In the event the business operation conducted by a subordinate company of a controlling company under the provisions of Paragraph I of the preceding Article has caused another subordinate company of the same controlling company to gain profit, then the benefited subordinate company shall, within the limit of the profit it has gained, be liable, jointly and severally with the controlling company, for the indemnification obligation set out in the preceding Paragraph.

The term 'affiliated enterprises' as used in this Act shall refer to enterprises which are independent in existence but are interrelated in either of the following relations: "1.Companies having controlling and subordinate relation between them; or "2.Companies having made investment in each other.

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Subject to the condition that the fact of mutual investment is known to both mutual investment companies, the number of voting power exercisable by either investing company in the invested company shall not exceed one third of the total number of the outstanding voting shares or one third of the total amount of the equity capital of the invested company provided, however, that the voting power associated with the dividend shares distributed from capitalization of surplus earnings or excess legal reserve shall still be exercisable.

In case a company has not received a similar notice from another company after having given a notice such another company in accordance with the provisions of Article 369-8 of this Act nor does it know the existence of mutual investment relation between them, then its right to exercise the voting power in the capacity of a shareholder of such another company shall be free from the restriction set forth in the preceding Paragraph.

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In calculating the number of shares or the amount of equity capital of another company being held by a company under this Chapter, the following shares or equity capital shall also be included into the calculation: "1.The shares or equity capital of another company being held by the subordinate company of companies of the investing company; "2.The shares or equity capital (of such another company) being held by a third party for the investing company; and "3.The shares or equity capital (of such another company) being held by a third party for any subordinate company of the investing company.

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A subsidiary company which publicly issues shares shall, at the end of each fiscal year, prepare and submit a report regarding the relationship between itself and its controlling company indicating therein the legal acts, funds flow and loss and profit status between the two companies.

A controlling company which publicly issues shares shall, at the end of each fiscal year, prepare for submission a consolidated business report and consolidated financial statements of the affiliated enterprises involved.

The rules for preparation of the reports and statements as required in the preceding two Paragraphs shall be prescribed by the competent authority in charge of securities affairs.

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A company which holds a majority of the total number of the outstanding voting shares or the total amount of the capital stock of another company is considered the controlling company, while the said another company is considered the subordinate company. "In addition to the relation set forth in the preceding Paragraph, if a company has a direct or indirect control over the management of the personnel, financial or business operation of another company, it is also considered the controlling company, and the said another company is considered the subordinate company.

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Under any of the following circumstances, it shall be concluded as the existence of the controlling and subordinate relation: "1.Where a majority of executive shareholders or directors in a company are contemporarily acting as executive shareholders or directors in another company; or "2.Where a majority of the total number of outstanding voting shares or the total amount of the capital stock of a company and another company are held by the same shareholders.

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In case a controlling company has caused its subsidiary company to conduct any business which is contrary to normal business practice or not profitable, but fails to pay an appropriate compensation upon the end of the fiscal year involved, and thus causing the subsidiary company to suffer damages, the controlling company shall be liable for such damages. "If the responsible person of the controlling company has caused the subsidiary company to conduct the business described in the preceding Paragraph, he/she shall be liable, jointly and severally, with the controlling company for such damages. "In the event the controlling company fails to make the indemnification as required in the preceding Paragraph, the subsidiary company's creditor, or the shareholder(s) who hold(s) one per cent(1%) or more of the total number of the outstanding voting shares or of the total amount of the capital stock of the subsidiary company may exercise, in its (or his/their) own name, the rights of the subsidiary company as set forth in the preceding two Paragraphs to claim for the payment of the indemnity from the controlling company to the subsidiary company. "The right to exercise the claim under the preceding Paragraph shall not be prejudiced by a settlement entered into or a waiver made by the subsidiary company, if any, in respect of such right to claim for damages.

