Good Corporate Governance Practices for a Thai Company Limited

Good Corporate Governance (“GCG”) practices are extremely important because they can help to ensure that a company is managed and controlled in an ethical, transparent and accountable way. In Thailand, corporate governance standards for a Thai Company Limited are primarily governed by the Civil and Commercial Code (CCC). This article shall examine what is required for a Limited Company in Thailand to implement effective and robust GCG practices as well as practical tips which directors should follow when adhering to GCG.

Good Corporate Governance and Shareholders

A Thai Company Limited must ensure fair and professional treatment of its shareholders. Practical GCG measures with respect to shareholders include the following:

1. Providing clear and legally compliant advance notice of all shareholders’ meetings (Annual General Meetings or AGM and Extraordinary General Meetings or EGM) to the shareholders which at a minimum involves mailing out meeting invitations (including the meeting agenda) to the respective shareholders.
2. Ensuring that the shareholder AGM is held every year in accordance with applicable law and that the meeting covers the required minimum agenda items, including dividends (if any), retiring director(s) and approving the audited financial statement for the previous financial year etc.
3. Shareholder having timely access to company information such as the share register and the latest balance sheet etc.
4. The Company should ensure that all permitted share transfers are swiftly and accurately recorded in the share register and that the Department of Business Development (DBD) is duly informed within the timeframe required by law. Moreover, new share certificates (if any) should also be issued and old share certificates cancelled.
5. Ensuring that all shareholders have the right to attend any general meeting of shareholders i.e. AGM or EGM.
6. Making sure that all general meetings of shareholders have the required quorum in attendance before they proceed and that voting on resolutions at such meetings is conducted in accordance with the AoA and the law.
7. If the company is more than 50% owned by non-Thai nationals then it is considered as foreign majority owned in accordance with the Foreign Business Act BE 2542 (1999) (FBA). If this is the case, then the Company should ensure that it complies with the FBA such as obtaining the necessary licenses to operate in the Kingdom, such as a Foreign Business License for business activities under list 3 of the FBA. To ensure GCG, the company should not utilize illegal nominee structures to avoid compliance with the FBA because this can incur serious criminal sanctions including fines and jail.
8. Ensuring that all company records and books are accurate and up to date, especially the share register books, the meeting minutes, the balance sheets and the audited financial statements.

Good Corporate Governance and Directors

Directors of a Thai Company Limited are accountable to both the company itself as well as the shareholders. According to the CCC, when the directors are managing the affairs of a Thai Company Limited they must apply the diligence of a careful businessman.

The following list of responsibilities (imposed by the CCC on the directors of a company limited) reflect just one part of what is required from directors to ensure adherence to good corporate governance.

1. Ensuring shares are actually paid by shareholders;
2. Keeping minutes of all proceedings and resolutions of both the general meetings of shareholders i.e. AGM and EGM as well as board of director meetings;
3. Maintaining proper, legal, and existing books and records of such things as sums received and expended by the company and of its assets and liabilities.
4. Distributing dividends lawfully to the shareholders;
5. Enforcing resolutions from general meetings of the shareholders.
6. Summoning a shareholder meeting if the company has lost half the amount of its capital so that the shareholders can be informed of this matter;
7. Summoning a shareholder meeting (EGM) if a requisition to this effect is made by shareholders holding at least 20% of the shares of the company; and
8. Sending to the Registrar (DBD) a copy of the company’s balance sheet within one month of it being adopted by the general meeting of shareholders.

GCG also requires that a director does not act on behalf of the company when they have a conflict of interest. Nevertheless, the CCC does provide that a director could undertake commercial transactions of the same nature and competing with that of the company (either on their own account or on behalf of a third person) if they have the consent of a general meeting of shareholders. However, it is worth noting that the CCC also provides that where the acts of a director have been approved by a general meeting of the shareholders, then such director is no longer liable to the company or to the shareholders who approved them but the shareholders who did not approve such acts (if any) can take legal action against the relevant director provided it is entered into within six months of the date of the general meeting of the shareholders (AGM or EGM) where such act(s) were approved by the shareholders.

