Preference and ordinary shares in a Thai limited company

Preference or preferred shares in Thailand are usually higher ranking shares giving the holders priority in certain matters of the company limited. It is under Thai law not necessary that equal rights and privileges should be attached to all shares; some may be preferential either as to capital or as to dividend, or as to both, or may have privileges in the matter of voting. The structure of preference shares opposite ordinary shares in a partly foreign owned Thai company is typically used to give control or preference in certain matters and situations to a group of shareholders (foreign shareholders) above another group of shareholders (Thai shareholders) in the company.

The most popular form of business entity among foreign investors in Thailand is therefore the private limited company structured with preference shares allowing the foreign investor to control the company. For now, Thailand has not changed the preference structure allowing foreigners as a minority shareholder to control a Thai limited company, however there is a discussion in the Thai government and Ministry of Commerce if preference shares and foreign voting rights and management in a Thai company should be used as a criterion in defining a company foreign or Thai.

Under the current structure of the Foreign Business Act foreigners can operate most restricted businesses for foreigners by using preference shares.

With new regulations the government is currently discouraging foreigners to invest in Thai businesses by using Thai nominee shareholders, however has not issued restrictions on the use of preference shares and majority voting rights by foreign shareholders in a Thai company.

If a Limited Company needs to change ordinary shares to preference shares so that the holders benefit from e.g. favourable voting rights this is possible:

Increase the registered share capital. In order to increase the registered capital, the company must follow the Ministry of Commerce’s regulations. The change of capital can be registered within a day.
Reduction of Company Capital. A company can reduce its capital by a quarter. This method is more difficult, takes longer and is more expensive and may be unable to do this if its creditors object. A reduction in capital will take about three to four months and the company must follow Ministry of Commerce regulations.

In the case of a company limited by shares or by guarantee and having a share capital, the fixed amount of a company’s capital cannot be altered except by an alteration of the memorandum of association in one of the methods authorized by the CCC. Before a company increases or reduces its capital, it must check the company articles of association. The company articles of association must permit such increase or reduction. If they do not, the company must amend the articles of association first by submitting certain documents to the Ministry of Commerce.

Public Limited Companies has to comply with the Public Company Limited Act B.E.2535. The Act permits companies to change the share types in a company whereas Limited Companies have to follow the Civil and Commercial Code which does not permit this.