Preference or preferential shares in Thailand are usually higher ranking shares in certain matters of the company limited
The structure of preference shares opposite ordinary shares in a Thai company is typically used to give control to a group of shareholders (foreigners) above another group of shareholders (Thai) in the company.
For now, Thailand has not changed the preference structure allowing foreigners as a minority shareholder to control a Thai limited company, however there is a discussion if preference shares and foreign voting rights in a Thai company should be used as a criterion in defining a Thai company foreign. In new regulations the government is currently discouraging foreigners to invest in Thai businesses by using Thai nominee shareholding structures, however has not issued restrictions on the use of preference shares and majority voting rights by foreign shareholders in a Thai company.
A Thai company must have 3 promoters when applying for company registration and no less than 3 shareholders during its existence. The liability of shareholders extends only so far as the amount not yet paid up on their shares. Therefore, a shareholder who has paid up 100% of their shares has no further liability or responsibility for any debts of the company.
Preference shareholders can receive an equal share of the profits whether their shares are paid up or not. Preference shareholders can have voting rights in shareholder meetings however their voting power depends on the content of the company documents. The company can choose whether the voting rights of preference shareholders are equal to one vote for one share or they can increase voting power and may choose to give ten votes for one share.
Public Limited Companies has to comply with the Public Company Limited Act B.E.2535. The Act permits companies to change the share types in a company whereas Limited Companies have to follow the Civil and Commercial Code which does not permit this.
If a Limited Company needs to change its ordinary shares to preference shares so that the holders benefit from the favorable voting rights, it is possible. Although the foreign shareholders in Thailand will hold fewer shares, they are still able to control the company by passing resolutions in their favor by using their preferred voting rights.
There are two ways to change the share structure:
Example: company capital is 2,000,000 THB with 20,000 ordinary shares at a share value of 100 THB, one share equals one vote. Mr. A has 5,000 ordinary shares and Mr. B has 12,000 ordinary shares. Therefore, Mr. B has more authority than Mr A. If the company wanted Mr. A to have more authority than Mr. B, the company can’t change Mr. A’s ordinary shares to preference shares instantly. However, the company can increase capital and issue preference shares. If the company increases its capital and issues 2,000 preference shares, Mr. A can have 5,000 votes via his ordinary shareholding and a further 20,000 votes through his preference shareholding (carrying 10 votes per share).
However, the increase in capital may affect the company balance sheet or tax liability. So, if the company does not want to increase its registered share capital, an alternative is available.
Before a company increases or reduces its capital, it must check the company articles of association. The company articles of association must permit such increase or reduction. If they do not, the company must amend the articles of association first by submitting certain documents to the Ministry of Commerce.
By law, a Thai Limited Company can not change ordinary shares to be preference shares. Therefore, the company must solve this problem by following one of the above methods. If the Thai company has only ordinary shares, it can increase or decrease capital in order to issue preference shares.
Practical advice from real lawyers on most common legal issues for expats in Thailand. Samuiforsale provides general Thai legal information and law resources in English over the Internet. The information in Samuiforsale should be used as general Thai legal information but should not be treated as a substitute for specific legal advice concerning individual situations.