Corporate governancemechanisms for foreigninvestors in Thai limitedcompanies to gain more benefit and control
Corporate governance for foreign investmentsin a Thai limited company - in a nutshell• Under the Foreign Business Act of Thailand services and other specified business activities have to be carried out by a Thai majority owned company only. In case of a standardized company set-up this leaves minority economic benefits and minority control for the foreign shareholder.• However, Thai corporation law is flexible enough to allow a tailor-made structuring to gain more benefits (dividends, capital gains, and more) and control (voting rights, veto rights, entrepreneurial decisions, etc.) to the foreign shareholder.• PUGNATORIUS advises and assists in the corporate governance structuring - or the restructuring - of foreign investments in Thailand. This short presentation roughly describes some of our tools and modules of such corporate and group structuring. It does not address alternatives as a two tier corporate structure or cross-shareholdings and does not cover comprehensive tax aspects.• Before implementing any of the described modifications, please ask PUGNATORIUS for specific legal and tax advice.
Part I: How to shiftentrepreneurial controlto the foreign minority shareholder
Shifting control by a modification of the sharerights• Preference shares ✓Thai company laws allow preference shares, which can be issued to either the Thai majority shareholder or the foreign minority shareholder. ✓The preferred shares may have enhanced or diluted voting power (e.g. five votes for one share or one vote for five shares). ✓Typically the weighted voting power is combined with a garanteed dividend amount or certain other economic preferences to assure a fair treatment.• Shareholder groupings ✓Shareholder groupings may be agreed in a non-registered shareholders agreement or in the company’s registered bylaws. ✓They have mainly the same effect as preference share agreements.
Modification of the Memorandum of Association• Appointment of directors ✓Since a Thai limited company acts through its directors, a certain amount of control can be shifted by modifying the Memorandum of Association regarding - the power of the companys authorized directors, - the names and number of authorized directors (e.g. requiring two authorized directors sign jointly) - and the manner in which the company binds itself contractually, especially by a certain quorum requirement for board of director resolutions ✓If the companys seal is required, physical possession provides as an effective control mechanism. The seal can be retained by a third party who executes documents and affixes the companys seal.
Other procedural modifications of the registeredbylaws or articles of association• Limitation of business objectives in the memorandum of association• Procedural requirements in the registered bylaws ✓Quorum rules for shareholders meeting ✓Supermajority approval rights of certain shareholders groups allowing control over the management and major transactions ✓Pledge agreements, together with original share certificates and share transfer instruments executed in blank ✓Proxies arrangements• Example: "At every Board of Directors meeting, at least half of the directors must attend the meeting to constitute the quorum. The BOD may resolve without having the meeting provided all directors approved by signing in the original of the resolution and such resolution shall be kept in the register of the company. Decision of the BOD shall be made by the majority votes of all directors whether or not attending the meeting. If the votes are tied, the chairman of the meeting shall have the casting vote."
Control rights through shareholders agreement• The shareholders agreement is a non-registered contract between the shareholders, some times in the form of a joint venture agreement.• Under certain conditions this agreement on the shareholders level can modify and overrule the terms and conditions of the company documents.• Typical clauses contain, above all, ✓a list of major business decisions requiring prior approval from the shareholders by supermajority approval ✓Any share transaction involving the transfer, give, pledge, sale or disposition of shares in any other way must be with the consent and unanimous resolution of the Board of Directors. ✓Pre-emptive rights, buy-sell provisions, distributions to shareholders etc.
The up-to-date and complete presentation isavailable for you as a free download at ✓ www.scribd.com/collections/4054603 ✓ www.pugnatorius.com
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