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The right to claim for damages set out in the preceding two Articles shall be extinguished if not exercised within two years from the date when the claimant is aware of the existence of the indemnification obligation of the controlling company and the existence of indemnifier, or within five years from the date of occurrence of the indemnification liability of the controlling company.

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In case a controlling company has caused, directly or indirectly, its subordinate company to conduct any business which is contrary to normal business practice or not profitable, and if the controlling company has a claim upon said subordinate company, then the controlling company shall not claim for offsetting such claim against its indemnification liability, if any, to the subordinate company. "In case the subordinate company enters into bankruptcy or composition procedures in accordance with the provisions of the Bankruptcy Law, or enters into the process of reorganization or special liquidation of its company in accordance with the provisions of this Act, the claim set forth in the preceding Paragraph, with or without the right to exclusion or priority, shall be satisfied in the order second to all other obligatory claims of the subordinate company.

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In case a company holds one third or more of the total number of the voting shares or of the total amount of the capital stock of another company, a notice in writing shall be given to such another company within one month from the date of occurrence of such event. "In case any of the following changes is made afterwards in the particulars contained in the notice given by a company in accordance with the provisions of the preceding Paragraph, a further notice shall be given within five days from the date of occurrence of such change: "1.Where its holdings in the voting shares or in the equity capital of another company becomes less than one third of the total number of the voting shares or the total amount of the capital stock of the said another company; "2.Where its holdings in the voting shares or in the equity capital of another company exceeds one half (1/2) of the total number of the voting shares of the total amount or the capital stock of the said another company; or "3.Where its holdings in the voting shares or in the equity capital of another company as described in the preceding Item has reduced again to a level below the total number of the voting shares or the total amount of the capital stock of the said another company. "The notified company shall, within five days after its receipt of the notice given under either of the preceding two Paragraphs, make a public notice stating therein the name of the notifying company and the number of shares held and the amount of capital contribution made by the notifying Company. "In case the responsible person of a company failed to give a notice or to make a public notice as required in any of the three preceding Paragraphs, he/she shall be imposed with a fine in an amount of not less than NT$6,000 but not more than NT$30,000. In addition, the competent authority shall order the violator to give the notice or to make the public notice within a given time limit. If the violator further fails to do so after expiry of the given time limit, the competent authority may fix another time limit for the violator to complete the notification procedure, and may impose successively upon the violator a fine in an amount of not less than NT$9,000 but not more than NT$60,000 for each time of noncompliance by the violator until the notification requirement is duly complied with by the violator.

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Where a company and another company have made investment in each other's company to the extent that one third or more of the total number of the voting shares or the total amount of the capital stock of both companies are held or contributed by each other, these two companies are defined as mutual investment companies. "Where both mutual companies are holding one half or more of the total number of the voting shares or of the total amount of the equity capital of each other's company, or having direct or indirect control over the management of the personnel, financial of business operations of each other's company, they shall have the status of the controlling company as well as the subordinate company to each other's company.

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In case a controlling company has caused its subsidiary company to conduct any business which is contrary to normal business practice or not profitable, but fails to pay an appropriate compensation upon the end of the fiscal year involved, and thus causing the subsidiary company to suffer damages, the controlling company shall be liable for such damages. "If the responsible person of the controlling company has caused the subsidiary company to conduct the business described in the preceding Paragraph, he/she shall be liable, jointly and severally, with the controlling company for such damages. "In the event the controlling company fails to make the indemnification as required in the preceding Paragraph, the subsidiary company's creditor, or the shareholder(s) who hold(s) one per cent(1%) or more of the total number of the outstanding voting shares or of the total amount of the capital stock of the subsidiary company may exercise, in its (or his/their) own name, the rights of the subsidiary company as set forth in the preceding two Paragraphs to claim for the payment of the indemnity from the controlling company to the subsidiary company. "The right to exercise the claim under the preceding Paragraph shall not be prejudiced by a settlement entered into or a waiver made by the subsidiary company, if any, in respect of such right to claim for damages.

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