Article 185 of the Company Law reveals a problem with the regulatory objectives in implementing the procedures for a special resolution. The items mentioned in the Company Law and the Business Mergers and Acquisitions Law that require that a special resolution be adopted in a general meeting of shareholders, besides those in Article 185, include (1) relaxing the statutory investment threshold; (2) changing the rights of the holders of special shares;
(3) discharging directors; (4) removing the restrictions prohibiting directors from engaging in business competition; (5) increasing capital by
53. Supreme Court Decision, case no. 1988 Tai-Shang Tzu 1918.
recapitalizing dividends; (6) changing the articles of incorporation; and (7) a merger, split-up, acquisition, share exchange and a dissolution. Of these, apart from discharging directors, all other items are principally concerned with protecting the rights of shareholders. Those items listed that are likely to involve transaction safety involve (1), (3), (5) and (7).
By using investment as an example, it is commonly believed that even if a special resolution has not been adopted in a general meeting (and the articles of incorporation did not stipulate this or the company does not specialize in investing), an investment that exceeds 40% of the company’s paid-up stock is still valid.54 This view under normal circumstances is not in any way inappropriate, but if it is contrasted with “the transfer of all or a substantial part of the business or assets,” then there are reasons to doubt it.
With regard to the investment, regardless of whether or not a resolution has been passed in the general meeting, or whether or not the resolution adopted in the general meeting conformed to the requirements for a special resolution, none of this will affect the validity of the investment. If this is the case, then what is the meaning of a special resolution? As to whether or not the investment can exceed 40 percent of the paid-up capital is to be determined by the powers of the general meeting, for it is only the general meeting that can on behalf of the company cause this transaction to shape the company’s will to be effective. When the general meeting has not already adopted this resolution, nor has a special resolution been adopted for this resolution (according to the minority view, the resolution is not established), or when the resolution is subsequently annulled (based on the majority view, even if an ordinary resolution is used, the problem is only one of voidance), these will not have any impact on the validity of the investment. Why, then, is this so? The only normal reason is that the protection of transaction safety is greater than the protection of the shareholders’ expectations regarding the limitations on the company’s original investment. From this we can learn that the effect of violating a special resolution is not unchangeable.
The following table analyzes the likely composition:
Without a
resolution passed in the general meeting
With a resolution passed in the general meeting
(including passing by an ordinary resolution, or by a defective special resolution)
validity of the resolution
No resolution, no validity to speak of
Valid, but voidable Not established, invalid
54. See KE, supra note 46, at 28.
The validity of the Article 185 juristic act
Void Validity undetermined
Invalid Validity undetermined
Void Validity undetermined
The validity of the Article 13 juristic act
Valid Valid
It is important to point out that if the company’s resolution is deemed to be void, the only reason for the company to take responsibility as a principal is to protect safety of transactions.55 However, it can be imagined that, if the company’s resolution is valid, yet it is said that the acts of those that represent the company are either invalid or the validity has not been determined, such reasoning is unacceptable. For this reason, the Company Law needs to fully examine in each situation the kinds of legal interests that the special resolution wishes to protect. If the special resolution involves the interests of counterparties to the transaction apart from the company and its shareholders (or even directors), and the said resolution is valid but voidable, the acts performed based on this resolution should be valid as well. If it is considered that a special resolution is needed for the shareholders’ interests to be safeguarded, while the safety of the transaction is sacrificed, then such a resolution should be interpreted as invalid, in line with the transaction behavior that is void or whose validity has not been determined. In other words, when the general meeting should adopt a special resolution but such a special resolution is either not adopted or defective, it is likely that this cannot be resolved merely by making the resolution valid or invalid. The majority and the minority view each have their reasons in different circumstances, and thus one should take into consideration the legal objectives and clarify these reasons one by one.
V. THE DIVISION OF POWERS BETWEEN THE GENERAL MEETING AND THE
BOARD OF DIRECTORS
When discussing the validity of “the transfer of all or a substantial part of the business or assets” in this paper, we first analyze this on the basis of the views of current practice and scholarship. However, a more profound
55. For instance, the French Companies Act (Law No. 66-357 of July 24, 1966) considers that even if the resolutions of the general meeting are invalid or are rescinded by the court, such resolutions cannot be used to oppose third parties (Article 369). See JEAN-PIERRE LE GALL & PAUL MOREL, FRENCH COMPANY LAW 138 (2d ed. 1992). For a related Chinese translation, see PANG-KUEI JIN (trans.), FRENCH COMMERCIAL CODE 247 (2000) (in Chinese).
question relates to the theory of parity in so far as it concerns the board of directors and the general meeting. A basic structure of the Company Law that is quite disturbing is the following: Is the company’s capacity limited? If it is, how effective is it when it is exceeded? Within the limits of the company’s capacity, how to demarcate the authority among the corporate representatives (or agents)? When the authority is exceeded, how then should the situation be dealt with? This is an inevitable outcome of the juristic acts arising from the company’s dealings with third parties and a long-term and troublesome legislative problem. Because the validity of “the transfer of all or a substantial part of the business or assets” is being discussed, which arises in all types of business merger and acquisition activity, there will be doubts regarding the formation of the company’s intention that the company and the representative (or agent) must both face.
Discussing this issue has very significant meaning.