Under Thai law, a company is a business association which is formed by 3 natural people or more ‘promoters’. Company has the character of a legal person, distinct from its shareholders. The management is carried out by an authorized director which is under the control of the general meeting of shareholders and company’s constitution. This article gives you essential rules of Thai Company management and administrative affairs the CEOs should know to avoid personal liability.1

1. Constitution

The constitution of the company consists of two documents, one, the memorandum of association, the second document, the article of association. Both documents are established by the statutory meeting. All company management, rights and duties of director, board of directors, shareholder and board of shareholder are under these two documents.

The memorandum of association states the importance particular of the company such as company name, company objective and share capital, for instance.

The article of association states the details of internal management and administrative affairs such as company management, conflicts, rights, duties and obligations of director(s) and shareholders, authorized capital, dividend and reserve, for instance. The article of association may be changed at a general meeting by a special resolution.2

2. 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 case there are more than one director, the company will be carried out by the board of directors which is a body that governs the company.3

The duties of the director is to carry out and control the day-to-day affairs of the company, and on behalf of the company. Therefore, all director’s duties carried out in good faith shall not be personal liability whether to shareholders and/or third parties. However, the director shall have personal liability to shareholders and/or third parties in the 3 cases as following;

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- Conflict of interest between the director and company which caused the damage to the company. In this case, the shareholders may request the court to step in and overturn the decision of the director and claim for compensation.5

3- Court order, particularly, when the director acts in a way of abuse of right, 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. No information that Thai Court does the same, it is possible due to all the Thai companies being formed by at least 3 promoters.

In addition, the director shall have the criminal liability when statute is plain such as Section 88 of the Thailand Patent Act B.E. 2522 which the company director shall have personal liability to patent infringement by the company except the director can prove his/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 some countries where the company may be formed by one person, you may say the shareholder has the 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 the income, to transfer the ownership to another, for instance.

In light of the 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 a right to present at any company meeting, request an extraordinary meeting and vote at the meetings. Above all, inspect and examine the affairs of a company. Also, claim against the director(s) for compensation for injury caused by the director. 8

Notes, voting rights of shareholders may be limited by 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 shares. 9

5. Resolutions

There are two types of company resolutions, one is the general resolutions for the general purpose of carrying out the day-to-day affairs of the company, second is the special resolutions for important transactions which place emphasis on 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, 6 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 requirement  If not, the director shall be liable to a fine not exceeding twenty-thousand OR fifty thousand baht depending on an offense. 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 of directors.10

6. Balance-Sheet

A balance-sheet shall be made at least one in every twelve months (normally, the company shall submit the balance-sheet within the end of May, each year), It shall be examined by one or more auditors, and adopted by the general meeting. Missing or late submit of the balance-sheet, both 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 dividend, at least 5% of the profits. No outstanding dividend can bear interest against the company.

Notice of any dividend shall be published twice at least in a local newspaper or given by letter to each shareholder.12

8. Auditor

The company management excludes the auditor who is appointed when a statutory meeting and does not owe a duty to the company as a legal entity, but, rather, the promotes 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 such notice the law stipulates as a publication of notices, it also shall be published by a local newspaper.

Even if the Electronic Transaction Act is effected, the notices which the law stipulates to be sent by AR can’t be sent by email because it requires the specific process by law. 14

Conclusion

Company management is under the company’s constitution. Generally, all director’s actions on behalf of the company in good faith, shall not create any personal liability to damages of shareholders and/or third parties. Moreover, the company management are subject to duties under the law both civil and criminal that 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 business. If you are in need of a company lawyer for your Thai company management, We Can Help. More information, just feel free to contact us.

____________________

  1. the Thailand Civil and Commercial Code (CCC), Section 1098, 1097, 1108, 1015, 1110, 1144 
  2. the CCC, Section 1098, 1107, 1108, 1145
  3. the CCC, Section 70, 1108 (6), 1150, 71
  4. the CCC, Section 1101, 
  5. the CCC, Section 74, 76, 1168, 1169, 1170, 
  6. the Thailand Supreme Court Judgment No. 7104/2546, 3119/2526, 174/2528,3969/2529, 
  7. Amend the Provisions of Relative Law to the Criminal Liability of Company Representatives Act B.E. 2560
  8. the CCC, Section 1336, 1169, 1176, 1215 to 1219 and 1174.
  9. the CCC, Section 1171-1174, 
  10. the CCC, Section 1220, 1224, 1238, 1236 (4), 1145, 1109,1175, 1157 the Determination of the offense concerning Limited partnership, Company limited, Association and Foundation Act B.E. 2499, Section 17, 22, 24 31/1
  11. the CCC, Section 1196, 1197
  12. the CCC, Section 1200, 1201, 1202, 1204, 1205
  13. the CCC, Section 1108 and 1197
  14. the CCC, Section 1244