A. Introduction
This
paper speaks to you, our client, who is or will be a director or manager
of a private Thailand limited company (as opposed to a public limited
company which is a company whose shares are publicly traded and listed
on the Stock Exchange). Herein discussed are matters relating to the
balance sheet of your Thailand limited company (hereinafter referred
to as the "Company"), the Annual Ordinary General Meeting
of the Shareholders, the Auditor of the Company, and the list of shareholders
of the Company.
This
paper has been written by the Corporate Services Department of Tilleke
& Gibbins.
Over
a period of many years, our clients have asked us many questions about
the aforementioned matters. Among those questions are certain questions
that reoccur over and over again, year after year. Those reoccurring
questions, and our answers to those questions, appear in this paper
in bold-face type. The questions are preceded by the letter Q and
our answers are preceded by the letter A.
B. Filing the Balance
Sheet
The
Directors of the Company are required by law to cause an audited financial
report (hereinafter referred to as "balance sheet") to be
prepared annually and to be filed with the Commercial Registration Department
(hereinafter referred to as "CRD") of the Ministry of Commerce.
Under
the provisions of Section 1196 of the Civil and Commercial Code (hereinafter
referred to as "CCC"), the balance sheet must be made at least
once in every twelve months, at the end of such twelve months as constitute
the financial year of the Company.
The
financial year (also called "fiscal year") of the Company
ends on December 31 of each year unless the Company has registered with
CRD a financial year which is different from the calendar year.
Under
the provisions of CCC Section 1197, an Annual Ordinary General Meeting
of the Shareholders must be held to examine and approve the Company's
balance sheet within four months after the close of its fiscal year.
(Q)
Does the Company have to hold a real meeting? Can't we just not have
an actual meeting and tell CRD that we had the meeting?
(A)
A "paper meeting" is where there was no actual meeting;
but minutes of the meeting are prepared as though there were an actual
meeting. It is permissible to have a paper meeting if every shareholder
and every director of the Company agrees to it. If even only one director
or shareholder objects to a paper meeting, then an actual meeting should
be held.
If
you instruct the Corporate Services Department of Tilleke & Gibbins,
we will prepare the minutes of an actual meeting or a paper meeting,
as the case may be.
Every
balance sheet must be submitted to CRD not later than one month after
it has been adopted by the General Meeting (CCC Section 1199). "The
general meeting" is another way of referring to the aforementioned
Annual Ordinary General Meeting. If the Company is formed (in the U.S.A.
we would say "incorporated") late in the year, then sometimes
it is advantageous not to wait twelve months to have a balance sheet
prepared even though this would be permissible under CCC Section 1196.
For example, if the Company was formed (the date of formation is the
date on the Company's Certificate of Registration) on November 3, 1998,
it would be permissible to wait until November 3, 1999 to have the Company's
first balance sheet prepared. However, in this example, if the Company
had expenses in 1998, then usually it would be better to arrange to
have a balance sheet prepared for the financial year ending December
31, 1998, and approved by a general meeting of shareholders before April
30, 1999, which is the expiration of the four-month period mentioned
in CCC Section 1997.
In
the above hypothetical example, the Company should discuss the preparation
of a 1998 balance sheet with its auditor.
(Q)
Isn't Tilleke & Gibbins the Company's auditor?
(A)
No. Tilleke & Gibbins is a law firm, not an auditing firm.
An auditor must be licensed under Thai law and is equivalent to a Certified
Public Accountant under American law.
(Q)
Will Tilleke & Gibbins hire an auditor for me?
(A)
Tilleke & Gibbins will not hire an auditor for your company.
Hiring an auditor is to create a contractual relationship between the
company and the auditor. Tilleke & Gibbins will not enter into a
contract with an auditor on your behalf; this is something that you
must do for yourself. Almost every major international auditing firm
operates in Thailand and can easily be located. Also, there are numerous
local auditing firms and numerous auditors who are not affiliated with
an international firm. The Security Exchange of Thailand maintains a
list, which is available to the public, of auditors which it has approved
as auditors for companies listed on the Stock Exchange.
Furthermore,
CCC Section 1209 requires that the shareholders elect the auditor every
year at the annual meeting.
(Q)
Will Tilleke & Gibbins tell the auditor to prepare the balance
sheet?
(A)
No. Tilleke & Gibbins has no authority to instruct the auditor
to do anything. You, as the auditor's client, must instruct your auditor.
(Q)
Will Tilleke & Gibbins prepare and file the required income
tax reports for the Company?
(A)
No. You should ask your auditor to do this or arrange to have
it done in-house if you have the expertise in-house. Furthermore, we
do not keep books of account for our clients, and it is a violation
of Thai law for the Company to not maintain such books.
