Thailand Research

Published: 2019-10-22 18:51:05
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Why Adopt Single-Member Company in Thailand?

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According to Helwig (2015), the history of Thai company law required that the countrys private limited company to be composed of a minimum of seven shareholders. However, as the wrier points out, due to the fluidity of the law, this changed to at least three shareholders in 2008. Therefore, owing to the incorporation of the private limited company in Thailand, the types of business organizations in the country are similar to those of European and Western corporations. According to the Thai Embassy (2014), there are three types of business organizations in the country, sole proprietorships, partnerships, and limited companies. However, because the scope of this paper is confined to critically discuss why Thailand should adopt company laws that allow for the formation of single-member companies, only private limited companies can be considered, which are close to them. The purpose of this paper is to discuss why Thailand should adopt single-member companies like the European countries, specifically UK and Germany, as well as suggesting a viable legal framework for the sole-member entity. As such, it seeks to answer the question why Thailand should adopt company laws that allow for the formation of single-member entities by providing comparisons from UK and Germany.

Comparison of Private Companies in Thailand, UK, and Germany

As the Thai Embassy (2014) asserts, private limited companies are governed by the Commercial and Civil Code, and are the most common vehicle for establishing permanent businesses in Thailand. In European Union, particularly in the United Kingdom and Germany, a private company is formed via the amalgamation of a Memorandum of Association, which is commonly referred to as the Articles of Incorporation and the by-laws encompassed by the Articles of Association (Lenhardt, 1995). As per the formation of a company in Thailand, this is no exception (Thai Embassy, 2014). In similarity to the UK and Germany private liability companies, Thailands private liability companies hold that the shareholders should enjoy limited liability. Particularly, they are limited to any remaining unpaid amount of the par value of the corporations shares (Thai Embassy, 2014). As pointed out by the National Archives (2006), private companies in the UK refers to any company that is not public. For this reason, Thailands private company is no different primarily because as per the Thai Embassy (2014), there are two types of limited companies, private and public. In addition, Germany encompasses laws that allow for the formation of private and public limited companies. According to Campbell (2009) private and public limited company in Germany are abbreviated GmBH and AG respectively. Also, German law allows for the formation of GmBH on private limited companies, which is commonly referred to GmBH-Gesetz, usually abbreviated GmbHG. Therefore, Thailand, German, and UK private and public limited companies are similar.

The only difference is that the minimum number of shareholders is different. According to the Thailand Board of Investment (n.d), setting up a private limited company requires at least three shareholders, who must subsequently file a memorandum of association and articles of association. In addition, as the Thailand Board of Investment articulates, the members should convene statutory meetings, proceed with registering the company, as well as ensure that they acquire a corporations income tax identity card. They also need to follow accounting procedures specified in the Commercial and Civil Code, the Accounts Act, as well as the Revenue Code. On the other hand, UK and Germany allow the formation of private limited companies. In the countries, single-member companies are considered a private LLC (Eroglu, 2008), which can be formed by only one shareholder, as opposed to at least three members in Thailand. According to Lawyers Germany (2015), the single-member companies cannot be quoted on the stock exchange, because it is private. On the other hand, in Thailand, because the private limited company is private, it also cannot be listed in the stock exchange. Also, as the Thai Embassy (2014) asserts, shares for the private LLC should be subscribed to, and 25 percent must be paid up. In addition, preferred and common stocks can be issued, however, they have voting rights. This is similar to the UK and Germany if the shareholders are two or more. However, for single-member companies, as Tassema (2012) points out, UK and Germany do not exercise voting rights as the sole shareholder makes all the decisions and owns all the entitys shares.

In terms of transactions with directors, the Thailands Civil and Commercial Code demands that directors should exercise the judgments and skills of a careful businessperson while performing their duties. They need to act in good faith and serve the best interests of the company. Thailands SEC Act, therefore imposes a fiduciary duty, mainly via duty of loyalty and care, and offering the corporate securities for sale (Vimonrat & Vaneesorn, 2013). On the other hand, fiduciary duties for UK and Germany companies are different. For instance, according to Lowry (2009), the UK Companies Act of 1985 requires that each of the director should declare their interest in specific contracts, whether direct or indirect. In addition, as Cabrelli (n.d) posits, UK corporate law requires that directors should act in accordance with the companys constitution, and should exercise powers for the tenacity that the stocker is convened. On the German context, no such depth is reached, and the Stock Corporation Act demands that the management and supervisory boards should be represented to avert any instance of a conflict of interest. Lastly, in all the three countries, there is a minimal capital requirement for establishing the company. For instance, according to Doing Business in Thailand (2014), for any Thai owned company with a Thai shareholding of 51-100 percent, the minimum capital requirement is 100,000 THB. In the European context, as Dine, Koutsias , and Blecher (2007) posit, private LLC should meet the minimum capital prior to establishment and operation.

