Limited Company, Company Limited by Shares, or Close Company: Which Taiwan Entity Fits Your Startup?

Before you read: This is general educational information and practical orientation, not legal, accounting, tax, or investment advice. Taiwan's Company Act and tax rules apply case by case — for any real decision, consult a Taiwan-qualified accountant or lawyer. The timelines, procedures, and scenarios below are illustrative, meant to show how to think, not specific advice for your company.

If you are landing a startup in Taiwan — whether you are a foreign founder incorporating here, or an overseas company spinning up a local entity — the entity type is one of the first decisions you make, and one of the easiest to get quietly wrong. Most founders agonize over the wrong question: which type sounds more advanced, or looks more like a startup. The question that actually bites two years later is only this: will this company ever take investors' money? Settle that, and the choice among the three types is nearly made for you. Leave it unsettled, and you may discover, the week before your first round, that the entity you set up to save effort is the very thing an investor asks you to replace.

This guide explains the *why* behind that choice: why a Limited Company cannot hold investor terms, why shares are the default container institutional investors assume, what the Close Company actually solves for early teams, and where the hidden cost of converting between types lives. One term recurs throughout, so let us define it plainly: preferred shares (特別股) are shares carrying rights different from common stock — preferential distribution, liquidation preference, veto rights on specified matters, and more. They are an investor's main tool for protecting a minority stake, and *whether a company can issue them at all* is the single sharpest line between the three Taiwan entity types. (If you have raised elsewhere, think of the Company Limited by Shares as the rough Taiwan counterpart to the standard share-issuing corporation your investors already expect — a C-corp-style container — while the Limited Company behaves more like a closely-held LLC that cannot issue preferred stock.)

The three types differ in how equity moves and can be designed

The decisive difference between the three is not paid-in capital size, nor which name sounds more impressive. It is whether, and how easily, equity can move and be structured. Hold onto that axis and the division of labor becomes clear.

A Limited Company (有限公司) holds its capital as capital contributions (出資額), not shares. That seemingly technical distinction has two very real consequences. First, when a shareholder wants to transfer a contribution to someone else, the Company Act generally requires consent from other shareholders (the consent threshold differs depending on whether the shareholder is also a director — it is not always unanimous), so every equity change has to clear an internal gate. For a team that just wants to run a quiet business, that is no problem; for a fundraising scenario that needs shareholders to move in and out flexibly, it is friction. Second, and more fatal: with no shares, there are no preferred shares — and the clauses investors rely on (liquidation preference, which lets specified shareholders recover their capital first in a liquidation or acquisition; anti-dilution, which protects an early investor's percentage if a later round prices lower; pro-rata rights, the right to participate proportionally in the next round) have no container to live in. A Limited Company is perfectly reasonable for a consulting studio, a restaurant, or a family business — simple governance, low running cost, profit first — but if you expect to meet investors within six months, it is usually the first item on the negotiating table they ask you to swap out.

A Company Limited by Shares (股份有限公司) divides capital into individual shares that are, in principle, freely transferable; it can issue both common and preferred shares, and it has a defined procedure for issuing new shares in a capital increase. This is the structure venture capital funds, corporate venture capital arms (CVCs — strategic investment units set up by a corporation), and most angels assume in their term sheets: their entire clause set — preferred-share rights, board seats, protective provisions — is designed for this container. The price is fuller governance: formal board and shareholder-meeting operation, and tidier accounting expectations. For a three-person early team that does add some administrative overhead — but reframe it: those costs are the basic infrastructure of investor due diligence (the pre-investment review of a company's finances, legal standing, and equity), which you will have to pay eventually. Setting up as a Company Limited by Shares early simply amortizes the bill instead of cramming it in the week before closing.

A Close Company (閉鎖性股份有限公司, "closely-held company limited by shares") was added by a 2015 amendment to the Company Act (effective September 2015, under its own dedicated chapter) for the explicit purpose of serving startups. Think of it as a "founder-control-enhanced" Company Limited by Shares. What early teams feel most is that it writes into the structure several things that otherwise rely only on goodwill:

• The articles of incorporation can restrict share transfers — co-founders cannot sell shares to a stranger without an agreed process, turning the gentleman's agreement "we said we would not sell" into a legally enforceable clause.
• Labor-based contribution is expressly permitted — a technical co-founder with no cash can receive shares in exchange for work (subject to a ratio cap and disclosure requirements set in the articles). By contrast, a regular Company Limited by Shares and a Limited Company generally do not allow this, or restrict it more tightly. It solves the most common early-team pain point — how someone with skill but no cash legitimately gets shares — though actual application should be confirmed with a Taiwan-qualified accountant or lawyer.
• The widest room to design preferred shares — multiple voting rights (one share, several votes) and vetoes over specified matters can be designed, letting founders hold direction with a smaller stake.

Its limits are a cap of 50 shareholders and no public offering. And one frequently overlooked but important point: some institutional investors dislike the Close Company's transfer restrictions, seeing them as a drag on future exit flexibility, and will ask the company to convert to a regular Company Limited by Shares before investing — a conversion that requires a special resolution of the shareholders' meeting (a higher attendance-and-vote threshold than an ordinary resolution). So a Close Company is best understood as an early-stage protective shell: what you are buying is a founder-favorable starting position in negotiations, not necessarily the company's final form.

