Thai law historically required that a Thai private limited company have at least seven shareholders. In 2008, a change in the law reduced the minimum number of shareholders to three. However, even this reduced requirement can create problems for foreign investors, mainly by requiring them to find additional shareholders when in reality a single foreign shareholder (often a foreign corporation) would be the sole entity controlling the Thai private limited company. In addition, statistical information collected by the Department of Business Development (“DBD”) of the Thai Ministry of Commerce shows that that most companies are owned by one individual or one group of major shareholders with two shareholders holding a minimal number of shares so as to satisfy the Thai law requirement that Thai private limited companies have at least three shareholders. In other words, the additional two shareholders serve no useful purpose; they are a formality that does not improve corporate governance.
The DBD, in coordination of the Faculty of Law, Chulalongkorn University, is studying the possibility of allowing for a “sole member juristic person”, which is in essence a private limited company with a single shareholder. There have been two public hearings held in June and August 2015 to review the proposed legislation.
A sole member juristic person will provide many of the same benefits available to private limited companies, including the following:
1. Separate legal personality. The sole member will be able to protect his personal assets from his corporate assets.
2. Investment in cash or in kind. The sole member would be able to make his investment in the sole member juristic person in cash or in kind. Unlike the case of a private limited company, however, the share capital must be fully paid up upon incorporation.
3. Limited liability. The sole member may be able to limit his liability to his equity invested in the sole member juristic person.
4. Centralized management by director and control by shareholder. Under the proposed legislation, the formal requirements to hold a shareholders meeting that currently apply to a private limited company (e.g. newspaper publication, requirement that at least two people must meet in person, etc.) would be simplified for a sole member juristic person (such as allowances for written resolutions, meetings via telephone or video conference, etc.).
The proposed legislation would also introduce some new concepts for sole member juristic persons that not currently available to private limited companies, including the following:
1. Mergers via absorption and integration (private limited companies are currently only allowed to amalgamate).
2. Transformation of a sole member juristic person to a limited company (or vice versa) or to a public company.
3. Provided that it achieves a minimum level of revenues for a period, the sole member juristic person may obtain a waiver from having its balance sheet audited (under current Thai law, all Thai private limited companies must have their balance sheets audited annually).
4. Any transaction between the sole member juristic person and its sole shareholder which is not in the ordinary course of business must be made in writing and passed as a board resolution.
The first draft of the legislation is subject to further study and discussion, so we do not expect the law to be enacted in the near future, however, watch this space for further developments.