Good Corporate Governance for a Company Limited in Thailand

Good corporate governance refers to the set of principles and practices that ensure transparency, accountability, fairness, and responsibility in the management of a company. The main objectives of good corporate governance are to increase the value of the company and protect the interests of key stakeholders, including the shareholders and society as a whole. This article shall discuss several ways in which a private company limited can achieve good corporate governance in Thailand, including practical steps which can be taken to accomplish this outcome.

Board of Directors

Firstly, to meet good corporate governance standards, a company’s board of directors should be composed of competent individuals who are able to provide strategic direction and oversight to the company. Ideally, directors should have diverse skills, knowledge, and experience to ensure that the company is well-run and managed. It would also be sensible to appoint independent board members who can act as a check and balance to the company’s management, taking such steps shall help to better ensure transparency and accountability in decision-making by the board of directors.

The following list sets out several practical ways for the board of directors to help further good corporate governance in a company:

a. Ensuring all key decisions impacting the company such as entering major contracts, instituting litigation against another party or taking other important juristic acts are decided and resolved by the board of directors at their meetings and that such decisions/ resolutions are properly recorded by the secretary in the meeting minutes.

b. Making certain that only those persons duly authorized by the company, execute contracts or enter into legally binding obligations on behalf of the company. Such persons are normally the authorized directors whose name appears on the company’s affidavit of company registration which is issued by the Dept. of Business Development (DBD), however, it could also be other person(s) if they are duly authorized under a power of attorney (PoA) issued by the authorized directors company in line with their signing authority. If a company wishes to issue a PoA to a person to take a certain act on its behalf then it would be prudent for the board of directors to resolve to approve such PoA before it is executed by the authorized directors.

c. Making sure that the company keeps thorough and detailed records, including copies of all board of director meeting minutes as well as invitations, and meeting attendance lists. Other key records which should be kept include the audited financial statements, key contracts, shareholder meeting minutes, meeting invitations, proxy forms and meeting attendance lists.

d. Conducting regular legal compliance checks to make sure that the company (including its employees and officers) is fully complying with its legal responsibilities such as having the necessary licenses and permits required to legally operate its business such as a foreign business license etc.

e. Ensuring that the company maintains strict compliance with its articles of association as well as its internal policies such as its code of conduct (if applicable). One example of key compliance is the requirement under the Thai Civil and Commercial Code (CCC) that after registration of a company limited, no regulations (Articles of Association or ‘AoA’) may be made and no additions to or alterations of the regulations (AoA) or of the contents of the memorandum may be adopted except by passing a special resolution at a properly called shareholder meeting.[1]

f. Making sure that all shareholders have been issued with properly issued share certificates (for their shares in the company) which have been executed by the authorized director(s) in compliance with their signing authority.

Accountability

To achieve good corporate governance a company should be accountable to its shareholders and key stakeholders. To accomplish this objective, a company’s board of directors should be transparent in their decision-making processes and the company should disclose legally required financial and non-financial information to the public.

The following list sets out several practical tips which can help a company limited achieve effective accountability:

1. A company limited must hold its shareholder Annual General Meeting (AGM) each year within 4 months of the end of its financial year. Amongst other agenda items, such meeting should resolve to approve the company’s audited financial statement (should it be acceptable), the audited financial statement should then be submitted to the DBD within the legally required timeframe.[2]
2. All key major decisions taken by the company should be decided by the board of directors and their deliberations and decision(s)/resolutions should be recorded in meeting minutes which are available to the shareholders to review.
3. A company should ensure that all publicly available information held by the DBD is accurate and up to date including the affidavit of company registration and form BorOrJor.5 (shareholder list).
4. Directors of a company should avoid conflicts of interest when carrying out their role as a director. Indeed the CCC stipulates that a director must not without the consent of the general meeting of shareholders undertake commercial transactions of the same nature as and competing with that of the company, either on their own account or on behalf of a third person. Furthermore, the CCC also provides that a director may not be a partner with unlimited liability in another concern carrying on business of the same nature as and competing with that of the company.[3]
5. A Company should ensure that its AoA are complied with in relation to such things as quorum for board or shareholder meetings and that necessary advance notice periods are also met before such meetings are held.
6. A company limited must keep a register of shareholders[4] containing the legally required particulars including:

i. The names and addresses, and occupations (if any) of the shareholders, a statement of the shares held by each shareholder, distinguishing each share by its number, and of the amount paid or agreed to be considered as paid on the shares of each shareholder.

