How to start a company in Thailand
Limited companies are legal entities, separate and distinct from any of its shareholders. The law considers this type of business organization to be a person, capable of having its own rights and incurring its own liabilities. There are two kinds of limited companies: private limited companies and public limited companies. The first are regulated by the Civil and Commercial Code and the second are regulated by the Public Limited Company Act. Both private limited companies and public limited companies are subject to corporate income tax.
A limited company is defined in the Civil and Commercial Code as an organization in which capital is divided into shares and the liability of the shareholders is limited to the amount unpaid on the shares respectively held by them (Section 1096, Civil and Commercial Code). This is to say that their responsibility is limited to the remaining unpaid amount, if any, of the par value of their shares. The amount of a share may not be less than five baht (Section 1117, Civil and Commercial Code) and a minimum of three shareholders is required at all times (Section 1097, Civil and Commercial Code).
Under Thai law, private limited companies (in Thai: bor-rí-sàt àyk-gà-chon gàt) are defined as contracts. The act by which a company is established is defined as a contract whereby two or more persons agree to unite for a common undertaking, with a view of sharing the profits which may be derived therefrom (Section 1012, Civil and Commercial Code). Thus, the scope of a private limited company is profit and its economic activity is conducted with a view to producing profits.
The formation of a private limited company involves individuals acting in the role of promoters. Promoters are natural persons responsible for bringing the company into existence. Specifically, their task consists in arranging the capital, bringing interested parties together, and registering the company with the Ministry of Commerce.
In order to form a limited company, there must be at least three promoters who subscribe their names to a memorandum of association and otherwise comply with the provisions of the Civil and Commercial Code (Section 1097, Civil and Commercial Code). When creating a company, its promoters are required to be among the company’s initial shareholders and each must hold a minimum of one share at the time the company is set up. Upon registration, the promoters may decide to transfer the shares to other shareholders or third parties.
It is important to consider that promoters are jointly and unlimitedly liable for all contracts entered into on behalf of the future company. Specifically, promoters will be relieved of liability only if the statutory meeting ratifies them and the company is subsequently registered with the Company Registrar at the Ministry of Commerce (Section 1113, Civil and Commercial Code). Therefore, prior to registration, promoters are committed by the contracts they have signed.
The registration of a private limited company requires specific formalities and procedures (see Appendix B at the end of the chapter for a sample registration). One of the formalities that must be satisfied is the selection of the corporate name. The name for the corporation must be available for use and must always end with the word “limited.”
Once the name reservation has been approved, all shareholders must sign a memorandum of association (MOA). The memorandum of association is the constitutive document of a company and must indicate the following basic elements as provided by Section 1098 of the Civil and Commercial Code: the name of the company, along with its main place of business, registered capital, intended scope of business activities, and declaration of limited liability. The memorandum of association must also contain the names, personal information, and signatures of the subscribers as well as the number of shares they subscribed. Appendix C at the end of the chapter shows an actual memorandum of association.
After the memorandum of association is registered with the Company Registrar at the Ministry of Commerce and all the shares to be paid in money have been subscribed, the promoters must hold a statutory meeting to make all the appointments (Section 1107, Civil and Commercial Code). Pursuant to Section 1108 of the Civil and Commercial Code, the statutory meeting has to discuss essential points including the adoption of the articles of association, the ratification of contracts entered into by the promoters, their remuneration, the number of preference shares and ordinary shares, the appointment of the initial directors and auditors of the company, and the determination of the respective powers of the directors.
Following the statutory meeting, the promoters pass the business of the company to the directors. Within three months from the statutory meeting, the directors must require all promoters and subscribers to pay upon each share at least 25% of the value (Section 1110, paragraph 2, Civil and Commercial Code) and then apply for registration of the company (Section 1111, paragraph 1, Civil and Commercial Code). Hence, a certificate of registration is issued to the company. If registration does not take place within three months after the statutory meeting, the company’s statutory meeting is considered as voided and all the money received from the applicants must be repaid (Sections 1112, Civil and Commercial Code).
Meeting of Shareholders
Under the Civil and Commercial Code, there are two types of shareholder general meetings: annual general meeting and extraordinary general meeting. The first general meeting of shareholders must be held within six months after the registration, and, thereafter, subsequent general meetings must be held at least once a year (Section 1171, paragraph 1, Civil and Commercial Code). The director is responsible for arranging the annual meeting of shareholders within four months from the end of the company financial year in order to approve the company’s financial statement.
Unless otherwise provided in the articles of association, a shareholders’ meeting requires the presence of shareholders representing at least one-fourth of the capital of the company, in person or by proxy. A purported act of the general meeting taken at a time when the quorum was not present is not valid (Section 1178, paragraph 1, Civil and Commercial Code).
Within 14 days from the general meeting, the director must send a list of all shareholders with all supporting documents to the Registrar and indicate the names of those who have ceased to be shareholders since the date of the last ordinary meeting (Section 1139, paragraph 2, Civil and Commercial Code).
