Directorship in Thai Private Limited Company

In practice, a company’s memorandum and articles of association prescribe the ambit of a director’s powers. A director who acts in a manner not permitted by the company’s constitutional documents is accordingly liable to the company and its shareholders for his/her conduct. In addition, the law supplements these internal constitutional checks on a director’s powers, as well as deals with matters on which a company’s constitution may also be silent.

As there is no all-embracing code of conduct applicable to directors of a Thai private company, from a legislative perspective one will, for the most part, be reliant on the relevant provisions of the Thai Civil and Commercial Code (the “CCC”). Sections referred to in the footnotes are sections of the CCC unless otherwise specified. In addition, the Act Prescribing Offences Relating to Registered Partnerships, Limited Partnerships, Limited Companies, Associations and Foundations 1956 (the “Act on Offences”) stipulates that a breach of certain duties established by the CCC carries criminal liability.

2.1    General Duties

Each director’s general duties to the company fall under two headings: (i) a duty of skill and care; and (ii) a fiduciary duty.

Under the duty of skill and care, the general principle set out in Sections 1144 and 1168 of the CCC is that in managing the business of a company, a director must apply the diligence of a careful business person in order to preserve the interests of the company, and must comply with all laws, the memorandum and articles of association of the company, and all shareholder resolutions.

Under the fiduciary duty, an individual director must act in good faith in his/her dealings with or on behalf of the company, as well as exercise the powers and fulfil the duties of his/her office honestly, pursuant to Section 1167 of the CCC (i.e. by implication of the agency principle).

2.2    Specific Duties

1. Directors also have, among others, the following specific duties under the CCC:

   1. Must send at least once every year, and by no later than 14 days after the annual general meeting, a copy of the list of shareholders to the Registrar of Companies¹ ;
   2. Must call an extraordinary general meeting if and when the company has lost half the amount of its capital, or when shareholders that hold not less than one-fifth of the shares of the company in aggregate request such in writing² ;
   3. Must ensure that proper accounts of the company are kept and that a copy of every balance sheet is sent to the Registrar of Companies by no later than one month after its adoption at a general meeting³ ;
   4. Must cause minutes of all proceedings and resolutions of meetings of shareholders and directors to be duly entered in the books, which shall be kept at the registered office of the company⁴ ; and
   5. Must sign and send any notice inviting subscription for new shares to the shareholders⁵ .

Generally, the civil liabilities of directors of the company can be divided into: (i) liabilities to the company and its shareholders; and (ii) liabilities to third parties.

3.1    Liabilities to the Company and its Shareholders
In conducting the business of the company, each director must act with care to preserve and protect the interests of the company as a whole, and to comply with the company’s memorandum and articles of association, the resolutions of the shareholders’ meetings, applicable laws and contractual obligations that are binding on the company.

In performing their duties, each director must act with such care as would be expected of a prudent business person. What this means in practice will depend upon the nature of the company, its business, and the relevant circumstances. Clearly, the director of a special purpose company whose sole objective is to hold shares or securities will not be expected to commit the same level of time and attention to his/her duties as a director of an operating company.

The obligations of the directors are several, except for the joint obligations under paragraph 2 of Section 1168 of the CCC which include:

1. Ensuring that payments for shares by the shareholders are actually made;
2. Keeping all books and documents as required by law in good order;
3. Properly distributing dividends or interest as prescribed by law; and
4. Properly enforcing the resolutions of each general meeting of shareholders.

If any director does anything in breach of, or outside the scope of, his/her duties that causes damage to the company, the company may sue him/her, unless the relevant action is approved by a general meeting of the shareholders. Any such action will normally have to be initiated by the directors. If they fail to do so, the shareholders may take action themselves⁶ (a so-called “derivative action”). Creditors of the company may also be able to bring legal action against such directors should the creditors’ claims against the company remain unsatisfied⁷ .

If any act of the directors which would normally give rise to personal liability is approved by a general meeting of shareholders, such directors are no longer liable for those acts to the company or to the shareholders who voted in favour of the resolution⁸ . Shareholders who did not vote in favour retain their right of action against the relevant directors, but must exercise it within six months after the date of the general meeting at which the approval was given⁹ .

