Doing Business in Thailand

Preference Shares are opposed to ordinary shares. In Thailand, ordinary shares like in most countries entitle their holders to a share of ownership of the company including a voting right (1 vote per share) and a right to the company dividend or the company benefit of liquidation.

Preferences shares are shares which have a higher ranking than ordinary shares. Where Thailand differs from many countries is that in many countries preferences shares only grant preferential rights in terms of dividends while in Thailand preference shares may grant not only preferential rights to the dividends but also preference voting rights.

In Thailand preference shares structure with higher voting rights are usually used to give the foreign shareholder a greater right of control on the company in the cases of a business where foreign investor shareholding is limited to 49% of the company share capital.

Personally I do not like preference shares structure for several reasons.

-          Firstly the last two attempts to modify the Foreign Business Act (2001 and 2007) where about changing the definition of foreign company to include Thai Limited company controlled by foreign shareholders through a preference shares structure. The last attempt to modify the FBA definition of Foreigner was reading like this: A juristic Person iv) of which half  or more of the total voting power are controlled or held or exercised by a foreign natural person or juristic person whether in application of the law, or of the articles of association said juristic person or through an agreement” While those two attempts have failed it would not surprise me in the current context whether there will be another attempt to modify the FBA in a near future;

-          Even if the Foreign Business Act does still not prohibit the use of preference shares the fact is that within the context of a “nominee” enquiry Thai authorities could use the fact that said company has “preference voting rights” in favor of the foreign shareholder as an indication showing that the Thai shareholder is a nominee.

-          Finally once a company has been structured with preference shares the only way to suppress them is trough a reduction of the company paid up capital.

Overall, I believe that preference shares are not a viable solution on the long term and that all that is achieved by using this kind of set-up is to give the foreign shareholder a false sense of security.

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

© Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact.

Originally posted 2009-11-24 03:04:41.

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