The fastest way to compare the three is to reason backward from your capital plan for the next 18 months, rather than forward from which name you like:

Your situation	Better starting point	Why
Consulting, a storefront, no near-term plan to raise	Limited Company	Lowest governance and running cost, profit first; do not pay to maintain flexibility you will not use
Meeting investors within 6–18 months	Company Limited by Shares	Investor terms are directly compatible — saves you one company-type conversion
Technical co-founders contributing work, not cash, and you want it locked in	Close Company	Labor contribution, transfer restrictions, and preferred-share flexibility in one package
Already a Limited Company and an investor has appeared	Start evaluating conversion now	Conversion takes time — do not wait until the term sheet is signed

One caveat: the "will you take investors' money" axis fits most ordinary cases, but it is not the only factor. Deep-tech, biotech, hardware, or teams spun out of a university or research institution often have their entity choice shaped earlier by intellectual-property (IP) ownership and licensing arrangements, sector-specific regulation, or the structure required to receive government program funding. Sometimes those considerations decide the entity before "do we raise now" even comes up — how to choose still needs a case-by-case review with a Taiwan-qualified accountant or lawyer.

Two landmines that detonate most often, and why

If the discussion stops at comparing specs, it is easy to conclude "I will just change it later." What actually costs founders is two scenarios that recur in our mentoring sessions — and they share a root: the problem is not that one entity type is worse, but that the type and the timeline did not line up.

The first is running a Limited Company all the way to the term sheet. A three-person team operates as a Limited Company for two years, gets real customers and angel interest, and then — when the term sheet draft (the preliminary document stating an investor's amount, valuation, and main conditions) arrives — discovers the investor wants preferred shares, which a Limited Company simply cannot issue. Now they have to run the company-type conversion: rewrite the articles, convert capital contributions into shares, re-register — a process that routinely takes several weeks. And investor enthusiasm has a shelf life. The same task, done six months earlier, is routine administration; done at the closing bottleneck, it becomes lost leverage — you are scrambling to fix the most basic paperwork at the exact moment you most need to look ready. The misconception to avoid is "set up a Limited Company, convert when I raise." You *can* convert, but conversion is not swapping a sign on the door: shareholder consent, re-drafted articles, and registration each consume time. The right approach is to put it on the pre-fundraising timeline, not after the investor shows up.

The second is the verbally-agreed technical shares. A technical co-founder skips salary now and trades contribution for shares — well-intentioned, but if the company is a Limited Company there is no instrument to institutionalize the promise: capital contributions cannot register that arrangement, and the articles have no place to hold the matching clause. Two years on the co-founder leaves; the promise has no document, the shares have no registration, and what remains is a he-said-she-said — a dispute that is exactly the kind of thing surfaced in the next round's due diligence, slowing or even sinking the deal. Had the company been set up as a Close Company, with labor contribution written into the articles and paired with transfer restrictions, that account would have been clear from day one. A reminder, though: labor contribution is not "issue shares however you like" — it has an articles-defined ratio cap and disclosure requirements, and it touches tax treatment. Taiwan's tax handling applies case by case; how to design it, how many shares it converts to, and whether there is a taxable event all need a Taiwan-qualified accountant and lawyer to review for your specific situation — you cannot copy someone else's template.

Do not be fooled by "it sounds more advanced"

Finally, a few common — and expensive — intuitive misjudgments. The mistake in choosing an entity type is rarely not understanding the rules; it is being led by surface impressions.

The most common is "a Close Company sounds more advanced, so it must be better." Not necessarily. If your next round targets institutional investors, they may in fact ask you to convert to a regular Company Limited by Shares — so setting up as a Close Company first and then being asked to convert back means one extra round of procedure. The entity serves your capital plan for the next 18 months, not the image the company projects — the right type is the one compatible with your fundraising path, not the one that looks most like a startup.

Another is "once I am a Close Company, control is permanently safe." The protection your articles grant gets reopened in every subsequent financing. Investors coming in usually ask to adjust terms; what a Close Company buys you is an early-stage starting position, not permanent insurance — it gives you a better seat in the first round, but it will not shield you from the tug-of-war in each round after.

And the opposite, equally common, is "set up a Limited Company, it is the cheapest." It is cheaper — provided you are sure you will not touch investors' money any time soon. The moment there is any chance of meeting investors within a year, the small extra governance cost is almost certainly lower than the time cost and lost leverage of converting on the eve of a round. The saving here is deferring and enlarging the cost, not actually saving it.

The takeaway is simple. Compress your capital plan for the next 18 months into one sentence — "not raising, running a quiet business," "testing the water with angels first," or "targeting an institutional round" — then check it against the table above to see whether your current (or intended) entity type is compatible with that sentence. If it is not, have a Taiwan-qualified accountant or lawyer schedule the conversion first, then go talk to investors — not the other way around. Entity type and equity documents are usually the first things examined in due diligence; rather than scrambling to patch paperwork in front of an investor, choose and prepare the shell before you raise. Choosing an entity is never about picking a name — it is about preparing the right container for your next two years of fundraising.

Sources

• Company Act (Laws & Regulations Database, Republic of China / Taiwan)

This article cites external material for general educational reference; the Company Act and tax rules apply case by case, and formal decisions should be confirmed with a Taiwan-qualified professional.