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Do corporate governance rules exist for Thai Companies?

Many businesspeople, investors, entrepreneurs and even clients seeking to purchase land or a property using a limited company in Thailand seek legal advice before acquiring existing Thai companies or setting up new ones.

  Boat Lagoon

Most of these enquiries relate to new businesses being formed as small or medium enterprises. But in th Thailand’s resort markets, there are many cases where a Thai company acquired or newly set-up will be for the purpose of holding land only.

Although I personally do not usually recommend clients use a Thai limited company to acquire property in Thailand in most circumstances, there are cases where clients insist and therefore we are obliged, as legal counsel, to advise of all the implications before going forward.

I will leave the merits of using a Thai limited company to hold land to a future article. For this piece, I’ll focus on providing some basic legal principles of corporate governance under the Civil and Commercial Code of Thailand (CCC) for those who do go ahead with acquiring an existing Thai company, or setting up a new one.

I can say without reservation that, although directors/shareholders of Thai companies may have been informed of the basic rules, there is a serious lack of adherence to the rules of corporate governance in practice in Thailand, especially where Thai companies are used solely to hold land. Therefore, I thought I should state unequivocally in this article that all Thai companies have legal requirements of corporate governance, whether such company is conducting business operation or only holding land. This means that the rules I have set forth below apply effectively to each and every case.

Naturally, my firm always recommends that any person who intends to be a director or shareholder of a Thai company should get to know all the requirements before proceeding into the world of Thai corporate law.
On that note, I set out below some of the most basic, standard – but ever-so-important – Thai company governance principles under Thai law.

Do I need a registered office for my Thai company?
Yes. Section 1148 of the CCC requires that every Thai company have a registered office in Thailand, to which all communications and notices may be addressed. Usually this office should be one of the places of business of the company. Any change of the address must be recorded with the registrar at the Department of Business Development.

How do we appoint a new director?
If the company is new, it must initially have at least 1 director to manage the company, in addition to a total of 3 shareholders at the time of incorporation. Following incorporation, Section 1151 of the CCC permits appointment of a new director (or removal of an old one) by resolution of the shareholders at a general meeting. Thus, a meeting must be held in most cases.

 

Is there any limitation on tenure of directorships?
Yes, by law every year at a meeting of the shareholders at least 1/3 of the directors must retire from office, or if the number is not a multiple of three, then the number nearest to 1/3 must retire (CCC Section 1153). That said, CCC Section 1153 allows a retiring director to be re-elected, and therefore a meeting must be had to re-appoint the retiring director (especially in the case of a single director of a company which effectively must ‘retire’ every year and be re-appointed by resolution).
When directors have been changed this must be registered in the changes of directors at the Department of Business Development within 14 days of the meeting date.

Do we need to hold shareholder meetings?
Most definitely, this is a requirement of the law. In fact each new company must hold a meeting of shareholders within 6 months of incorporation and then at least once every 12 months thereafter (CCC Section 1171). All shareholders have a right to be present at a meeting of shareholders (CCC Section 1176) and so all must be notified! The notice must specify the place, the day and the hour of the meeting and the nature of the business to be transacted (CCC Section 1175). However, a shareholder may be prohibited from voting at a meeting if he or she has not paid calls for contribution to their respective share capital to the company (CCC Section 1184).

Can shareholders grant proxies for meetings?
Yes, in a similar way as in most other jurisdictions. According to CCC Section 1187, any shareholder (assuming he or she has a vote) may vote by proxy, provide the power of proxy is given in writing. The instrument granting the proxy shall be dated and signed by the shareholder and shall contain the following: (1) the number of shares held by the shareholder; (2) the name of the proxy; and (3) the meeting(s) or the period for which the proxy is appointed (CCC Section 1188). This instrument must be deposited with the chairman of the meeting at or before the beginning of the meeting (CCC Section 1189).

What about resolutions of shareholders?
Minutes of the meeting should be taken and held by the company in the company books and held at the registered office (CCC Section 1207). However, one resolution that must be recorded with the Department of Business Development by the relevant company within 14 days after a meeting is a ‘special resolution’ amending, adding to or altering the memorandum or articles of association of the company (CCC Section 1146).

Does a balance sheet need to kept and filed?
Most definitely. According to CCC Section 1196, a balance sheet must be made at least once every 12 months in respect of the company’s financial year. It must be examined by one auditor and submitted for adoption by a general meeting of shareholders within 4 months after its date (CCC Section 1197). The directors must send the company registry a copy within 1 month of its adoption by the shareholders (CCC 1199). Failing to do so on time each year can lead to monetary penalties!

There are obviously many other corporate rules that each and every Thai company is subject to under law, excluding any other arrangement made by the shareholders by way of shareholders’ agreement, which must also be considered.

Accordingly, we always recommend that clients consider getting expert guidance and advice on the topic of corporate governance if and when they decide to acquire an existing Thai company or establish a new one.

By Robert Krupica, Senior Partner, Hughes Krupica
Hughes Krupica is a law firm which specialises in Real Estate; Construction; Hospitality; Corporate; Commercial; Personal Injury; Dispute Resolution; and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia.
www.hugheskrupica.com

GPS coordinate: 7.962140, 98.385884

 Contact info:

Hughes Krupica Consulting (Bangkok) Co. Ltd

Phuket Office:
23/123-5 Moo 2, Kohkaew Plaza, 
The Phuket Boat Lagoon, Tambon Kohkaew, Amphoe Muang, Phuket 83000
Tel:+66 76 608 468 

Bangkok Office:
179 Bangkok City Tower, Fifth Floor,
South Sathorn Rd, Sathorn, Bangkok 10120
Tel: +66 2 872 173

enquiries@hugheskrupica.com
www.hugheskrupica.com

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