Thailand
Exercising control over a Thai company
The private limited company is still a relatively new concept in Thailand; the earliest laws dealing with companies were only passed in 1900, and one of the first corporations in Thailand, Siam Commercial Bank, was only formally established in 1906. Prior to this, businesses were usually organised as family partnerships that lacked any formal legal personality.
In many countries, including Thailand, a company comprises two essential actors — its members and its directors. A Thai private limited company must have at least three members, known as shareholders, who invest money and enjoy various prima facie rights — such as the right to vote on resolutions proposed by the chairperson, to declare and receive dividends, and to resell their shares. The shareholders also enjoy limited liability in regard to the debts owed by the company.
Directors, of which a Thai private limited company must have at least one, are responsible for managing operations by exercising the skill and judgement of a careful businessperson.
One of the more interesting aspects regarding companies is how disputes between shareholders and directors are resolved. In many cases, the directors and shareholders of private limited companies will be the same or related parties and there won’t be any divergence between the two.
In more interesting cases, where shareholders and directors are independent actors, irreconcilable differences can arise which require a formal mechanism of resolution.
Addressing this issue of conflict resolution from the vantage point of both actors, we will start by describing the ways in which directors can be controlled by the shareholders, and then examine how shareholders can in turn be controlled by the directors.
While the shareholders can’t run the company themselves, they can vote to remove a director whom they no longer approve of and elect a new one in his or her place. The Civil and Commercial Code makes it plain that a director can be removed by a resolution passed at a shareholders’ meeting.
Although directors have the prima facie exclusive right to decide if and when a shareholders’ meeting will be held, shareholders holding at least one-fifth of the company’s shares may themselves call a meeting if the board refuses to call one upon being asked in writing.
For the purpose of amending the company’s affidavit, the change of directors also needs to be registered at the Department of Business Development (DBD), which requires the submission of certain forms executed by the authorised signatory of the company, which may be the outgoing director.
In the event that the authorised signatory refuses to sign the registration documents, the shareholders may arrange for an incoming director to sign them and submit that, along with copies of supporting documents evidencing the requisitioned meeting, to the DBD. However, approval of the registration change will be subject to the discretion of the department.
The ability of the directors to control or remove shareholders is, by contrast, quite limited and requires that the directors act well in advance of a conflict arising.
If the directors are involved in drafting the company’s articles of association, then they have an ability to determine separate classes of shares, known as preference shares, which have reduced voting rights. This means that one class of shareholders can effectively be made a minority voting shareholder with respect to resolutions proposed at a shareholders’ meeting.
Furthermore, pursuant to a recent legislative change in 2017, the articles of association may include provisions to permit mechanisms to resolve disputes between directors and shareholders. The scope of these dispute resolution mechanisms has yet to be tested in the courts.
Finally, the directors may enter into various contractual agreements with the shareholders, which effectively place the power of transferring shares into the hands of the directors. These instruments require careful consideration and should be drafted in accordance with professional advice.
Calvin Wilkinson is a partner in the corporate services department at ICR. Please send comments to [email protected]
Source: https://www.bangkokpost.com/business/news/1595506/exercising-control-over-a-thai-company