The extraordinary general meeting of shareholders may take place at any time on the call of the board of directors or the call of shareholders. In the first case, the board of directors may convene a general meeting whenever it is necessary for several reasons such as changing the object, legal form, or location of the company. According to Section 1172, paragraph 2, Civil and Commercial Code, however, the directors have the obligation to convene a meeting when the company has lost half the amount of its capital in order to inform the shareholders of such loss. In the second case, an extraordinary general meeting may be called at the request of the shareholders holding not less than one-fifth of the shares of the company (Section 1173, Civil and Commercial Code). The request must indicate the objects of the meeting and be signed by the shareholders. The directors, then, have 30 days within which to call the extraordinary meeting. If the meeting is not convened within such period, the shareholders may form a quorum and convene the meeting by themselves (Section 1174, Civil and Commercial Code).
Both annual general meetings and extraordinary general meetings may be irregular. An irregular meeting is a general meeting that has been summoned or a resolution that has passed contrary to the law or the regulations of the company. In such cases, the court may revoke the wrongful meeting and cancel the resolutions passed at such irregular general meeting on application of any director or shareholder within one month after the date of resolution (Section 1195, Civil and Commercial Code).
As a general rule, resolutions are passed by a majority vote. On a number of important acts, however, a special procedure is required by the legislation in order to ensure that the decisions are made through the participation of a large number of shareholders after careful consideration. A special resolution is defined by Section 1194 of the Civil and Commercial Code as one that is passed by a majority of not less than three-fourths of the votes of the shareholders attending the meeting and eligible to vote.
Under the Civil and Commercial Code, special resolution is required for matters of some significance, such as modifications to the memorandum and articles of association (Section 1145, Civil and Commercial Code), increase of registered capital (Section 1220, Civil and Commercial Code), reduction of registered capital (Section 1224, Civil and Commercial Code), dissolution of the company (Section 1236, Civil and Commercial Code), and amalgamation of the company (Section 1238, Civil and Commercial Code).
Pursuing to Section 1175, paragraph 1, of the Civil and Commercial Code, notice of the summoning of a meeting for any special resolution must be sent by post with acknowledgement of receipt to each shareholder no later than 14 days before the date fixed for the meeting.
Management and Control
In private limited companies management is entrusted to one director or a board of directors under the control of the general meeting of shareholders and according to the articles of association of the company (Section 1144, Civil and Commercial Code). Directors are elected by the shareholders and manage the company according to the rights, duties, and responsibilities provided by the articles of association. The number of directors may range from one to several directors depending on the decision taken at the general meeting by the shareholders. It may comprise shareholders as well as persons other than shareholders.
As a general rule, directors oversee the activities of the company and make decisions regarding the course of the business operations. Pursuing to Section 1168 of the Civil and Commercial Code, directors must in their conduct of the business apply the diligence of a careful businessman. Consequently, directors cannot undertake commercial transactions of the same nature as and competing with that of the company without the consent of the general meeting of shareholders. Besides, directors cannot be partners with unlimited liability in another organization carrying on business of the same nature or competing with that of the company.
The Civil and Commercial Code also disposes that the personal liability of the directors of a limited company may be unlimited if it is provided so by the memorandum of association (Section 1101). In this case, the unlimited liability of directors continues for two years after the termination of their services on the board of directors of the company.
It has been said that directors have the authority to conduct all types of legitimate business on behalf of the company. However, there are some cases where it is necessary to gain approval at the shareholders’ meeting, including for the appointment and removal of directors and auditors, dissolution of the company, amalgamation with another company, and other matters provided by the regulations of the company.
In private limited companies, the annual general meeting deliberates and votes the balance sheet and the distribution of dividends. Dividend payment may be considered as the main financial right of shareholders and it must be made in proportion to the amount paid upon each share, except for preferential shares (Section 1200, Civil and Commercial Code).
A dividend payment can be declared only through a resolution passed in a general meeting. Not all profits, however, are distributed among the shareholders. The meeting may decide the amount of such dividends or may decide to defer altogether distribution of dividends, where it is agreed that the interest of the company should prevail over the single interest of shareholders. Besides, Section 1202 of the Civil and Commercial Code provides that the company must transfer at least 5% of its annual profits to a reserve found before any dividend is distributed, until the fund reaches 10% of the capital of the company. Similarly, in case shares have been issued at a higher value than the face value, the excess must be added to the reserve fund until such found reaches 10% of the capital of the company. The articles of association may provide higher percentages than 10%.
From time to time, however, the directors may pay shareholders interim dividends if it appears to the directors that the company has sufficient profits. No dividend shall be paid otherwise than out of profits. If the company suffers losses, no dividend may be paid unless such losses have been recovered (Section 1201, Civil and Commercial Code).
Dissolution refers to the legal termination of a company's existence. Under Section 1236 of the Civil and Commercial Code, a company may terminate by operation of law, voluntary decision, or judicial dissolution.
A private limited company will automatically dissolve by operation of law upon the occurrence of certain events. Specifically, dissolution may occur in the cases provided by the articles of association, upon expiration of the term set for the company, realization of the specific task or project for which the company was established, or the company becoming bankrupt.