In addition, where the directors act in accordance with the company’s articles of association or a resolution of a shareholders meeting, the Supreme Court has held that such directors have no liability to the company.

3.2    Liabilities to Third Parties

As mentioned above, the relationship between the directors, the company and third parties is governed by the provisions of the CCC concerning the agency principle. 

As long as a director acts within the scope of his/her authority, he/she will not, as an agent of the company, be personally liable for such act to the third party. If any such act causes damage to a third party, the third party would have recourse only against the company which has legal responsibility for the director’s action. However, if the director acts outside the scope of his/her authority and the company does not ratify the act, the director will be personally liable to the third party.

As previously mentioned, the Act on Offences also governs the conduct of directors by stipulating criminal liability in the event of a director’s failure to fulfil certain duties prescribed in the CCC, as follows:

1. A director that fails to send a copy of the list of shareholders and those who have ceased to be shareholders to the Registrar of Companies as required under the CCC shall be liable to a fine not exceeding Baht 10,000¹⁰ ;
2. A director that fails to summon an extraordinary meeting as required under the CCC when required to do so shall be liable to a fine not exceeding Baht 20,000¹¹ ; and
3. A director shall be liable to a fine not exceeding Baht 50,000 if he/she fails to:
   –    send a copy of the balance-sheet to a shareholder upon request (and required payment) or to the Registrar of Companies within one month of its adoption at a general meeting; 
   –    cause true accounts to be kept; or
   –    cause minutes to be entered in the books and kept for inspection at the registered office¹² .

In addition to the above, the Act on Offences imposes a fine not exceeding Baht 50,000 on any director or any person who does as follows:

1. Whose act or omission to act causes the company to commit an offence under this act¹³ ; and
2. Who, by not acting in good faith, misleads anyone or dishonestly at a general meeting conceals facts as to the financial standing of the company¹⁴ .

Sections 30 - 43 and Sections 46 - 48 of the Act on Offences include potential liabilities for any person, including directors, who do or omit to do anything which shall cause damage to the company. These include the following:

3.  Any person that gives or promises to give (and any shareholder that accepts or agrees to accept) special benefits to any shareholder in return for the latter’s vote or abstaining from voting in a general meeting shall be liable to a fine not exceeding Baht 10,000¹⁵ ; 
4. Certain requirements in the course of a liquidation;
5. Doing, or omitting to do, anything in order to obtain an unlawful benefit, either for him/herself or for another, which is damaging to the company shall be liable to a fine not exceeding Baht 50,000¹⁶ ;
6. Removing, damaging, destroying, devaluing or rendering unserviceable any property put on pledge by the company in order to cause damage to the pledgee shall result in potential liability equal to imprisonment not exceeding three years and/or a fine not exceeding Baht 60,000¹⁷ ; and
7. Doing or agreeing to damage, destroy, alter or forge accounts, documents or securities shall result in potential liability equal to imprisonment not exceeding seven years and/or a fine not exceeding Baht 140,000¹⁸ .

In addition to the criminal liabilities prescribed under the Act on Offences, the criminal liabilities of a director are also stipulated under others specific laws, e.g. Section 72 of the Building Control Act 1979 prescribes that a director of a company that commits an offence under this act shall be deemed to be jointly committing an offence with the company, unless it can be proved that such act of the company has been carried out without the consent or knowledge of such director.

As discussed in paragraph 3.1 above, the obligations of the directors to shareholders are several, except for the joint obligations under paragraph 2 of Section 1168 of the CCC. Thus, apart from the joint obligations, this should depend on the fact of each director in performing his/her duties. Generally speaking, as a nominee director does not actively perform any acts and/or things for and on behalf of the company like an authorised director, therefore there would be less activities which could be seen as a breach of a nominee directors duties.

With respect to the directors’ liabilities to a third party, the above analysis should also apply (i.e. this should depend on the facts of each director in performing his/her duties).