Private Limited Company

There are many advantages to forming a private limited company in Thailand. Below are the main advantages of registering a limited company:

1. Reliability: Although operating a business as a company involves some of the expenses necessary to comply with the law, forming a company allows investors (or owners of the company) and third parties to have a clear understanding of the business. As a result, third parties, such as a company’s partners, creditors, banks or private money lenders, or potential new investors, find a company reliable. It is possible to examine the status of a company in terms of its profile, financial situation, shareholders, directors, etc.

2. Security: A company is a legal structure registered for an extended period of time, encouraged by the laws. Usually, the corporation operates until its owners see fit to dissolve it. Even if the shareholders die, are declared bankrupty or are incompetent persons, this does not affect the corporation itself. The stability of the company always allows potential partners to see that such a company is reliable. They can be sure that the company cannot be dissolved easily like other types of businesses. Investors also prefer to invest in safe and long-lasting companies, not in one-day companies. In addition, all management of the company is usually done by the directors appointed by the shareholders. When shareholders appoint a professional and reliable person to manage their company, the company thrives and provides excellent returns to investors.

3. Risk mitigation: The liability of business owners is one of the first issues that potential investors consider. After all, no one wants to go bankrupt or accumulate debts that exceed the capital invested. Since investors generally prefer to reduce these investment risks, the corporation is the most practical business structure, popular with entrepreneurs who want to limit their liability.

4. Financing: Business operations typically require the use of significant capital. It is often not enough to raise the money invested by shareholders to start a business. Corporate law addresses the financial needs of business people and does not require corporations to follow the same rules as their shareholders. A corporation is stable and operates according to plans, duly represented by its director. In addition, the capital of a corporation is divided into shares, which facilitates its transfer, payment and disposal, compared to the amounts due by a partnership. It is commonly referred to as “liquid capital”.

5. Opportunities to support growth: Although a private limited company generally does not accumulate significant investments from third parties (unlike a corporation, for which the law allows fundraising using money from ordinary citizens), many investors join it; the law also provides specific rules and regulations in this regard. Thus, investors are better protected. When a large amount of capital is not required, but the owners of the business wish to increase it in the future, nothing is more practical than to create a private limited liability company. Such a company can then be converted into a corporation, as corporate law prescribes very similar rules and procedures for both types of businesses. These rules govern the capital divided into shares, the board of directors, shareholders’ meetings, annual reports, etc.

Although a company is created due to the intentions of the parties to the agreement, it is not considered a legal entity until the company registration procedure is completed. In case an unregistered private limited company has already started to carry out a specific activity, it is assumed that the owners of the company act as an ordinary unlisted company.  A company must be registered with the Department of Business Development (DBD). The registration of a private limited company is carried out in the following steps:

Therefore, the registration process usually takes at least three days. However, the company registration, takes only one day if the application for registration of the company was submitted on the same day as the memorandum of association. Once the document is completed and signed by the new director of the company, the company documents are registered with the Registry of the Department of Business Development, according to the forms and conditions prescribed for the process. All necessary documents can be downloaded from the Department of Business Development. Below are the essential documents related to the incorporation of the private limited company:

First of all, it is essential to define the corporate objects which will constitute the activity or the activities of your company. In Thailand, your company can have several corporate objects. Certain activities are subjected to regulations or exemptions under penalty of illegal exercise. Finally, for your company registration, the department of the business development makes available several objectives of company.

All information regarding the directors of the Thai limited company must be completed. The following information is required: Full name, passport and/or identity card, address, telephone number and occupation.

Promoters are required to complete the registration process to form a private limited company until the day the appointment of directors takes place at the statutory meeting. There must be no less than three promoters; if only two parties agree to invest in a company, they must still arrange to have the third promoter. Otherwise, the Registrar will refuse to register the Private Limited Company. Shareholder information is listed in Bor Jor 5. The following information must appear: first and last name of the shareholder, passport and/or ID card number, address, number of shares held, value of a share and issue of shares.

This is a document used when incorporating the Private Limited Company, which specifies information about the company, such as name, address, business objectives of the company, capital of the company, number of shares, value of shares, names of promoters, etc. The registry office has a special form (BOJ.2) used for the registration of incorporation documents.