In practice, companies do not state any specific object or period of time for their existence. They usually prefer— and this is called voluntary dissolution—to leave the power in the hands of the shareholders who can dissolve the company through a special resolution at any time. In this case, a general meeting of the shareholders must approve a special resolution to dissolve the company with the majority discussed above.
A company may also be dissolved by a court order for reasons specified under Section 1237 of the Civil and Commercial Code in cases where the company cannot continue its operations due to heavy business losses, the number of shareholders is reduced to less than three, the company does not commence its business within a year from the date of registration, or it suspends its business for a whole year.
After dissolution, the directors of the company become the company liquidators unless the articles of association dispose otherwise or the company is dissolved by bankruptcy. Then, the liquidators must give a public notice of the dissolution by means of notification in the local newspaper and creditors can send demands for payments to the liquidators.
There are 5 steps to start a company in Thailand.
Founder (more than 3) together manipulate memorandum association.
Letting shareholder to buy all stock unit that founders registered.
Company establishment meeting (no need to publish the establishment meeting paper) for considering the activities by Civil and commercial code section 1108, All founder and shareholder are being in the meeting (if not, representative are allowed). All founder and shareholder have to approve all the activities in that meeting.
The founder and promoter give all permitted and activities to the committee.
The committee call all the shareholder to pay once all the payment or not less than 20 percent of the stock price by section 2 (interval 2) and all shareholder are successfully making a payment.
Necessary information to use for the company establishment
Company’s name (booked before).
Headquarters address/branch (what province) with the house particular number, email and the telephone number of the company or the committee.
Objective of company for trading.
Budget for register, separate into a unit and once must value more than 5 Baht.
Name, address, occupation and unit of stock of the shareholder.
Name, address, age and nationality of 2 witnesses.
Revenue stamp (compulsory).
Capital amount (stock price) that had been paid, at least 25 percent of registered capital.
Name, address and age of the committee.
10. List name and the amount of committee that have right to be representative.
11. Name and registration number of auditor and compensation.
12. Name, address, nationality and amount of shareholder.
14. Headquarters and branches addresses.
Company might not register the company seal, if the committee didn’t set the rule to seal.
The necessary document and basis for company establishment.
Application for registration of a limited company paper.
Registration form for limited company.
Memorandum with the revenue stamp.
List of registered establishments.
Form of notify the result of reservation of names of juristic persons that not yet due.
Approve basis for company establishments for doing business with departments (using for commercial bank, insurance company, finance business, securities business and others).
List of shareholders.
Copy of shareholder list and the meeting proxies that approve the establishments company meeting with the name signature.
Copy of company establishments report.
Copy of rules and policy with the revenue stamp.
Copy of share bill payment issued by company to the shareholders.
In case that the company shareholder is foreigner and holding the share not more than 50 percent of the registered capital or in case that there’s no foreigner shareholder, but that foreigner is the committee or the witness of the company. Sending the basis document that issued by the bank for approve and demonstrate the financial status of each Thai shareholder and the registration request form.
Document of preparation company limited registration.
Map of headquarters address and places surround.
Copy of national ID card of founders and committees.
Copy of basis for being the endorser.
Power of attorney document.
Copy of all document and paper are compulsory need the one of the founder’s signature to approve.
The next step in company registration is to preparing the information for registering the (MOA) Memorandum of Association and company registration. The (MOA) Memorandum of Association is a kind of juristic person establishment instrument that specifies the company objectives which is used to specify the business such as objectives, shareholder information, director information, registered capital etc. The requirement of registering MOA are: 1: Name of the company after the approval. 2: Location of the head office or branch, in case that you own a property, such as a condo or house, it can be used as the headquarters or branch location. If you do not own the place, you must have a letter of consent to use the location. Third one is the company objectives. The company’s objectives must not violate against the law, Peace or morality. The objective should be in a short, concise manner and cover the entire business. Thus objective can be many, but the main objective of generating income for the company is not more than 2. The forth one is the registered capital of the company such as money asset. Fifth on is the promoter in the meaning that is founder. By registering a company, there must be 3 or more promoters. Next one is the Shareholders
Name-surname, address, nationality and number of shares of each shareholder. Seventh is the witness to register a company, there must be 2 witnesses. The information to be prepared is the name, address, age, nationality of each witness. The last one is a details of the company registration meeting. After MOA registration a statutory meeting is crucial because the BOD (Board of Director) and an auditor will be appointed at this meeting to find the responsibility of the BOD on determining the company policies, company mission goals, future development plans, etc. Then The company director must verify by submitting the application and fees within 3 months from the date that statutory take place or else it will be invalid.
All the company in Thailand will must liable for the CIT (Corporate income tax), according to the Tax I.D card and registration number from the Thailand Revenue Department. Most importantly, the company must register for a VAT (Values Added Tax) within 30 days after the first 600,000 THB revenue. Last step is to open a company bank account which will require the specify account on the business according to the branch or headquarters and the department that will take a responsibility.