Sean Tsou
The Supreme Court rendered the 109-Tai-Shang-193 Decision of March 19, 2020 (hereinafter, the “Decision”), holding that if a shareholder transfers his/her capital contribution to another person out of a relationship involving no compensation (e.g., borrowing another person’s name for registration), if a dissenting shareholder exercises a pre-emptive right, such shareholder shall assume the transfer for a comparable price and shall not assert that the transfer should be received without compensation due to the cause relationship of transfer which involved no compensation.
The backgrounds and facts for this Decision are summarized as follows. Intervenor B of this case used to contribute capital to the founding of Company C by borrowing the name of Appellee A, who was registered as a shareholder of Company C. Later when A and B agreed that A would return to B the capital contribution to Company C, which had been registered with a borrowed name, D, another shareholder of Company C (i.e, the Appellant in this case), requested to exercise a pre-emptive right in accordance with Article 111, Paragraph 2 of the Company Law before amendment and to receive the transfer without compensation.
In this Decision, the court pointed out that Article 111, Paragraphs 1 and 2 of the Company Law before amendment respectively stipulated: “A shareholder shall not transfer his/her capital contribution in whole or in part to another person without the approval of the majority of the other shareholders,” and “In case of the transfer in the preceding paragraph, dissenting shareholders shall have a pre-emptive right and shall be deemed to agree to the transfer and to the modification of the articles of incorporations concerning shareholders and their capital contribution if such right is not exercised. However, the pre-emptive right, which may be exercised by a dissenting shareholder under Paragraph 2, only means that a dissenting shareholder may exercise a pre-emptive right and does not suggest that the cause relationship between two capital contribution parties is certainly assumed by the dissenting shareholder. Therefore, if a shareholder assigns his/her capital contribution to another person out of a relationship involving no compensation, a dissenting shareholder who exercises a pre-emptive right can only receive the transfer for a comparable price and cannot assert that the capital contribution should be transferred without compensation due to the original cause relationship.
Based on the above argument, although the court finally recognized that A returned the capital contribution to Company C, which was registered with a borrowed name, out of the relationship of registration with a borrowed name with B, still this was an act of transferring capital contribution from the perspectives of the other shareholders of Company C. Therefore, since D disagreed with the transfer of the capital contribution, D could certainly assert a pre-emptive right in accordance with Article 111, Paragraph 2 of the Company Law before amendment. However, D should still receive the transfer for a price comparable to the capital contribution at issue to meet the legal requirements.