ii. The date at which each person was entered in the register as a shareholder.

iii. The date at which each shareholder ceased to be a shareholder.

iv. The numbers and date of certificates issued to bearer, and the respective numbers of shares entered in each such certificate.

v. The date of cancellation of any name certificate or certificate bearer.

It is also worth noting that in accordance with the CCC, the register of shareholders must be kept at the registered office of the company and it must be open to inspection by the shareholders during business hours, subjected to such reasonable restrictions as the directors may impose.[5]

Ethics and Integrity:

Another practical method for a company to achieve good corporate governance is for it to operate with high ethical standards and integrity. To achieve this in practice, a company’s board of directors should consider implementing the following actions:

a. Developing and implement a whistleblowing policy that allows employees to report any unethical behavior or any violation of the company’s regulations, policies or code of conduct (as the case may be). Furthermore, the board should take steps to ensure that policies and procedures are in place to make certain that company employees feel safe from retaliation for reporting such behavior.

b.Establish a comprehensive code of conduct that outlines the ethical standards and values that the company expects from its employees and management such as rules prohibiting corruption, fraud, harassment and other unethical/illegal behavior. A company should also carry out training on such code so that its employees and management understand it well, including how to comply with its requirements in practice.

Risk Management:

To further good corporate governance, a company should also have an internal system in place to identify, assess, and manage various types of risks including financial, operational, legal, and reputational risks. In the writers view, a board of directors should regularly review the company’s risk management practices to ensure that they are effective.

On a practical level, some companies may even consider having their board of directors establish a risk management sub-committee to examine such risks and develop suitable strategies or techniques to manage them. If such a committee is established then it is advisable for it to be approved by resolution of both the board of directors and the shareholders, including details on its composition, powers/ roles and responsibilities.

Shareholder Rights:

To achieve good corporate governance standards, a company limited should respect the rights of its shareholders, including the following:

1. The right to be properly notified of all shareholder meetings including Extraordinary General Meetings (EGMs) or AGMs, including the agenda items for such meetings.
2. The right to vote on special and ordinary resolutions at shareholder meetings, including the right to appoint a proxy to vote on their behalf at such meetings.[6]
3. The right to attend shareholder meetings[7], including the right to voice opinions or ask questions to management with respect to agenda items.
4. The right to receive relevant information about the company, including the audited financial statements and shareholder meeting minutes.
5. The right to sell or transfer their shares to others provided that such action complies with the articles of association and relevant laws. To realize good corporate governance in this regard, the writer recommends that before processing share transfers (including issuing new share certificates and updating the share register) a company should request a copy of the witnessed executed share transfer instrument between the transferor and transferee and ensure that the correct stamp duty has been affixed on such instrument.
6. Right to receive dividends: Shareholders are entitled to receive a portion of the company’s profits as dividends, provided no dividend may be paid out except by a resolution passed in a general meeting and the reserve fund requirements have been met in accordance with the requirements under the CCC.[8]

Summary

In summary, good corporate governance in Thailand is essential for the long-term success and sustainability of a company. It helps to build trust among stakeholders, protect the company’s reputation, and create value for shareholders and society as a whole.

[1] Section 1145 of the CCC.

[2] Section 1199 of the CCC.

[3] Section 1168 of the CCC.

[4] Section 1138 of the CCC.

[5] Section 1139 of the CCC.

[6] Section 1187 of the CCC.

[7] Section 1176 of the CCC.

[8] Section 1202 of the CCC.

Writer: Ryan Crowley – Foreign Services Manager

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