To ensure that a Company Limited’s board of directors’ acts in accordance with GCG principles, it is advisable that a Thai Company Limited’s board of directors should:

1. Hold regular meetings with documented meeting minutes, meeting invitation and a meeting attendance list;
2. Adopt a code of conduct which sets out how the directors should carry out their roles and responsibilities; and
3. Ensure that all major decisions relating to the company are put to the board for their consideration such as loans, legal actions, entering into major contracts, significant financial decisions etc. In some cases, it may also be necessary to put a decision to the general meeting of shareholders so they can decide how to proceed.

Achieving Good Corporate Governance through Risk Management and Compliance

GCG requires a strong system of compliance monitoring and risk management. Hence, to achieve this outcome it is advisable for a Thai company limited to implement the following steps:

• Conducting periodic legal compliance reviews to ensure it is fully complying with all relevant laws and regulations (especially industry specific laws) and that the company has all necessary permits and licenses to operate its business.
• Implementing robust policies addressing improper behavior such as fraud, corruption and embezzlement etc. Such policies should define each type of improper behavior with real life examples. Moreover, such policies should include provisions on how an investigation into such matter shall be conducted and by whom (should be independent and suitably qualified to investigate) as well as sanctions if the relevant person(s) is/are found guilty of breaching such policies.
• Have the board of directors and senior management of the company identify and document risks across major categories[1] and then conduct a risk assessment (how likely to arise) and thereafter develop suitable risk mitigation strategies to address and combat such risks, such as legal contract review procedures and establishing whistleblower channels etc.
• Maintain a compliance calendar (filing deadlines, tax payments, annual meetings);
• Assign a compliance officer, responsible manager or sub-committee under the board of directors to oversee compliance matters in the company.
• Provide regular training for directors and key employees so that they understand what is required of them in order to achieve GCG in practice.
• Develop suitable plans and policies to address risk, such as business continuity plans, data protection and cybersecurity policies, succession planning for key executives and emergency decision-making protocols.

Practical Tips to Ensure Good Corporate Governance

A Company Limited in Thailand can effectively implement GCG using the following methods:

• Maintaining accurate and transparent reporting. One practical example of this is keeping records of all board of director and shareholder meeting documents such as meeting invitations (including postal records), newspaper invitations (if required), signed board meeting minutes, meeting attendance lists and executed proxy forms.
• Establishing clear policies for the board of directors and the employees, such as a conflict of interest policy[2], an anti-corruption policy and a whistleblower policy.
• Creating strong internal financial controls such as a policy determining what type of fiscal transactions must be approved by the board of directors and/ or shareholders before they are implemented. It would also be prudent to establish a clearly defined budget approval procedures.
• Appointing independent auditors who will provide honest and accurate feedback when preparing the company’s annual audited financial statement.
• Implementing Articles of Association (AoA) which reflect robust GCG standards and which are compliant with Thai law.
• Conducting appropriate due diligence on key stakeholders such as new employees, business partners, auditors, new proposed directors etc.
• Conducting timely, independent and thorough investigations into any alleged illegal or improper actions by employees or directors such as fraud, theft, corruption or misuse of company funds or assets.
• Implementing practical signing conditions for the authorized directors which adequately safeguard the company from unauthorized director signing activity. For example, it may be advisable to have the DBD issued company certificate reflect signing conditions which require two or more directors signing jointly with company seal affixed when binding the company rather than one director signing by themselves.

In conclusion, GCG is highly important to the success of a company because it can safeguard against threats posed by regulatory exposure as well as internal conflict between the shareholders and directors. Moreover, it can help to propel a company to success by increasing confidence from banks and financial institutions as well as enhancing credibility with external stakeholders such as business partners and customers. By following the GCG principles of accountability, transparency, responsibility, fairness, and internal control, a company can improve its legal compliance, enhance investor confidence and trust as well as safeguard its long-term commercial sustainability.

Dharmniti Law Office Co., Ltd.

2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330

Tel: (66) 2680 9777

Fax: (66) 2680 9711

Email: ryan@dlo.co.th info@dlo.co.th

[1] Such as legal and regulatory risk, financial risk, tax risks, operational risks, reputational risks and cybersecurity risks.

[2] Such policy should ideally include written conflict-of-interest disclosures which are presented to the board of directors and the company secretary (if any).