Last updated [CCC. No. 23 effective on 07th February 2023]. Under Thai law, a company is a business association that is formed by two people or more. It has the character of a legal person, distinct from its shareholders. The management is carried out by an authorized director for the benefit of shareholders and under the control of the general meeting of shareholders and the company’s constitution which may have personal liability when managing the company. This article gives you the essential rules of Thai company management and administrative affairs that CEOs should know to avoid personal liability. 1
1. Constitution of The Company
The constitution of the company consists of two documents: the memorandum of association and the article of association. Both documents are established by the statutory meeting. All company management, the rights and duties of directors, the board of directors, shareholders, and the board of shareholders are covered by these two documents.
The memorandum of association states the importance of particular aspects of the company, such as the company name, company objective, and share capital, for instance.
The articles of association state the details of internal management and administrative affairs, such as company management, conflicts, rights, duties, and obligations of directors and shareholders, authorised capital, dividends, and reserves, for instance. The articles of association may be changed at a general meeting by a special resolution. 2
2. Company Director(s)
The company director is appointed by the statutory meeting when forming the company or by the general meeting after a certificate of incorporation. The director may be one or more. In the event that there is more than one director, the company will be governed by the board of directors, which is a body that governs the company. 3
The duties of the director are to carry out and control the day-to-day affairs of the company on behalf of the company. Therefore, all directors’ duties carried out in good faith shall not be subject to personal liability, whether to shareholders or third parties. However, the director shall have personal liability to shareholders and/or third parties in the following three cases:
1. The condition of the memorandum of association stipulates that the director shall have personal liability. In this case, the unlimited liability of the director will be 2 years after the expiration date of being the director. 4
2. A conflict of interest between the director and the company caused damage to the company. In this case, the shareholders may request that the court step in and overturn the decision of the director and claim compensation.
3: Court order, particularly when the director acts in a way of abuse of right, the Thai Court may apply the fundamentals of law ‘piercing the corporate’ and ‘equity’ to the case and subject ‘the director’ to personal liability to shareholders and/or third parties. 6
Note that in some countries where the company may be formed by one natural person, the court may lift the corporate veil and subject ‘the shareholders’ to personal liability to third parties. There is no information that the Thai Court does the same; it is possible due to all the Thai companies being formed by at least three promoters.
In addition, the director shall have criminal liability when the statute is plain, such as Section 88 of the Thailand Patent Act B.E. 2522, under which the company director shall have personal liability for patent infringement by the company unless the director can prove his or her innocence. On this day, there are 76 acts stipulating that the director shall have criminal liability. 7
3. Shareholders
Shareholders are the owners of the shares (not the owner of the company, like in some countries where the company may be formed by one person; you may say the shareholder has co-ownership of the Thai company). Normally, ownership of an asset entails a number of rights, such as the right to determine how the asset is to be managed, to receive income, and to transfer ownership to another.
In light of their ownership of the shares, the shareholders have a right to manage the company through the director and/or board of directors. Also, the shareholders have the right to present at any company meeting, request an extraordinary meeting, and vote at the meetings. Above all, inspect and examine the affairs of the company. Also, claim against the director(s) for compensation for injuries caused by the director.8
Notes, voting rights of shareholders may be limited by the article of association which creates the full control of the company by minority shareholders, this may be structured at the time of setting up the company or later.
4. Meetings
There are 2 types of company meetings, general meetings and extraordinary meetings. The general meeting is the annual meeting of shareholders in which the director shall arrange the meeting within 6 months after a certificate of incorporation and once at least every twelve months. Another meeting, an extraordinary meeting which may be arranged by the director or requested by shareholders who hold the shares together not less than 20% of the shares.9
Any director may call for a meeting at any time. Remote meetings of the board of directors are allowed. In order to vote on any matter, there must be two shareholders or proxies attending the meeting who hold in aggregate one-quarter of the company’s capital minimum.
A director who exists or performs his or her duties is able to manage the company when there is a vacancy or other directors do not perform their duties.
