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Ease of Doing Business: Proposed Amendments to the Civil & Commercial Code

While Thailand may still pale in comparison to regional competitors Singapore and Hong Kong for the ease of doing business, in recent years the country has set a course towards regulatory development, the digitization of government services, and robust incentive schemes for investors—such as the Eastern Economic Corridor program—making it an attractive destination for foreign direct investment, regionally and globally. As a testament to its progress, Thailand rose six places in the World Bank Group’s “Ease of Doing Business” 2020 edition to claim the 21st spot.

The draft amendments to the Civil and Commercial Code (CCC) are another step towards streamlining and modernizing Thailand’s regulations governing business. Although many of the changes may seem minor, the overall effect is to simplify processes for company incorporation and reduce the expenditure of time and resources on burdensome requirements. Notably, the draft amendments also introduce the concept of a merger into Thai law, offering additional flexibility to business owners looking to grow their company.

The first set of draft amendments was approved by the cabinet on June 9th, 2020, after being reviewed by the Council of State, and a second set of amendments was approved by the cabinet on June 23rd, 2020. The draft amendments will proceed to the National Assembly for deliberation and further revision and may be enacted as soon as the end of 2020 or early next year.

 

First amendments

Company set up for private companies and partnerships

Applications to register private companies and partnerships, or modify registered corporate information, may be submitted at any approved Department of Business Development (DBD) registration office, regardless of where the private company or partnership is located. Although it may seem insignificant, this will undoubtedly result in a much faster registration process. Currently, legal counsels and corporate secretarial services firms need to devote more time and resources to submit applications in distant provinces, whereas once the draft amendments are passed, they can complete the paperwork, and footwork, in their own city.

The Ministry of Commerce is empowered to reduce or waive registration fees for company set up, and to inspect and procure necessary corporate documents, among others.

Finally, the draft amendments stipulate that a company must incorporate within three years—currently, the grace period is ten years—of registering its memorandum of association; otherwise, the memorandum will expire.

Company meetings

With the advent of Thailand 4.0, government agencies have been gradually ushering in a digital age, such as the provision of electronic services for filing and paying taxes online, or accessing and modifying business data through the DBD’s e-Certificate and e-Service channels. Thailand’s digitization has further been accelerated by the COVID-19 outbreak—in April 2020, Thai law permitted wholly electronic meetings of shareholders and directors of Thai companies, easing previous regulations on e-meetings which required attendees to be present in Thailand and at least one-third of the quorum to be physically present in the meeting. This has allowed shareholders who are unable to enter into Thailand (e.g. as a consequence of COVID-19) to attend AGMs and EGMs remotely, increasing flexibility for businesses. The draft amendments to the CCC have formalized this change, permitting electronic meetings of shareholders and directors, as long as the e-meeting takes place according to regulations and is not prohibited by the company’s articles of incorporation.

Furthermore, the draft amendments set forth that notifications for general shareholder meetings are no longer required to be published in a local newspaper, unless the company has bearer share certificates—an abolishment of a burdensome formality that is sure to be welcomed by company secretaries. However, notices must still be sent to all shareholders via post.

 

Second amendments 

Company incorporation and dissolution

The draft amendments propose the following changes to requirements for company set up in Thailand:

   The minimum number of promoters required to incorporate a Thai limited company is reduced from three promoters to only two.

   As the promoters of a company then become its shareholders, the minimum number of shareholders a company must maintain at all times is accordingly reduced from three to two.

   Consistent with the above, companies may be dissolved by court order if the total number of shareholders decreases to one.

Reducing the number of required promoters and shareholders will undoubtedly expedite the process of company formation and likely lead to more company registrations. The change will also protect shareholders’ interests, who would no longer need to search for a dummy shareholder for compliance purposes.

Shareholders’ meeting quorum

As a consequence of the changes described above, and in accordance with decisions from the Thai court and the DBD, a minimum of two shareholders are required to be present at shareholders meetings, either in person or by proxy.

Mergers

The draft amendments introduce the concept of a “merger” into Thai law, whereby a company absorbs another existing corporate entity. Previously, Thai law only recognized the concept of “amalgamation,” in which a completely new company is formed through the integration of two or more entities, which will thereupon cease to exist. Until now, the only alternative to amalgamation in Thailand was an acquisition. The added option of a merger provides flexibility to companies that wish to take over another company’s assets, human resources, and market.

Dividend payment period

The draft amendments enshrine a one-month deadline from the date of dividend declaration at the relevant shareholders’ or board of directors’ meeting for companies to make their shareholder dividend payments. The one-month time period for payment has been enforced since the National Council for Peace and Order’s Order No. 21/2560 in 2017; prior to the Order, there was no timeline for private limited companies to pay dividends. The deadline may have two aims– to protect the interests of shareholders, and to ensure tax collection on dividend payments, which are withheld at source at the rate of 10%.

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