Currently, and much more since the global pandemic started, we cannot deny that the issues relating to disputes between shareholders of a private company are commonplace and often high stakes. Generally speaking, disputes between shareholders can be arisen from several reasons such as conflict of interest, disagreements over business direction, inequities in compensation or breach of fiduciary duties which is probably not that surprising since countless of companies are established each day and shareholders’ interests or perspectives will deviate over time. H&P lawyers in Bangkok have prepared this article to answer some of the most common questions regarding shareholder disputes in Thailand.
To begin with, a shareholder can be either an individual, corporate entity or organization that owns a share or multiple shares in the company.
Moreover, in a private company, there is no law which requires only Thai Nationals to own the company. Therefore, a private company can be fully owned by foreigners. However, for activities that require Thai nationals under the Foreign Business Act, foreigners can only own a maximum of 49%. Foreigners can own a majority or 100% foreign ownership by obtaining a Foreign Business License or BOI promotion.
Under Thai law, the shareholders of a private company are its legal owners and are entitled to certain rights according to the Civil and Commercial Code. The essential rights of shareholders under Thai law are as follows: the right to vote at general meetings and extraordinary meetings in order to pass the resolution, the right to receive the distribution of dividend in case of the company has profit, the right to examine the reports of the meetings or right to call an extraordinary meeting etc.
On the other hand, the law also provides the minority shareholders owing less than half of the company’s shares and have no control over the company the following rights: the right request the competent officer to appoint an inspector to examine the business of the company or the right to receive the notice of the shareholders’ meeting not less than 7 days in advance or 14 days in advance for a special resolution etc.
As above mentioned since both majority and minority shareholders play a crucial role in the company. Therefore, there are a number of conflict of interests and benefits arising among those people which sometime causing a lot of damages and frequently end up with the litigation process.
Can shareholders request for the shareholder meeting?
As specified above, section 1173 of the Civil and Commercial Code allows shareholders holding not less than 20 percent of the total number of shares to request in writing to the board of directors to call an extraordinary meeting.
Is shareholder Agreement important and can be legally enforceable?
As consequence, the most cogent strategy for preventing shareholder disputes is to create a solid shareholder agreement which should contain the following clauses: the right of majority and minority shareholders which should be balance properly, transfer of shares in order to prevent or at least notice of transfer of shares to third party, a clear dividends policy, injection of debt, competition and dispute solution procedure. Furthermore, the foremost thing is that shareholder agreement is legally biding for those singing the agreement which means signatories will have the right to take legal action if another signatory breaches any clause in the shareholder’s agreement.
Is there any law preventing or minimizing the liabilities of shareholders?
In accordance with Section 1096 of the Civil and Commercial Code stipulates that the liability of the shareholders is limited to the amount of unpaid on the shares held by them. It can be apparently seen that if the company’s capital is fully paid up, it will not be possible for the shareholders to become personally liable for damages incurred by the company. Nonetheless, this section can be adopted only in the even that there are liabilities arising from the company. In this result,
disputes between shareholders that do not comply with this section and are frequently ended up in the litigation.
From aforementioned reasons, it can be clearly seen that the crucial key to prevent shareholder disputes is a solid and strong shareholder agreement. Apart from that, following the right steps of legal procedures can also resolve such problems.
If you need to consult with a lawyer in Thailand about shareholder dispute case, please contact our Bangkok lawyers at [email protected]
