Key Issues Relating to the Articles of Association of a Limited Company in Thailand

The Articles of Association (AoA or Articles) play a vitally important role in the governance of a Thai limited company as they are basically the company’s internal corporate rules. The AoA are initially decided at the company’s statutory meeting which is held as part of the company formation process. The Articles not only regulate the relationship between shareholders, directors, and the company itself but they also set out the legal framework within which corporate powers are to be exercised. This article shall examine various issues including enforcement and amendment of the AoA and what provisions are typically contained in AoA for a company limited in Thailand.

What are the AoA under Thai law?

The AoA are recognized by the Civil and Commercial Code of Thailand (CCC) as a binding internal contract that governs the legal relationship between:

• The company and its shareholders;
• The shareholders among themselves; and
• The company and its board of directors (to an extent).

Once the AoA are registered with the Department of Business Development (DBD), the directors of the company must act in accordance with them and they can be enforced, provided they do not conflict with the CCC, other applicable laws such as the Foreign Business Act B.E. 2542 as well as public order and good morals. If a provision in the Articles is contrary to any of the above then such provision can be challenged and found to be void and unenforceable in accordance with Thai law (except if permitted by law). Acts done that are contrary to the AoA may be invalid or challengeable in the Thai courts. It is also worth noting that the DBD may refuse to register AoA if they identify any provisions in them which conflict with the CCC.

The AoA are subject to Thai law but can be stipulated differently, provided they are not contrary to peace and order. For example, the CCC provides that a meeting of shareholders must be summoned not less than 7 days in advance and not less than 14 days in advance if a special resolution(s) must be passed. However, a longer period of time can be specified in the AoA, but a shorter period is not possible.

Are AoA Legally Required?

Articles are not a compulsory requirement under Thai law. Thus, if a company should decide against implementing its own AoA, then it will be governed in accordance with the relevant provisions of the CCC. However, despite the fact that AoA are not legally required, it is advisable to have them as they can offer extra safeguards for the shareholders such as provisions controlling the transfer of shares.

If a company limited is initially set up without AoA but its shareholders later decide that they want them, then they can be implemented provided that the shareholders approve such new AoA by passing a special resolution adopting them at a properly convened and held general meeting of the shareholders (AGM or EGM) and such resolution and the AoA being registered with the DBD.

Rules typically contained in the AoA for a Company Limited incorporated in Thailand

Unlike some jurisdictions, Thai law does not prescribe a rigid format for AoA, hence for most companies registered in Thailand their AoA generally cover the following topics:

1. Shares and share capital – classes of shares (such as ordinary, preference etc), rights attaching to each class of share and details on share certificates.
2. Share transfers – the procedures for transferring shares, board of director approval requirements etc.
3. Shareholders’ meetings – the different types of shareholder meetings (annual general meeting and extraordinary general meeting), the notice periods and methods for giving notice, quorum requirements for shareholder meetings, voting rights and procedures and proxy rules.
4. Directors – the number and qualifications of directors, method for determining the number of directors, quorum for board meetings, appointment of chairperson, appointment and removal of directors, scope of authority and management powers.
5. Balance sheet – the company’s accounting period, preparation of financial statements and the presentation of accounts to the shareholders.
6. Dividend and reserve fund – timing and method of payment for dividends, allocation of profits etc.
7. Liquidator – appointment and number of liquidator(s) and their powers.
8. Company seal – rules for use of the seal and who shall have custody of the company seal.

Challenging Shareholder Resolutions Contrary to the AoA

The CCC provides that if a shareholder meeting (such as an AGM or EGM) has been summoned or held or a resolution passed that is contrary to the provisions of the AoA then a director or shareholder of the company can submit an application to the Civil Court to cancel such resolution(s) passed at such irregular general meeting. However, the directors and shareholders wishing to challenge such resolution(s) must act swiftly given that the application must be filed with the relevant court within one month after the date of resolution being passed by the shareholders.

Amending the AoA

If the shareholders wish to later amend the AoA then the CCC requires that such amendment be approved by a special resolution of the shareholders at a duly called shareholder meeting and thereafter registered at the DBD.

A special resolution requires that notice of the special resolution be given to the shareholders in accordance with the notice requirements specified under the AoA at least 14 days before the date of the relevant shareholder meeting. Moreover, in order for the special resolution to pass, at least three-fourths (75%) of the votes of shareholders present and entitled to vote at the meeting must agree to the special resolution (or such higher threshold as specified in the AoA) and the votes must represent not less than half of the total shares of the company.

AoA and Shareholder Agreements

The AoA may not necessarily cover all internal governance issues and certain topics may instead be covered in a shareholder agreement between the company’s shareholders such as special investor protections or reserved matters[1]. There are several reasons for doing this, including:

• The AoA is a public document and can be obtained from the DBD whereas a shareholder agreement is private and not filed or registered with the DBD, hence a shareholder agreement provides greater confidentiality.
• A shareholder agreement can be amended by mutual agreement of the shareholders who are a party to such contract, thus it can be faster and more adaptable than trying to amend the AoA via a special resolution passed by the shareholders at a shareholder meeting.
• A shareholder agreement can provide more flexibility in terms of dispute resolution as such agreement can contain arbitration clauses, mediation or other dispute resolution mechanisms.

There are however certain advantages when comparing AoA with shareholder agreements, one of them being that the AoA automatically binds all shareholders whereas a shareholder agreement is only enforceable against those shareholders who are a party to such agreement.

[1] These are key decisions of the company that require special shareholder approval (such as a supermajority or unanimous consent) before the company can act, thereby safeguarding minority shareholders and ensuring key strategic choices align with all investors’ interests, covering areas like new debt, changing capital structure, new and director appointments.