Why Every Thai Business Needs a Well-Drafted Shareholders’ Agreement

Introduction

Doing business with friends, partners, family members, influencers and multiple parties can be exciting, especially when the business is profitable. However, many entrepreneurs, particularly startups, are tempted to minimize legal costs by using a one-size-fits-all instead of tailor-made shareholders’ agreement. With recent shareholder disputes making headlines, it’s worth remembering that that while a piece of paper cannot guarantee a perfect outcome, it can prevent costly mistakes. A well-drafted agreement can save business owners from enduring a “trial by media” or lengthy court proceedings that damage both their company’s reputation and personal brand.

Since a shareholders’ agreement defines how the owners work together, such as make decisions, resolve disputes, distribute profits, exit, transfer shares and protect minority shareholders, the smoothness of the business operations depends heavily on what’s agreed in writing. 

Key Clauses To Include

1. Shareholding Structure: Clearly identify each party’s share percentage to promote transparency and trust from the outset.

2. Voting Rights and Decision-Making: Specify whether decisions require a majority, supermajority, or unanimous consent, subject to relevant laws.

3. Board Composition and Appointment: Clarify how directors are appointed and what powers the board will have. 

4. Dividend Policy: Define when and how dividends will be distributed among shareholders.

5. Restriction on Share Transfers: Ensure shareholders sell and transfer shares in a compliant manner with agreed terms. 

6. Exit Strategy and Buyout Provisions: Outline what happens if a shareholder wishes to leave the company or sell their shares.

7. Non-Compete and Confidentiality: Prevents direct competition and unauthorized disclosure of company information 

Managing a Shareholder’s Exit

A shareholder’s exit can be voluntary or forced. When leaving the company, the shareholder may sell or transfer their shares, or be bought out. In any case, the company approval may be required under the company’s Articles of Association or the shareholders’ agreement.

Selling shares to another shareholder or a new investor is common and minimizes ownership disruption. However, the existing shareholders must consent to the transfer, and both selling and purchasing parties should consider applicable capital gains tax.

Alternatively, the company itself may also buy back the shares in order to adjust its equity structure. This requires sufficient financial capacity and timely filings with the Department of Business Development (DBD) to complete the process.

All the exit terms, including valuation, payment method such as through lump-sum payment or installments, and  potential tax liabilities, should be documented to prevent future disputes.

Forcing an Exit

In today’s world, where many businesses rely on personal brands to build credibility and competitiveness, it’s essential to define the conditions that trigger a forced exit. These trigger events should be stated in both the company’s constitution and the shareholders’ agreement. Common trigger events include misconduct, criminal conviction, incapacity, death, termination of employment with the company, unpaid capital contributions, or breach of fiduciary duties. Such events should contractually lead to a negotiation or court-ordered buyout. Therefore, the agreement should clearly define “trigger events”, how shares are valued, how payment will be made, and whether they can be transferred, redeemed or forfeited. It should also include dispute resolution mechanisms, such as mediation and arbitration, to save shareholders from lengthy and expensive litigation.

Common Pitfalls

It is important to understand what makes a share transfer legally complete in Thailand. A share transfer becomes fully effective against the company and third parties only when:

1. The share transfer instrument is signed by both the transferor and the tranferee, typically in the presence of at least one witness;

2. the company updates its official share register;

3. the old share certificate is canceled, and a new one is issued to the transferee;

4. applicable stamp duty based on the share transfer value is paid; and

5. the company submits an updated list of shareholders to the DBD.

Under Section 1128 of the Thai Civil and Commercial Code, the share certificate must include the name of the company and the shareholder, the share numbers, the sale price of each share and the paid-up capital for each share (if the shares are not fully paid up). Each share certificate must also be signed by a company director and bear the company seal. Meanwhile, Section 1138 requires the shareholder register to record the shareholders’ names, addresses and occupations, share numbers, sale price, and paid-up capital. Other relevant details include the registration and transfer dates of the shares. 

Attempting to “cover up” an unpaid share transfer as a share sale during a shareholder’s criminal proceedings in the hope of transferring it back after an acquittal is a dangerous and illegal practice. 

In addition, since multiple brands can be registered under the same company, intellectual property rights must be safeguarded. Without proper protection, the board of directors could later sign an MOU allowing these brands to use the trademark, logo or brand name of the parent company in a way that harms minority shareholders. 

Significant capital changes can also dilute minority shares. Therefore, non-controlling investors should be brought in cautiously, while the original founders retain majority voting power to ensure control over corporate decisions.

Conclusion

A well-drafted shareholders’ agreement doesn’t just protect your business legally. It also builds trust and confidence among shareholders. Each company has its own structure, personalities, and goals, so a “template” agreement rarely covers what matters most.

As a Thai corporate lawyer, I assist startups and established companies in drafting shareholders’ agreements tailored to their business model and long-term vision. If you’d like to protect your business and prevent disputes before they arise, feel free to reach out for a consultation.

Disclaimer & Contact

This article is provided for general information only and does not constitute legal advice. While I strive to keep my legal insights accurate and practical, changes in law or other factors may affect your decisions. For tailored advice or assistance with drafting shareholders’ agreements, updating share registers, preparing share transfer instruments or certificates and filing updated list of shareholders with the DBD, please contact me at: osa.chaichit@gmail.com

Osaris Chaichit 

Attorney-at-Law (Thailand)

Notarial Services Attorney

Corporate & M&A Advisory