Legal Guide: Share Transfers of the Limited Company in Thailand

Introduction

Share transfers are a fundamental aspect of investment, facilitating the transfer of ownership within the limited company. In Thailand, the process of transferring shares is governed primarily by the Civil and Commercial Code (CCC) and the company’s Articles of Association. This article provides an overview of the legal basics, procedures, formalities, and considerations for share transfers in Thailand.

NOTE: This article does not provide information in connection with the share transfer in the Public Company Limited or shares listed with the Stock Exchange of Thailand.

I. Type of Share Certificate

Bearer Share Certificate: This type of share certificate is issued when the company’s articles of association allow it, and only for shares that have been fully paid up. Transfer of shares for bearer share certificates is done by the transferor delivering the share certificate to the transferee. The holder of a bearer share certificate has the right to request the company to convert it to a registered share certificate.

Registered Share Certificate: This type of share is transferable without requiring consent from the company unless the company’s articles of association specify otherwise (e.g., requiring consent from the board of directors). The transfer of this type of share must be in writing, specifying the share number, and signed by both the transferor and the transferee, with at least one witness certifying the signatures of the parties. Otherwise, the transfer will be void, which will be explained further in Part III.

II. Types of Share Transfer Restrictions

Common types of share transfer restrictions found in the company’s Articles of Association may include:

• Pre-emptive Rights (Right of First Refusal): Pre-emptive rights allow current shareholders the first opportunity to buy any shares a shareholder wishes to sell, before those shares can be offered to outside parties (non-shareholders). This ensures that existing owners do not have to welcome a new partner. Normally, the selling shareholder must typically notify the company and existing shareholders of their intention to sell, specifying the price and terms. Shareholders then have a specified period to exercise their pre-emptive rights. If they decline, the shares can be sold to the outside party on the same terms (or other terms as may be allowed under the Articles of Association).
• Board Approval Requirements: Some Articles of Association require the board of directors to approve any proposed share transfer. The board’s discretion may be limited or unfettered, depending on the specific wording of the Articles. Both seller and buyer should carefully review the Articles to determine the scope of the board’s authority and the potential grounds for refusing a transfer.
• Restrictions Based on Shareholder Qualifications: In certain industries, such as those subject to foreign ownership restrictions (e.g., land ownership, telecommunications, or transportation), the Articles may restrict share transfers to non-Thai persons or entities.
• Consent Requirements from Other Shareholders: The Articles may require consent from a specified percentage or all the other shareholders before a transfer can be effected. This scheme is typically seen in family businesses, where family members may not wish for non-family members to have involvement in the business.

III. Procedure for Share Transfer

The standard procedure for a share transfer in Thailand typically involves the following steps:

1. Review of Articles of Association: The first and most important step is to carefully review the company’s Articles of Association to identify any restrictions on share transfers as mentioned in Part II. This includes examining pre-emptive rights, board approval requirements, and any other relevant provisions.
2. Share paid-up amount: The share buyer needs to review whether the share is fully paid or partially paid. The CCC requires a minimum paid-up capital of 25% for each share. For example, a minimum payment of THB 25 is required for a share with a par value of THB 100. The share buyer needs to review this paid-up amount to assess whether it has liabilities to pay the remaining share value to the company (and, if so, in what amount).
3. Share Transfer Agreement: A written share transfer agreement (STA) is essential. Under the CCC, any share transfer without the STA is void. The STA should clearly identify the parties (transferor and transferee), the number of shares being transferred, the agreed-upon price, and the payment terms. Key clauses to include in the STA are:
   • Description of Shares: Clearly identify the class and number of shares being transferred.
   • Transfer Price and Payment Terms: Specify the price per share and the method and timing of payment.
   • Witness: At least one witness has to sign his/her name in the STA to certify that the seller and buyer signed their names in the presence of the witness. It is recommended that the witness is a person who can attend the court in case someone protests the legitimacy of the STA.
   • Closing Date: Define the date on which the transfer will be completed.
4. Compliance with Restrictions: If the Articles of Association impose restrictions, these must be complied with. This may involve:
   • Offering Shares to Existing Shareholders (Pre-emptive Rights): Notifying the company and existing shareholders of the proposed transfer and providing them with the opportunity to purchase the shares on the same terms.
   • Obtaining Board Approval: Submitting a request for approval to the board of directors, providing them with all necessary information about the transfer.
5. Execution of STA: Once all restrictions have been complied with, the parties execute a STA. This document typically includes the names and addresses of the transferor and transferee, the number of shares being transferred, and the date of the transfer as detailed in item 3 above.
6. Delivery of Share Certificate: The transferor delivers the share certificate(s) to the transferee.
7. Registration of Transfer in Company’s Share Registry Book: The company must register the transfer in its share registry book. This involves:
   • Submit the instrument of transfer, the share certificate(s), and any other required documents (e.g., ID cards of the parties) to the company.
   • The company records the transfer in the share registry book, canceling the old share certificate, and issuing a new share certificate to the transferee.
8. Notification to the Department of Business Development (DBD): Even though the limited company is required to submit the list of shareholders to the DBD only once a year together with the Financial Statement, it may be worth to file the updated list of shareholders (showing name of the transferee replacing transferor) so the change is recorded in the government database.

IV. Due Diligence Considerations

Share transfer can be considered as a business acquisition, as the new shareholder may have the power to control the company. In a high value share acquisition, it is recommended to perform due diligence (to discover possible risks) that covers topics as follows:

• Validity of Shares: Verify that the shares being transferred are validly issued and fully paid up. Review the company’s capital structure and share registry book.
• Encumbrances: Determine whether the shares are subject to any liens, pledges, or other encumbrances. This may involve searching the company’s records and potentially conducting searches at the DBD.
• Compliance with Laws and Regulations: Ensure that the company has complied with all applicable laws and regulations, including those related to corporate governance, taxation, and foreign ownership.
• Financial Condition of the Company: Assess the financial health of the company to determine the potential risks and rewards associated with the share transfer. This may involve reviewing the company’s financial statements.
• Shareholder Agreements: Identify and review any shareholder agreements (or joint venture agreement) that may affect the transfer of shares.

V. Tax Implications

Share transfers in Thailand have tax implications for both the transferor and the transferee. These include:

• Capital Income Tax (CIT): The transferor may be subject to CIT on any gain realized from the sale of shares. The CIT rate depends on the transferor’s tax status (e.g., individual or corporate) and country of residence.
• Withholding Tax: The transferee may be required to withhold tax on the purchase price and remit it to the Revenue Department.
• Stamp Duty: A stamp duty of 0.1% on the transaction value must be affixed to the STA. In case of high value transactions, it is recommended to pay the stamp duty at the Revenue Office who can issue a receipt of stamp duty instead of affixing too many stamp duty to the STA.
• Personal Income Tax: A person who receives gains from the transfer must record such gains in the personal income tax form for personal income tax calculation.

VI. Special Considerations for Foreign Investors

Foreign investors acquiring shares in Thai companies face additional considerations:

• Foreign Business Act (FBA): The FBA restricts foreign ownership in certain business sectors. It is imporant to determine whether the company operates in a restricted sector and, if so, whether the foreign investor can comply with the FBA’s requirements. For example, the foreigner should not purchase shares in an amount that would make the Thai-foreign shareholding ratio go beyond the limit prescribed by relevant laws.
• Land Ownership Restrictions: Foreigners are generally prohibited from owning land in Thailand. If the company owns land, the share transfer may need to be structured to avoid violating these restrictions.
• Treaty Benefits: A US investor may apply for an incentive under the Thai-US AMITY Treaty that allows a US national to hold 100% share capital in a limited company.