Share Transfers in Thailand for private limited companies and matters which a buyer should consider

When a party is considering whether to purchase shares in a private limited company in Thailand there are a number of important issues which they should consider and prepare for in order to safeguard their legal position in the transaction. This article shall discuss some of the most important issues which a buyer should contemplate before they enter into a share purchase transaction, including the need for a suitably drafted share sale & purchase agreement to underpin the transaction as well as the need to check if such shares are encumbered.

Share Transfer Instrument

At a bare minimum, we advise that a buyer should insist that the share sale and purchase transaction should be evidenced by a share transfer instrument which is signed, witnessed and dated by both the buyer and the seller (one original for each party to retain). A share transfer instrument should mention the full legal name and address of both the buyer and seller of the shares and should also clearly mention other vital details including the name of the company in which the shares are being sold as well as the share numbers and the consideration (sale price) for the shares. If a party to the transaction is a natural person then we recommend that they attach a pen signed copy of their passport/ ID card to the executed share transfer instrument. However, if a party to the sale is a juristic person (such as a company) then we recommend that a copy of its company registration (in Thailand we use affidavit of company registration) be attached to the instrument as well as a copy of the passport/ ID card of the authorized director who signs on behalf of such juristic person. In the case of a Thailand registered company being a party to the transaction then is important to check its updated affidavit of company registration document1 to see which authorized director(s) are permitted to sign on its behalf and what their signing authority is and whether the company seal must also be affixed in order to legally bind the company.

Share Sale & Purchase Agreement

In addition to a share transfer instrument, the buyer may also wish to consider entering into a share sale and purchase agreement with the seller as this can provide them with more safeguards and protections with respect to the transaction. If a buyer uses such an agreement then we would recommend that it include clauses covering the following important matters:

     a. Payment terms for the purchase price of the shares;
     b. Confirmation that no legal proceedings by and/or against the seller have been commenced for bankruptcy or any analogous proceedings in Thailand or in any other jurisdiction;
     c. Representations and warranties from the seller confirming that:
          i. they are the lawful, beneficial and registered owner of the shares;
          ii. they retain the full legal right to sell, assign, transfer and convey valid title of the shares to the buyer;
          iii. that the shares are fully paid and free and clear of any lien, pledge, encumbrance, preemptive right, restriction or claim; and
          iv. that the execution and performance of the sale & purchase agreement by the seller shall not constitute a breach of any obligation or undertaking by which the seller is legally bound.

If the parties shall use a share transfer instrument as well as a share sale & purchase agreements then it would be advisable to reference the instrument in the agreement and make it an attachment thereto so that both documents support the transaction.

Articles of Association

Another important matter which a buyer should consider is to check the articles of association (AoA) of the company in which they are purchasing shares to see what they provide with respect to share transfers, this is because if the conditions specified in the AoA are not complied with then such share transaction could be challenged in court and found null and void. In some companies an ordinary or special resolution of the shareholders is required to be passed before a share transaction can proceed. Hence in such case, the buyer should mention this requirement in the share sale and purchase agreement as a condition which must be met before they purchase shares in the company. Moreover, we advise that in such case the buyer should insist on getting copies of the necessary shareholder meeting minutes and related documents (such as shareholder invitation published in the newspaper) to prove that such special/ ordinary resolution was duly passed at a properly called shareholder meeting in case an interested party later tries to invalidate such share transaction.

Shareholder Agreement

Before purchasing shares in a private limited company, the buyer should also investigate whether the seller is a party to a shareholder agreement (with respect to the shares being purchased) and if so what such agreement provides with regards to the seller selling and transferring their shares. A buyer should be careful to ensure that a shareholder agreement does not give another party a first right of refusal to purchase such shares as otherwise it could result in the buyer and seller being caught up in costly and time consuming litigation if a third party seeks to challenge and cancel the share sale transaction.

Share Register, form BorOrJor.5 and Share Certificates

Upon purchasing shares in a company limited, the buyer should make sure to get the old share certificate back from the seller so it can be replaced by the company secretary with a new share certificate which shall reflect the buyer as the new owner of the purchased shares. If the company in which the shares have been purchased has a share register book then the buyer should make sure that the share register book is duly updated by the company secretary to reflect the transaction. If possible, the share register book should also be checked before the transaction to ensure that it does not show the shares being sold as being subject to an encumbrance such as a pledge. Finally, after the transaction is completed the buyer should make sure that the company secretary updates form BorOrJor.5 for the company such that the buyer’s name, address and shareholding is accurately reflected. In relation to foreigners who purchase shares in a Thai company they should be mindful to use Thai spelling (of their name) which is consistent with other Thai spelling used in other official documents such as work permit or marriage certificate.

Foreign Majority Ownership Restrictions

If a non-Thai shareholder will be purchasing shares in a private limited company which will result in the company being majority foreign (non-Thai) owned then the buyer should be mindful of the risks involved as this may present legal compliance problems with respect to the Foreign Business Act BE 2542 (1999) or other legislation relating to real estate if the company owns land in the Kingdom.

Due Diligence

The writer advises that buyers should conduct due diligence before purchasing shares in a private company limited in Thailand. Such an investigation could look into such things as the financial strength of the company (financial statements), whether the shares being sold are fully paid up, whether the company is in good legal standing and up to date with its audited financial statements and who the legal owner of such shares is according to the updated form BorOrJor.5 and the company’s share register book.

Dharmniti Law Office Co., Ltd.
2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330
Tel: (66) 2680 9777
Fax: (66) 2680 9711
Email: ryan@dlo.co.th or chalapunj@dlo.co.th