Company Formation in Thailand: The Power of Shareholders

In Thai capital companies, such as a “Company Limited,” the Board of Directors (BOD) has extensive powers. However, when forming a company, it is important to consider the influence the shareholders wish to have on the company’s management and its key decisions through shareholders’ meetings and shareholders’ resolutions. These may significantly restrict the decision-making scope of the “Board of Directors,” which is the company’s management. Sanet Legal and Accountancy, the German-speaking lawyers in Thailand, explains the rules in a clear and concise manner.

The Thai Civil and Commercial Code recognizes two types of shareholders’ meetings.

1. The ordinary meeting must be held for the first time no later than six months after the company has been registered with the Department of Business Development (DBD) and at least once a year thereafter. At the ordinary meeting, the annual results are approved, the allocation of profits is decided, and the auditors for the new fiscal year have to be appointed.

   Note: Their remuneration also has to be determined at this meeting.

2. An extraordinary meeting must be convened if urgent matters cannot wait until the next ordinary meeting, such as a vacancy on the board of directors. The same applies if shareholders holding at least one-fifth of the company's capital request such a meeting.

   Note: The 20% share can also be held jointly by several shareholders. Their total share of the capital is relevant.

3. The following applies to resolution-passing at shareholders' meetings: At least two shareholders must be present or effectively represented (“quorum”) who together represent at least one quarter of the registered capital. However, the articles of association may also stipulate a higher quorum, which is quite common, and restrict or specify representation at shareholders' meetings. The number of votes is based on the number of shares held.

   Note: Before the company is formed and the shares are issued, the shareholders may agree that certain shares (“preferred shares”) shall have a higher voting right. However, once the shares have been issued, they can no longer be converted into preferred shares.

Furthermore, the Thai company law recognizes two types of shareholder resolutions:

1. Ordinary resolutions are passed by the shareholders by a simple majority. They may, for example, contain specific instructions to the directors, thereby limiting their decision-making freedom. The shareholders' meeting frequently makes use of this option by adopting management rules, such as a distribution of management responsibilities or other formal rules for the Board of Directors.
   Note: Such management rules themselves require a qualified majority if they are in the articles of association. Otherwise, the board of directors may also issue management rules for itself.

2. Far-reaching measures (“special resolutions”) must be adopted with a majority of 75% of the votes present (!). If such a majority is required by law for certain resolutions, this requirement cannot be waived by amendments to the articles of association.

   Note: Such resolutions also require a 14-day notice period and publication of the invitation.

Examples of such special resolutions are

• Amendments to the Articles of Association

• Capital increases or capital reductions

• Dissolution of the company

• Merger with other companies

• Conversion from a private company to a publically listed company

However, the shareholders' meeting may amend the articles of association to extend the list of requirements for special resolutions beyond the statutory provision.

Note: Such an amendment to the articles of association itself can only be decided by 75% of the votes!

Consequences of formal violations: If notice periods, quorums, or voting requirements are not observed, any shareholder or director (!) may have the respective resolution annulled by a court within one month of the meeting. Shareholders' meetings are therefore a key instrument of good corporate governance in Thailand.