How to have complete control over Thai shareholders and L.L.C.?
Last updated; Civil and Commercial Code (CCC) No. 23 effective on 07th February 2023; Thai L.L.C. is the favorite legal structure for foreign investors for many reasons. Such as for business operations that need a special license, like hotels, tour agencies, and real estate development. Also, tax planning and tax exemption under the BOI And a property holding like land and building, for instance. In this article, we’d like to give you essential information. ‘How to fully control Thai shareholders and the Thai company.”
We make it simple to understand this article by using layman’s language. But before reading this article, if you want to understand the basics regarding a Thai company limited, you may read one of our articles, Set up Thai Company and Thai Company Management, for more understanding.
Now we go! The five steps to determine before setting up a new Thai company There are ‘the keys to taking full control.’
Step 1: Thai Company Limited Objective
The company’s business will be limited to the company’s registered objectives. Put another way: Register your business purpose with the Department of Business and Development (D.B.D.) to set up a new Thai company. Called ‘company objective.” In the company objective, you need to correctly declare your business area, products, or services wanted.
To ensure your company’s objective meets the purposes intended. Specifically, when you set up a Thai company for a business that requires a special license, i.e., a tour agency, real estate holding, real estate development, or BOI approval, that is to avoid the rejection of your application.
Step 2: Thai Company Director(s)
In terms of the company director(s), the critical point to understand is that the company is a juristic person independent of their representatives, who are separate natural persons. There are two important points we’d like to take note of for your understanding.
The Director (s) isn’t a Real Big Boss.
The company is a juristic person. It needs someone to act on the company’s behalf. That is a company director. It doesn’t mean the Director has complete control of the company. The Director (s) are under the power of the company board of shareholders, which consists of all shareholders. Under the law, the majority voting board of the shareholder is the real boss, not the Director.
In general, director quality involves responsibilities and duties. Therefore, in the case of multiple directors, it is important to know who can engage the company. e.g., two directors signed together, or only one signature is needed. Each Director may be limited in their authority by the board of shareholders.
Director(s) Has Responsibilities to Shareholders.
The Director could be any natural person aged under 20 years—Thai or foreign. The Director may have civil and criminal responsibilities. The best way is to understand the scope of power provided by this quality correctly. Section 76, paragraph 2 of the CCC stipulates that directors who act and engage the company beyond the objectives, capabilities, and duties of the company are jointly liable to make compensation.
In addition, Section 74 stipulates that if the company and its Director (s) have a conflict of interest, the said Director (s) lose the power to represent the company, for instance.
Step 3: Shareholders and Voting Rights
To understand shareholders. Let’s explain this way:
How do Shareholders Impact a Power to Control the Company?
First, at least three shareholders are required. These shareholders are the company’s promoters, who establish the company together. When registering a new company, they must buy company shares and make a memorandum (company policy).
Secondly, to have Thai citizenship, the repartition of shares must be at least 51% Thai. The other 49% could be foreigners or Thais. A shareholder may be a natural person aged not less than 12 years or a juristic person.
Finally, all shareholders are on the board of directors. Who has complete control over the company? The majority controls voting rights. It has been a primordial issue to determine since the beginning.
How to Have Full Control of the Board of Shareholders?
It is best to understand that a Thai company could have two types of shares. Common and preference share: The names come with different rights and duties. The issuance of preference shares is more than advised. Make the preference a minority of shares in amount but a majority of voting rights, as 75% is possible. This is more than enough to have full control of the board of shareholders, which consists of 51% of Thai shareholders.
Keep this fact in mind. Without a doubt, under law, 49% of the shares in the company are legally entitled to 75% voting rights. Also, preference shares in a Thai company can’t be modified after the shares have been issued, according to Section 1142 of the CCC.
In Addition to Shareholder
A minor, as a shareholder, is sometimes involved. The authorization of the legal representative to use his right or duty, for example, to give a proxy to others to represent him during shareholder meetings. In this case, the legal representative(s) must bear their signature and the minor shareholders on the form with their I.D. card or passport copies signed.
Step 4: Article of Association
The Article of Association contains provisions for internal rules and regulations on managing the company, for example, shareholder annual general meetings (A.G.M.s). It will establish the company’s laws to ensure you have total control of the business. Also, it may control tax planning, voting rights, profit division, sinking funds, etc.
If the promoters issue no articles of association, the D.B.D. may provide a simple form relating to the CCC. But this basic template is not enough to have complete control. A specific one made by a business lawyer is better for understanding and controlling the rules that will apply to the company.
Step 5: Share Capital
The theoretical minimum is 15 baht as determined by a combination of Sections 1100 and 1117 (C.C.C.). But in practice, no company is set up with this minimum amount. In the case of a work permit, for example, the minimum capital is 2,000,000 THB. In other situations, if the capital is more than 5,000,000 THB, the Thai or foreign shareholders must provide bank statement certificates.
You must have an accountant or auditor when setting up a Thai company. This is for tax and financial filing for your Thai company. According to Section 1196 of the C.C.C., the yearly balance sheet shall be true and accurate under the Director’s responsibility (Section 1206).
Although restructuring a Thai company after setting it up is possible, you need to issue a new preference share in this case. The process and costs are mostly the same for setting up a new company. Why pay double? Therefore, before setting up a Thai company, having a corporate lawyer who is a specialist in structuring the company would be best.