Siam Legal | How to Draft Shareholder Agreements in Thailand

A shareholder agreement in Thailand is a contract drafted and signed by all the shareholders of a company at its founding. In addition to the Articles of Association and other key documents, the shareholder agreement is a vital component of registering a company in Thailand. Unlike the Articles of Association, the shareholder agreement is not required to be submitted to the government, but having one will ensure a more stable and profitable company.

This document outlines how the shares will be circulated, how the business will be managed, and the rights, responsibilities, and obligations of the shareholders of a company. Other important areas that a shareholder agreement can cover include:

• voting rights
• share ownership
• profit distribution
• financing considerations
• share transfer guidelines
• conflict resolution processes 
• non-compete obligations

This article covers what should be included in every strong shareholder agreement, the legal requirements for drafting one, and recommendations on how to ensure a sound contract that puts the business on the path to success.

Key Clauses in Shareholder Agreements

By law, there is no set standard of what exactly a shareholder agreement in Thailand must contain. However, there are several key clauses in Thai shareholder agreements that should be included to ensure a profitable and legally secure business.

These include, in no particular order:

• Ownership Limitation Clause: This stipulates a limit on the maximum number of shares a signatory can hold to control who can and cannot have a majority share.
• Shareholder Approval Clause: By requiring the approval of certain shareholders before shares can be sold, this clause prevents third parties from acquiring control without the knowledge of all signatories.
• Non-Transferability Clause: If the signatories wish to prevent the transfer of shares during certain timeframes, it can be included in this clause.
• Pre-Emption Clause: This clause lays out the process by which signatories can sell their shares so that remaining shareholders can still determine control of the company after the departure of a signatory.
• Termination Clause: Should the company be sold or liquidated, this clause outlines how the shareholder agreement can end.
• Non-Compete Clause: This prevents shareholders (for a predetermined period after exiting the company) from engaging in similar businesses or poaching employees.

It is important to note that the shareholder agreement must be in accordance with the company’s Articles of Association. While the shareholder agreement can have more details and clauses, they still have to match each other; otherwise, there may be confusion and difficulties in enforcing the agreement.

Legal Requirements for Shareholder Agreements

To ensure that a shareholder agreement is valid and enforceable under Thai law, it must meet certain legal requirements. These include, but are not limited to:

• Shareholder agreements are not mandatory for all companies according to Thai law, but they are a vital component of any successful business.
• The shareholder agreement must be drawn up in writing as a private document. Verbal or digital-only agreements are not valid.
• While not required by Thai law, it is highly recommended to have the shareholder agreement notarized.
• The agreement must be put into place at the creation of the company or when it is acquired by another company as an update.
• There is a minimum two-shareholder requirement for Thai limited companies.
• The principle of freedom of contract allows shareholders to agree on terms that suit their specific needs, as long as they don’t violate any laws or the company’s Articles of Association.

Protecting Minority Shareholders

Minority shareholders in Thailand are defined as individuals or legal entities that own less than half of a company’s shares. To protect their interests and prevent monopolistic practices by majority shareholders, Thai law affords minority shareholders certain rights:

• Access to Information: Minority shareholders in Thailand are entitled to key financial and operational details, such as financial statements, annual reports, and meeting minutes, to make informed investment choices.
• Voting Rights: They can attend and vote at Annual General Meetings, with each share typically granting one vote, unless stated otherwise in the Company’s Articles of Association.
• Dividends: They are entitled to receive dividends based on their shareholding, as approved at the Annual General Meeting.
• Protection from Abuse: Thai law safeguards minority shareholders from actions that could harm their interests.
• Independent Audits: Minority shareholders in Thailand have the right to request an external audit to ensure financial transparency and accountability.

Role of Corporate Lawyers in Drafting Contracts

As mentioned earlier, a shareholder agreement is not required by Thai law, but is highly recommended to prevent costly disputes and legal action. In the same vein, having a corporate lawyer draft a shareholder contract is not legally necessary, but going forward without the input of legal counsel is risky and not recommended.

A Thai corporate lawyer will be able to draft a contract agreement that is fair, legally sound, and enforceable in a Thai court. On the other hand, a poorly written shareholder agreement created by a layman is likely to be unenforceable and, therefore, useless or worse, enabling fraud and unfair business practices.

The benefits of having a skilled Thai corporate lawyer drafting a shareholder contract include:

• The rights of signatories are clearly established and protected
• Loopholes enabling exploitation are eliminated
• Market reputation is improved thanks to a professional and effective shareholder agreement
• Meticulous business and shareholder processes are established to prevent uncertainty and maximize efficiency
• Costly disputes are avoided with a court-enforceable agreement

Ironclad and Efficient Shareholder Agreements Drafted by Expert Corporate Lawyers in Thailand

If you are starting a company in Thailand and require an expertly drafted shareholder agreement, contact Siam Legal. Our full-service law firm has been supporting foreign-owned businesses in Thailand for over 20 years, and we employ a full team of highly qualified corporate lawyers.

With Siam Legal drafting your shareholder agreement, you can set your new business up for success and stability. We can advise you on the ideal structure of your agreement and which clauses to include based on your unique needs and circumstances, so you can get to market fast with a clear and well-crafted roadmap. 

We also provide a full suite of corporate law services as well, including assistance with applications for BOI promotion, US Treat of Amity consulting, dispute resolution, and much more. Start your company off on the right foot with the best legal support for foreign entrepreneurs from Siam Legal.

Category: Blog