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During August, companies in Taiwan that follow the calendar year accounting cycle have already held their annual shareholder meetings, as mandated by Article 170–2 of the Company Act. When examining the annual reports of these companies, you’ll find a dedicated section titled “Special Disclosures — Affiliated Company,” which contains pertinent information about the company’s affiliated company transactions. Why does this section exist, and what does it entail? This article will provide a brief overview of its contents to assist readers in better understanding and absorbing affiliated company information, dispelling any confusion you may have regarding this topic.
Originally, company law treated each enterprise as independent, with regulations applying solely to individual companies. However, as companies expanded to improve efficiency, diversify, and reduce risks, they began establishing related-party entities. These entities, legally separate from the parent company, don’t easily transfer losses back to the parent when incurred.
Real decision-making often lies with hidden controllers. While these companies appear independent, they often execute the corporate group’s overall business plan. They engage in mutual benefit transactions and, in some cases, manipulate stock prices for profit.
Controllers with significant operational authority can exploit company law’s design, using Taiwan’s unique shareholder system to create layered companies. This grants them control while evading legal responsibilities, potentially harming other stakeholders.
When two or more companies have controlling and subsidiary relationships, they may no longer be considered independent entities but rather a single entity. In June 1997, amendments to the Company Act aimed to regulate related-party operations, introducing a new “Chapter on Affiliated Companies” with twelve articles.
