholder’s concurrent position as the company’s manager or any other concurrent position.

Furthermore, according to this Decision, the fact that Company A was a limited company with the Appellee as a director of such company and the Appellant as both a shareholder and the general manager of the company was recognized by the original trial court. Since the Appellant was not a director of Company A, he was a shareholder who did not execute business. Therefore, he could certainly exercise his supervisory power in accordance with Article 109 of the Company Act.  The original trial court’s finding that the Appellant was not a shareholder who did not execute business since the Appellant concurrently served as the general manager of the Company, and therefore shall not exercise the supervisory power as a shareholder was certainly not legally appropriate.  Therefore, the original decision was reversed and remanded.