Rationale for Adoption of Single-Member Companies in Thailand.

Single-member companies have vast advantages as seen in the German and UK context. This type of company allows the sole shareholder to have an advantage of potential tax benefits, which mainly come from the fact that single-member companies are considered as disregarded entities (Kleinberger & Bishop, 2010). In addition, according to Rayne (2016), single-member companies in the UK and German contexts offers the sole shareholder a great deal of control, mainly because they are the main decision makers in the company and so not get interference from other shareholders. As such, the adoption of single-member shareholders in Thailand will allow the shareholder to make informed judgments about the futuristic direction of the company, and thus, they will, not get interference from other shareholders, mainly through voting, which is paramount for the private LLC in the country.

According to Wongsaroj and Chandler (2016), shareholders in the private LLCs have to vote for decisions, which as the Civil and Commercial Code stipulates that a quorum of 25 percent of the share is required for a shareholders opinion to be heard, unless clarified in the articles of association. The majority vote should therefore, be 75 percent of the shares present, which of course applies unless clarified under the articles of association (Wongsaroj & Chandler, 2016). Therefore, under the current private LLC provisions, the decisions must be made by the majority of shareholders, and does not offer protection to the minority shareholders. Therefore, this mean that not every opinion by the shareholder counts. In consequence, the shareholders are limited in terms of decision-making, and in some instances, their opinions are irrelevant. However, upon adoption of the single-member LLC, the sole member can be able to make the decisions without consulting any other shareholder, and thus, they can make a decision based on their opinions.

In addition, the single-member entity in UK and Germany is advantageous as the sole shareholder has an option of whether the entity should be taxed as a corporation or a sole proprietorship (Goyal, 2015). For this reason, if applied in Thailand, the single-member company will provide numerous benefits or the members, including fewer taxes compared to the current private LLC. Besides, single-member companies promote investment and decreases the need to monitor by various investors against their respective agents, and in turn, it reduces the costs of monitoring. In addition, the sole shareholder is not answerable to the companys debt, as well as allowing them to have a managerial diversity and business continuity. In the European context, the single-member companies are required to comply with law with minimum reporting formalities among other regulatory requirements, including meeting the requirements of the articles of association (Lenhardt, 1995) and there is no need of holding general meetings because there can only be a single meeting half yearly (Goyal, 2015).

According to Helwig (2015), the reduction of the number of shareholders required to form a private LLC to three means that it is difficult for foreign investors to find viable shareholders and enable them to run the business. Besides, as the author points out, the Department of Business Development points out, there are numerous businesses owned by a single major shareholder with the two others having minimal shares. Therefore, putting in place a sole jurisdiction will have numerous advantages, such as investment in cash, separate legal personality, limited liability, and centralized management (Helwig, 2015). As such, adopting a single member will be very beneficial in these aspects. In addition, Prasompluem (2008) opines that Thais move to reduce the number of shareholders required to start an LLC to three is a major step forward as partnerships are burdensome, complex, and encompass the duplication of procedures. The author also points out since the country diminished the number; there is nothing wrong with slashing the number to one, thereby allowing for the formation of single-member companies. Also, as Prasompluem (2008) asserts, single-member companies promote the spirit of entrepreneurship, and is not theoretical impossible given the fact that other countries have already adopted them. Besides, according to Radenkovic (2005), they promote the best framework for business development, as well as promoting accessibility of single entrepreneurs.

Recommendation of Legal Framework for Single-Member Companies in Thailand

The adoption of single-member entities in Thailand requires laying down the appropriate legal framework. Firstly, the Civil and Commercial Code (CCC) should be revised to encompass the single member companies. Since the current legal infrastructure only allows three members, the major shareholder can form a single-member entity by buying the entire shares from the two minority shareholders, thereby allowing for its formation by diminishing the members from three to one. As such, if the company is formed via the decreasing members, the other shareholders must transfer their shares to the sole shareholder. The CCC should allow for this. These provisions have been incorporated in Germans and the UKs company law, and thus, Thailand can benchmark on the same.

In addition, the CCC has to be amended to allow for incorporation o single-member LLC, thus specifying the requirements the articles of association, as well as the Memorandum of Association. In essence, these documents are the most important and should be signed at the t...

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