Thailand’s legal protection system for foreign shareholders and directors

The underestimated strict requirements under Thailand’s corporate laws

Thailand’s regulatory framework for the formation and operation of a corporation is strict, full of formal requirements and not easy to handle in practice. This statement is not only applicable to the public company (PLC), but also for the small corporation, the Company, Limited (Co., Ltd.).

The land of smile has a certain tradition to neglect the legal requirements for corporate and business arrangements between shareholders, directors and the company. To follow the law is often erroneously regarded as too annoying, costly and time-consuming, especially when documents have to be prepared which are not initially required by the authorities for the registration.

This perspective is encouraged by misapprehended provisions of the law. Under Section 1195 CCC, certain errors and misconducts of a shareholders meeting do not result in the ineffectiveness of the shareholders’ resolutions, if certain conditions are met. As explained in the article “The irregular shareholders’ resolution of the Thai Co., Ltd.”, this clause of the law has a very limited area of applicability and should not at all be generalized.

justinian-emperor

Registration instead of accomplishment

It had become a bad industry practice to avoid the prudent accomplishment of formal requirements, as the factual holding of a shareholders meeting including invitation letters and publication in the newspaper. Also, share transfer instruments are not factually signed. Instead, only the registration of such ghost tasks is done.

In most cases, such registration is invalid, will not be healed by time and is open to attacks without time limitation. The assumption, that the consensus between shareholders and directors will be forever, is obviously an illusion. The durability of the wrong registration bases merely on the ill-advised misconception, that the disadvantaged participant has no tools and weapons to fight back.

Experience shows, that a disadvantaged shareholder or director can enforce his rights powerful by determined actions in the negotiations of his lawyers with the opponents, by applications at the Department of Business Development (DBD), and even in civil and criminal litigation.

For some time already, complains about irregularities are not at all ignored by the authorities. Instead, an investigation is started, the full scope of documentation has to be provided, and any suspicious findings are shared with the police.

The application and the registration of wrong statements are punished under Thailand’s Criminal Code as follows:

Section 137 Penal Code: Whoever, giving any false information to any official, and is likely to cause injury to any person or the public, shall be punished with imprisonment not exceeding six months (or fined, or both).
Section 267 Penal Code: Whoever causes officials in the execution of their duty to make any false entry in the public or official document for the aims to be used as evidence, shall be imprisoned up to three years (or fined, or both).

Convicted foreigners will typically lose their residence permit and might be blacklisted in Thailand. As a consequence, ignoring the law makes the foreigner highly vulnerable and gives his Thai or foreign opponent a toolbox of robust defense capabilities.

Contact Justinian Lawyers at justinian@pugnatorius.com to discuss your corporate requirements with the Bangkok investment law firm.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s