Thai Company Limited 5 steps to take Full Control of
Thai company limited is the favorite legal structure for foreigner investors for many purposes. Such as for business licenses like hotel, tour agency, real estate development. Also, tax planning and tax exemption under BOI. As well as a property holding like land and building, for instance.
This article, we’d like to give you important information. ‘How to have full control of a Thai company’. In order to understand this article, we make it easy by using a layman language. But, before reading this article, if you want to understand the basics regarding a Thai company Limited. You may read one of our article Set up Thai Company in Phuket within one day. Now we go! The 5 steps to determine before setting up a new Thai Company. There are ‘the Keys of taking full control’.
Step 1: Thai Company Limited Objective
The Company’s business will be limited with the company objectives registered. Put it in another way. In order to set up a New Thai Company, you need to register your business purpose with the Department of Business and Development (DBD). Called ‘company objective’
In the company objective, you need to declare correctly your business area/product/services wanted. To ensure your company’s objective meets the purposes aimed. Specifically, when you set up a Thai company for a business which requires a special license i.e. tour agency, real estate holding, real estate development or BOI approval. That in order to avoid the rejection of your application.
Step 2: Thai Company Director(s)
In terms of company director(s), the important point to understand is that the company is a juristic person independent to dissociate with their representatives who are independent natural persons. There are 2 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 to have someone to act on the company behalf. That is a company director. It doesn’t mean the director has full control of the company. The director(s) is under control of the company board of shareholders which consist of all shareholders. Under Law, the majority voting of the board of the shareholder is the real boss, not the director.
In general, director quality involves responsibilities and duties. Therefore, it is important in case of multiple directors to know who can engage the company. eg. 2 directors signed together or only one signature is needed. Each director may limit her/his authority by the board of shareholders.
Director(s) has responsibilities to shareholders,
The director could be any natural person aged not less than 20 years. Thai or Foreigner. The director may have civil and criminal responsibilities. The best is to correctly understand the scope of power provided by this quality. Section 76 paragraph 2 of CCC stipulates that directors who act and engage the company beyond the objectives, power 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. In this case, the said director(s) lost the power to represent the Company. for instance.
Step 3: Shareholders and Voting Rights.
In order to understand shareholders. let give the explanation this way.
How shareholders impact a power to control the company?
Firstly, at least 3 shareholders are required. These shareholders are the promoters of the company who together establish the company. They have to buy company shares and make a memorandum (company policy) when registering a new company.
Secondly, to have Thai citizenship, the repartition of shares must be 51% Thai shareholder in minimum. The other 49% could be foreigners or Thai. A shareholder may be a natural person age not less than 12 years or a juristic person.
Finally, all shareholders are the board of shareholders. Who has full control over the company. The control by the majority of voting rights. It is a primordial issue to determine since the beginning.
How to have full control of the board of shareholders?
Now, it is best to understand that a Thai company could have 2 types of shares. Common share and Preference share. The different name comes with the different rights and duties. Issuance of preference shares is more than advised. Make the preference the minority of shares in amount but a majority of voting right as 75% is possible. This is more than enough to have full control of the board of shareholders.
Keep this fact in mind. without a doubt under law, that 49% of shares in the company is legally possible to have 75% voting rights. Also, preference shares in a Thai company can’t modify after the shares have been issued according to section 1142 of CCC.
In addition to shareholder
Sometimes, minor as a shareholder involves. The authorization of the legal representative to use his right or duty as for example to give a proxy to others to represent him during shareholders meeting. In this case, the legal representative(s) need to bear their signature with the minor shareholder one on the form with their ID Card/Passport copies signed.
Step 4: Article of Association
The Article of Association contains provisions for internal rule and regulation on how to manage the company, for example, shareholder’s annual general meeting (AGMs). It will establish the rules of the company to ensure you have total control of the business. Also, it may control tax planning, voting rights, profit divide, sinking fund etc.
If not articles of Association issued by the promoters, a simple form relating to the CCC may be provided by the DBD. But this basic template is not enough to have full control. A specific one made by a business lawyer is better to understand clearly and control the rules that will apply to the company.
Step 5: Share Capital
Theoretical minimum is 15 baht by combination of Section 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 2,000,000THB. In other situations, if the capital is more than 5,000,000THB the Thai or Foreigners shareholders must provide Bank Statement certificates.
By setting up a Thai Company you compulsory need an accountant/auditor. This is for tax and financial filing in accordance with the purpose of your Thai company. According to Section 1196 of C.C.C. the yearly balance sheet shall under the responsibility of the director (Section 1206 C.C.C.) be true and accurate.
Conclusion of Thai Company Limited
Although, restructuring a Thai company after setting up the company is possible. But, in this case you need to issue a new preference share. The process and costs are mostly the same with setting up a new company. Why pay double? Therefore, before setting up a Thai company. Having a business lawyer who is a specialist structuring the company would be the best.
If you don’t have a business lawyer to assist with this matter. And you are looking for a law firm who offers full legal services in company law in Phuket. Don’t hesitate to contact us.
Frederic Retif, Master in Business law, French Lawyer and Thai Legal Advisor.
And Nuansnit Chuntawong, Master in Laws, Attorney at Law and Notary Services Attorney.