Dear Friends:

Please be advised that on June 27, 2018, the Legislative Yuan passed the third reading of the "Foundation Act" (FA), which is to be promulgated by the President.  The legislation passed is mainly based on the draft submitted by the Executive Yuan so as to overall and generally regulate the foundations in Taiwan.  We summarize the key points below:

1. Application of laws (Article 1):  If there is any special law other than the FA, such as the Medical Act which governs medical foundations or the Private School Act which governs school foundations, such law shall prevail.  Any matter not provided under special laws, the FA shall govern.  For those matters not provided under the FA, the Civil Code shall apply.

2. Definition of foundation and foundation donated by the government (Article 2):  The FA provides the definition of a foundation donated by the government.  Other than the foundation donated by the government, a private foundation refers to a legal entity whose certain assets are donated by people, for the purpose to pursue public welfare, approved by the competent authority and duly registered at courts. 

3. Regulations against illegality and conflict of interests conflict (Articles 14, 15 and 16):  A foundation shall not transfer their properties to or use the same for donators, their related parties, or profit-seeking enterprises whose responsible person, directors, supervisors or managers are donators or their related parties by mutual conspiracy, fraud or other improper manners.  Where the directors, supervisors, chief executive officers or others with equivalent positions have any conflict of interests when performing their duties, they shall abstain themselves from being involved, and shall not earn any benefit for themselves or their related parties by using their power, opportunities or methods related to their duties. 

4. Restrictions to use of property (Articles 19, 20, 21 and 22):  The custody and utilization of foundations' properties shall be conducted in the name of foundations and supervised by competent authorities.  Foundations' funds shall not be entrusted or lent to directors, supervisors, other individuals or non-financial institutions.  Foundations must utilize their funds in compliance with applicable laws, and shall not act as guarantors, shareholders of unlimited liability companies, general partners of limited partnerships or partners of partnerships.  There are restrictions on the percentage or amount of awards or donations to a group or an individual.  Foundations are barred from distributing residual assets.

5. Accounting and reporting obligation of foundations (Articles 24 and 25):  Foundations shall set up accounting system.  Foundations with the total registered property registered at the courts or annual income exceeding a certain threshold shall set up internal control and auditing system.  Foundations shall submit their working plans and relevant budgets after the beginning of each year and shall submit their working reports and financial statements of previous year within five (5) months after the end of each year to their board for approval, and then to the regulator for recordation.

6. Voluntary disclosure of foundations' information (Article 25 and 26):  Foundations shall voluntarily disclose the information submitted by foundations to the regulator for recordation, the lists of the persons accepting subsidy and making donation, and the amount of subsidy and donation in the manners designated by governments.

7. Inspection right of competent authorities against property status (Article 27):  The competent authorities may inspect the property status of foundations, if necessary, and may inspect whether such foundations violate any conditions of permit imposed under other laws.

8. Restrictions on directors’ conduct (Article 28 and 29):  If the act performed by any director violates donation charter, such act may be declared void by the court, upon the application of the competent authorities, prosecutor or any interested person.  The director or supervisor shall be liable for the loss and damage so sustained by the foundations arising out of the violation of the laws, regulations or donation charter when performing their duties.  If any director or supervisor is in violation of laws within the scope of their duties, the competent authorities may impose a fine, and may further impose the fine for each violation for their failure of correction.  The competent authorities may also release the duty of such violating directors or supervisor and notify the court to de-register their directorship or supervisor status.

9. Directors of foundations, board meeting and resolution (Articles 39, 40, 41, 43, 44 and 45):  Foundations donated by citizens shall establish board of directors, which shall have 5 to 25 directors, among whom one shall be the chairperson.  The office of directors for each term shall not exceed 4 years and no more than four-fifth of directors can be re-elected.  No more than one-third of the directors shall be spouses or relatives within the third degree of kinship of other directors.  The FA also provides the procedure for calling and holding of the board meeting and relevant resolution matters and resolution thresholds.

10. Religious foundations exempted from the FA (Article 75): The matters related to religious foundations shall be governed by another law under legislation after it is promulgated.  Before such law is promulgated, the Civil Code or other relevant laws shall govern.  The scope of religious foundations shall be determined by central competent authority.

11. Grace period (Article 76): The FA shall be enforced 6 months after its promulgation.

Echo Yeh / Kang-Shen Liu / Chenchi Wang