5. Resolutions
There are two types of company resolutions: general resolutions for the general purpose of carrying out the day-to-day affairs of the company and special resolutions for important transactions, which place emphasis on the rights and duties of shareholders.
Meeting for the general resolutions, the notice for the meeting shall be sent to shareholders by registered post with advice of receipt (AR-Thai post). AND published by a local newspaper, not later than 7 days before the meeting date.
Meeting for the special resolutions, the notice and advertising shall be made not later than 7 days before the meeting date.
Importantly, note that six important transactions below shall be made by special resolutions:
1- Amendment of the memorandum of association.
2- Amendment of the articles of association.
3- Increase in share capital.
4- Reduce the share capital.
5- Merger of the company.
6- Dissolution of the company.
The notice for the meeting shall be made according to the law’s requirements. If not, the director shall be liable to a fine not exceeding twenty thousand or fifty thousand baht, depending on the offence. All resolutions of those transactions shall be registered with the Department of Business Development within a specific period by law, such as within 14 days for changing directors.10
6. Balance-Sheet
A balance sheet shall be made at least once every twelve months (normally, the company shall submit the balance sheet by the end of May each year). It shall be examined by one or more auditors and adopted by the general meeting. In the absence or late submission of the balance sheet, both the company and the director shall be liable to a fine under company law and revenue law.11
7. Dividend and Reserve
No dividend shall be declared except by general resolution at a general meeting. No dividend shall be paid if the company has incurred losses. All divided, the company shall reserve funds at each distribution of dividends equal to at least 5% of the profits. No outstanding dividend can bear interest against the company.
Notice of any dividend shall be published at least twice in a local newspaper or given by letter to each shareholder.12 Dividends payment shall be completed within one month from the date of the resolution of the general meeting or the directors.
8. Auditor
The company management excludes the auditor, who is appointed at a statutory meeting and does not owe a duty to the company as a legal entity but rather to the promoters or shareholders, to whom the auditor’s report is addressed.13
9. Notices
In case the notices to shareholders, if delivered personally to the shareholders, are duly served. However, if the law requires the publication of notices, the notice must also be published in a local newspaper.
Even if the Electronic Transaction Act is enacted, the notices that the law stipulates must be sent by AR and can’t be sent by email because the law requires a specific process by law. 14
Rules of Company Director in Conclusion
Company management is under the company’s constitution. Generally, all directors’ actions on behalf of the company in good faith shall not create any personal liability for damages to shareholders and/or third parties. Moreover, the company management is subject to duties under the law, both civil and criminal, and the director shall have personal liability when the law stipulates such a liability.
All information above should be taken into consideration when carrying out the company’s business. If you require a company lawyer for your Thai company, We Can Help. For more information, just feel free to contact us.
Corporate Law and Regulation prepared by DBD
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Tag: Thai Company Director
- the Thailand Civil and Commercial Code (CCC), Section 1098, 1097, 1108, 1015, 1110, 1144
- the CCC, Section 1098, 1107, 1108, 1145
- the CCC, Section 70, 1108 (6), 1150, 71
- the CCC, Section 1101,
- the CCC, Section 74, 76, 1168, 1169, 1170,
- the Thailand Supreme Court Judgment No. 7104/2546, 3119/2526, 174/2528,3969/2529,
- Amend the Provisions of Relative Law to the Criminal Liability of Company Representatives Act B.E. 2560
- the CCC, Section 1336, 1169, 1176, 1215 to 1219 and 1174.
- the CCC, Section 1171-1174,
- the CCC, Section 1220, 1224, 1238, 1236 (4), 1145, 1109,1175, 1157 the Determination of the offence concerning Limited partnership, Company limited, Association and Foundation Act B.E. 2499, Section 17, 22, 24 31/1
- the CCC, Section 1196, 1197
- the CCC, Section 1200, 1201, 1202, 1204, 1205
- the CCC, Section 1108 and 1197
- the CCC, Section 1244
