Laws Governing Thai Limited Companies

Nature and Formation of Limited Companies

Section 1096 of the Civil and Commercial defines a limited company as that kind of which is formed with a capital divided into equal shares and the liability of the shareholders is limited to the number of shares respectively held by them.  Any three or more persons may, by subscribing their names to a memorandum, promote and form a limited company.

In the formation of a limited company, the initial step is company name reservation.  This is done online through the Department of Business Development (DBD) website.  Approval of the company name is within 1-3 days.  The DBD has set regulations for choosing the company name.  Certain names associated with the royal family, names of ministries and other governmental units, names with Thailand, names close to that of other companies, names against public morals, and names that are misleading, are not allowed. The approved corporate name is valid for only thirty (30) days.  Once the period expires, a new reservation for a company name must be made.

The incorporation documents include the Memorandum of Association which contains the following:

1. The name of the proposed company, which at all times carries the word “limited”;
2. The part of the Kingdom in which the registered office of the company shall be situated;
3. The company’s objectives which state the type of business activities the company will engage into;
4. A declaration that the liability of the shareholders shall be limited;
5. The amount of share capital with which the company proposes to be registered and the division thereof into shares of a fixed amount; and
6. The names, addresses, occupations, and signatures of the promoters and the number of shares subscribed by each of them.

Shares and Shareholders

Section 1105 of the Civil and Commercial Code provides that shares may not be issued at a lower price than their nominal amount.  However, the issuance of shares at a higher price than its nominal amount is permissible if it is provided in the Memorandum.  The first payment on the shares must not be less than twenty-five per cent of their nominal amount.

Shares shall be indivisible and the amount of a share must not be less than five baht.

A shareholder who subscribes shares binds himself on condition that the company be formed, to pay to the company the amount of such shares in conformity with the laws.  A shareholder shall be issued a certificate of shares which is signed by the director of the company and shall bear the seal of the company.  A certificate of shares must contain the following particulars:

1. The name of the company;
2. The numbers of the shares to which it applies;
3. The amount of each share;
4. In case the shares are not fully paid up, the amount paid on each share; and
5. The name of the shareholder or a statement that the certificate is to bearer.

Generally, the minimum capital requirement should be adequate enough for the proposed business activity.  Where the company has a foreign director or employee and needs a work permit, the minimum capital requirement is two million baht.

Once the shares are structured, a statutory meeting is convened to approve the Articles of Incorporation and Articles of Association (by-laws) of the company and elect the Board of Directors as well as appoint an auditor.

Articles of Association (By-Laws)

The Articles of Association are the regulations of the company concerning its internal affairs.  This includes the classification of shares as well as their voting rights.  The by-laws may also specify the authority and signatory powers of the directors in all matters of the company including its day-to-day operations.

Management of Limited Companies

Every limited company shall be managed by a director or directors under the control of a general meeting of shareholders and according to the regulations of the company as provided for under Section 1144 of the Civil and Commercial Code.  A director can be appointed or removed only by a general meeting.

A director has the responsibility and exercise diligence over the following matters:

1. For the payment of shares by the shareholders being actually made;
2. For the existence and regular keeping of books and documents prescribed by law;
3. For the proper distribution of the dividend or interest as prescribed by law; and
4. For the proper enforcement of the resolutions of the general meetings.

A director must not, without the consent of a general meeting of the shareholders, undertake commercial transactions of the same nature as and competing with that of the company. Directors may be criminally liable for false statements in any official documents which they have signed on behalf of the company or failure to act, such as failure to file a required report or balance sheet will be dealt with by imposition of criminal liability.

Audit and Auditors

As provided for under Section 1208 of the Civil and Commercial Code, the auditors may be shareholders of the company; but no person is eligible as an auditor who is interested otherwise than as a shareholder in any transaction of the company, and no director or other agent or employee of the company is eligible as an auditor during his continuance in office.

Inspection

Upon the application of shareholders holding not less than one-fifth part of the shares of the company, the competent Minister shall appoint one or more competent inspectors to examine into the affairs of any limited company and to report thereon. The directors, employees, and agents of the company are bound to produce to the inspectors all books and documents in their custody or power. Any inspector may examine upon oath the directors, employees, and agents of the company in relation to its business.

Increase and Reductions of Capital

A limited company can by special resolution increase its capital by issuing new shares. No new shares may be allotted as fully or partly paid-up otherwise than in money except in execution of a special resolution. All new shares must be offered to the shareholders in proportion to their current shareholding.

In the same manner, a limited company may, by special resolution, reduce its capital either by lowering the amount of each share or by reducing the number of shares.

Corporate Income Tax and Value Added Tax

Corporate Income Tax is imposed on the net profits as per the generally accepted accounting principles and according to the conditions described in the Revenue Code of Thailand. Corporate Taxpayer shall bear in mind that:

1. Every return must be accompanied by an audited financial statement.
2. Pay 50 percent of the estimated annual income tax by the end of the eighth month.
3. Failure to pay the estimated tax the taxpayer is fined the amount of 20 % of the deficit.

Any person or entity who regularly supplies goods or provides services in Thailand and has an annual turnover exceeding 1.8 million baht is subject to VAT.  Service is deemed to be provided in Thailand if the service is performed in Thailand regardless of where it is utilized or if it is performed elsewhere and utilized in Thailand.

The VAT payer is required to file a monthly VAT return and pay the tax monthly, on or before the fifteenth day of the following month.

Failure to register as a VAT payer, file a VAT return, or issue a tax invoice to a customer, is subject to a penalty of twice the amount of the tax due. A monthly surcharge of a certain percentage for failure to pay the VAT is levied on the tax due. In addition, punishment for non-compliance with VAT regulations allows for a maximum punishment of imprisonment of up to seven years and a fine of up to 200,000 baht.

Dissolution

A limited company is dissolved in the following instances as provided for under Sections 1236 and 1237 of the Civil and Commercial Code:

1. In the cases, if any, provided by its regulations;
2. If formed for a period of time, by the expiration of such period;
3. If formed for a single undertaking, by the termination of that undertaking;
4. By a special resolution to dissolve;
5. By the company becoming bankrupt.

A limited company may also be dissolved by the Court on the following grounds:

1. If default is made in the filing of the statutory report or in holding the statutory meeting;
2. If the company does not commence its business within a year from the date of registration or suspends its business for a whole year;
3. If the business of the company can only be carried on at a loss and there is no prospect of its fortunes being retrieved;
4. If the number of shareholders is reduced to less than three.

Category: Civil and Commercial Law, Company Law