This document governs and determines the regulations between the shareholders of the company, the governance of the Board of Directors, the management of the company, the benefits of shares, dividends as well as the agreements regarding the following corporate matters:

Articles of Incorporation are not required for company registration. All company operating policies are subject to applicable laws; however, each company has its own policies regarding its business activities.

The articles of association must be registered; this allows interested parties and third parties to know the company’s management policies and agreements. In addition, although various procedures are already prescribed by law, investors may agree differently. Therefore, the requirements of the law and the policies of private companies do not always coincide; nevertheless, not all specific agreements can contradict the provisions of the law that protect the interests of shareholders.

Company’s shares shall be paid-up after the statutory meeting is held during which these shares are reserved, but before the registration itself takes place. Although it is not prescribed by the law that the shares shall be fully paid-up from the very beginning (it is stated that at least 25% of shares’ value shall be paid-up after the meeting), but the normal operation process of a private limited company mostly requires such payments to be completed entirely to avoid possible troubles for the collection of shares’ value in future.

Therefore, though the shares’ value is generally paid with money (it is much easier to calculate the amount to pay), there may be an agreement made during the statutory meeting to pay shares’ value with property (value of such property is specified and the number of shares paid-up with such feature is designated by all the promoters during the meeting). Property used for such payments includes land, buildings, machinery, intellectual property rights, etc. Relevant proprietary rights or rights of use for such a feature may be transferred either permanently or merely for a specified period.

According to Thai law, there is no “minimum” registered capital, and a private limited company can be registered with three shares and a minimum of 15 THB. However, it is strongly advised that any foreigner wishing to establish a company in Thailand should incorporate the company with a capital of at least THB 2,000,000. Indeed, in the framework of the appointment of a Thai director who will have an activity in Thailand, this last one will have to ask for a Non-Immigrant B visa and a work permit. For this purpose, each Non-Immigrant B visa and work permit is granted if the following conditions are met:

With Themis Partner, contact our Thailand visa services to obtain your long stay visa and work permit in order to work legally in Thailand.

Although shareholders are considered the owners of a company, they can only use their rights at general meetings, and these rights are only shareholders’ rights; shareholders do not have the right to directly manage a company, because the law governing companies specifies that the right to control the company and make all decisions belongs to a director of that company who is appointed by the shareholders’ meeting. In reality, the shareholders’ meeting still has the power to make decisions on the vital business of the company or other crucial matters, as the director must obtain the approval of the shareholders. Therefore, the essential rights of the shareholders prescribed by the law are as follows:

Of course, the shareholder can also request all documents relating to the company or to financial elements. The shareholder thus has a very broad power over his company.

The law provides that the authority to manage a company and make key decisions rests with its director(s). Investors should consider this issue from the outset. If investors wish to retain control of the corporation, certain shareholders will be appointed as directors or will appoint directors in whom they have confidence.

The law only prescribes certain matters regarding the authorization of directors. Thus, the number of directors of a company may vary according to the agreements of the general meetings of shareholders. Nevertheless, the number of directors of a company appointed by the shareholders to manage the affairs of that company on their behalf is a key issue that must be considered by all shareholders at the time of the first agreement in a shareholders agreement in order to protect the rights of the shareholders.

In addition, decisions regarding various activities must be approved by the board of directors. Generally, decisions are made at a board meeting by a majority of votes, unless the company’s articles of association provide otherwise (e.g., 2/3 or 3/4 of all directors must vote in favor of a decision). In the event of a tie vote, the chairman has a casting vote. However, the directors of a corporation do not necessarily perform their duties in person. They may have a management department or an administrator monitor the company on a regular basis, especially for large companies with many employees.