(Q)
Can we store the books of account and the financial records of
the Company at Tilleke & Gibbins?
(A)
No. We do not have the space.
(Q)
Why should the Company have to have an auditor and have an annual
balance sheet prepared and filed with the authorities when the Company
hasn't done anything or made any money?
(A)
Because that's the law. Besides that, there are serious penalties
for disobeying the law which are discussed below.
C. Consequences of Failing
to Comply with the Above Legal Requirements
Often,
a company which has failed to comply with the above legal requirements
will be in violation of provisions of the Revenue Code, i.e., the tax
laws; but that is not what we will discuss here. What we discuss here
are not violations of the tax laws; rather, we discuss the consequences
of the simple failure to file the required balance sheets with CRD.
The consequences are as follows:
- For
chronic offenders, possible withdrawal by CRD of license(s) of the
Company.
- The
imposition of a substantial fine on the Company by CRD. The fines
can vary from year to year and depending on how many months the Company
is in arrears. In some cases, a director of the Company will be required
to appear in Court, either in person or by legal counsel. Failure
to appear when summoned will result in the issuance of an arrest warrant
for the director.
- CRD
will not approve and/or accept any applications submitted to it by
the Company until the Company has brought its required filings current.
For example, CRD would not approve applications to change directors
or to increase capital or to amend the Memorandum or Articles of Association
or to register any other matter.
- When
the Company has failed to file balance sheets with CRD for three successive
years, it will face de-registration in the fourth year or thereafter.
De-registration would mean that the Company would no longer exist
as a juristic person (legal entity).
D. List of
Shareholders
CCC
Section 1138 provides that every limited company must keep a register
of shareholders containing the particulars set forth in CCC Section
1138. The Corporate Services Department of Tilleke & Gibbins is
willing to maintain and keep up to date the register of shareholders
for any Thailand limited company which is our client. There is no charge
for this service.
CCC
Section 1139 states in part:
"...
It shall be the duty of the directors to send once at least in every
year to the Registrar, and not later than on the fourteenth day after
the ordinary meeting, a copy of the list of all persons who are shareholders
at the time of such meeting and of those who have ceased to be shareholders
since the date of the last ordinary meeting. Such list shall include
all the particulars specified in the foregoing section."
The
ordinary meeting referred to above is the same as the Annual Ordinary
General Meeting mentioned near the beginning of this paper.
E. First
Ordinary General Meeting of Shareholders
CCC
Section 1171 states in part:
"A
general meeting of shareholders shall be held within six months after
the registration, and shall subsequently be held once at least in every
twelve months. Such meeting is called an ordinary meeting.
..."
Clients
that want our assistance with regard to the ordinary meeting should
inform us of a suggested date for holding the First Ordinary General
Meeting of Shareholders. If said meeting will approve a balance sheet,
then the date of the meeting obviously must be after the date the balance
sheet is prepared; and you should instruct your auditor to prepare the
balance sheet (we cannot hire an auditor for you or instruct him as
outlined earlier in this paper) and advise us that the balance sheet
will be approved at said meeting; and, at the same time, send us one
copy in English and three copies in Thai of the balance sheet and statement
of accounts duly signed and sealed by the binding director(s) of the
Company.
Upon
receipt of the aforementioned information, we can then prepare appropriate
Notices and Proxies for distribution to all shareholders of the Company.
However, if you wish, you can prepare the Notices and Proxies yourself,
and we can prepare only the documents in the Thai language and do all
the filing. Unless you advise us that you want to prepare the minutes
of the meeting, we will prepare the minutes in final form after you
have approved the draft version.
F. Subsequent Annual
Ordinary General Meeting of the Shareholders
The
subsequent Annual Ordinary General Meetings of the Company are required
to be held within four months of the close of the Company's fiscal year.
If
the Company's fiscal year is the same as the calendar year, then the
fiscal year will end on December 31 of each year, and the subsequent
Annual Ordinary General Meetings of the Shareholders of the Company
should be held prior to April 30 of the following year.
In
order to facilitate such meetings, kindly inform the Corporate Services
Department of Tilleke & Gibbins each year of a suggested date for
the next annual meeting, and, at the same time, send us one copy in
English and three copies in Thai of the balance sheet and statement
of accounts duly signed and sealed by the binding director(s) of the
Company.
G. Conclusion
We
hope that this has been helpful to you.
If
you require any assistance relating to any of the matters discussed
in this paper, do not hesitate to contact the Corporate Services Department
of Tilleke & Gibbins.
For
further information, please contact Ms.
Piyanuj (Lui) Ratprasatporn, Group Director,
Corporate Department, Tilleke & Gibbins (e-mail piyanuj.r@tillekeandgibbins.com).
©1998 Tilleke
& Gibbins, Bangkok, Thailand