A director is considered a representative of the company. As such, the director(s) must perform tasks and make decisions that benefit the company. Key issues include:

When registering a company, its promoters must specify the business objectives, for example, catering, creating cell phone applications, etc. The law defines business objectives as the goals set by investors for their company. This information is essential when considering the registration of a newly established company. Therefore, business objectives are considered as a kind of framework or restrictions used to control a company and its director(s) regarding business activities. If a company’s action is not consistent with its business purposes, it is not authorized. For example, suppose the business objectives are to conduct a ecommerce business. In this case, the corporation or its directors may not use their capital or enter into agreements to carry on another type of business, such as investing in real estate or clothing stores. If the directors engage in business activities that are not listed as business purposes, they are not bound by these agreements. The directors are personally liable for all transactions carried out by the company and for all operations. The other party to the agreement generally reviews the corporation’s registration documents or requests its certificate to ensure that its directors are authorized to enter into a specific agreement.

A corporation’s performance with respect to its business purposes generally includes certain activities with respect to those business purposes or activities necessary for the corporation to operate with respect to its business purposes (e.g., when operating a restaurant, the corporation must hire employees, lease a building or space for a restaurant, obtain the necessary loans to use the restaurant, pursue the corporation’s debtors, etc.).

1. Duty of care: Directors must make decisions and manage a business with reasonable care. The rules prescribed for directors regarding the duty of care are considered to be on the same level as those specified for businessmen and experts. In other words, even if a director is generally careless and reckless in his or her personal life, he or she must nevertheless exercise reasonable care in the performance of his or her duties as a director. Before making a decision about the business of the company, the director must consider all relevant information. If a director is negligent and this negligence results in a loss to the company, he or she will be held liable.

If a director exercises due diligence in following the prescribed rules. However, if the result of an individual decision and performance is not beneficial or results in losses to the company, for example, if the company loses money or a customer breaks a contract and does not pay for goods, that director will not be held liable to the company, as he or she is considered to be effectively performing his or her duties. Thus, the selection and appointment of directors is a matter of great importance. Shareholders should entrust the professional management of their company to a competent and experienced person.

2. Honesty: A director must make decisions and manage a company with honesty and integrity; he or she must consider his or her own interests first. All these choices and the performance itself must be in the best interest of the company.

3. Transparency: The director plays a key role when contentious issues or disagreements arise when individual decisions and activities benefit the executive personally. This is generally referred to as a conflict of interest. For example, the manager decides to purchase raw materials such as meat for the restaurant from a supplier owned by the manager or a family member. The manager decides to sell merchandise to retail stores owned by the manager.

In addition, the law prohibits directors from managing a competitive business for the corporation; in other words, a director is not permitted to manage business activities that meet the following criteria:

In summary, restrictions on the competitive activities of directors affect the director and other parties such as family, close friends, relatives, people who need the director to participate in the management of their business, etc.

Nevertheless, the law does not prohibit directors from entering into agreements with any business, as such agreements may be beneficial to the business itself; for example, if the raw materials that the business needs to purchase are only available in the director’s business, or if the selling price in the director’s business is the most appropriate; or the director may have been involved in a competitive business in the past, which allowed him or her to gain experience and, therefore, be invited to become a director of that business. Directors may engage in competitive activities, but the shareholders’ meeting must first approve this matter. If the director’s character is in question and problems arise, the director must disclose the necessary information to the company and receive the written consent of the shareholders’ meeting in order to avoid further problems and litigation.

The directors shall prepare the necessary documents, reports on the status of the company and any changes in the outstanding registration data. If the director neglects his or her duties and fails to comply with these requirements, the corporation and the director will be held liable for the violation of the provisions of the law. The issues in question are:

Although the provisions of the Act define the rights and duties of shareholders and directors, in many cases shareholders prefer to agree on certain matters differently. For example, majority voting is generally used to pass a resolution at a meeting, unless the law provides otherwise; however, shareholders may agree to consider specific matters as vital and to obtain them only by special resolutions, although the law does not prescribe this. In addition, for regular and concise business operations that meet the objectives of the investors, both parties should agree (before forming a company) to sign a shareholders’ agreement. This is done because in some cases the law does not fully cover the needs of investors. Therefore, in order for investors to have a clear understanding and be able to agree, additional memoranda can be drafted beforehand.

By law, an investment agreement is simply a shareholder agreement with standard provisions. If the investors require that the agreement in question binds the shareholders, the company itself and third parties, a specific supplementary agreement must be signed between the company’s shareholders. All individual agreements are included in the company’s articles of association.