Must "ghost" shareholders be paid dividend?

[thaitanic]

Because I couldn't find 6 other sharehlders by myself, a couple of years ago I bought an off-the-shelf Limited Company through a lawyer here in Phuket with no assets and changed the name, transferred 49% into my name etc.. It's registered at 2m baht and is now up to date with taxes etc..

However I am worried because I do not know where the other shareholders are now. I have pre-signed share transfer forms from them (but no ID card copies).

My questions now are...

1. Is the company obliged to pay a dividend to its shareholders (or can it just reinvest all profits)? (Actually I don't expect this company to make much of a real profit for the next couple of years, but I have already had to fabricate a small false profit for the first year just to get my work permit renewed).

2. Are there any scenarios in which I will have to prove contact with the shareholders or present the shareholders to the Thai authorities?

Many thanks

[davidm]

You can re-invest the profits, but the "ghosts" are entitled to their share of dividends etc. I assume you gave them just one share each.

[Axel]

thaitanic, are you sure you have 49%?

Cold be I am wrong, but am under the impression max. a single foreigner can hold is 33% (all foreigners not more than 49%) Maybe the laws changed?

The "ghosts" of course can ask for their shares in dividends.

(If enough profit left after having paid taxes, if you get my meaning).

A year ago or so, there was some commotion by the government to clamp down on such constellation (1 foreigner finding 6 nominees) and a warning that this is not allowed.

I know of only one case where a "shareholder" came back asking for money and that was an insider.

For the shelf companies, these are usually employees of the

party who registered originally. Most of them over the years even forgot they signed.

[thaitanic]

Thanks for your replies.

I definitely have 49%. 9,800 out of 20,000 shares. The others are split amongst the 6 ghosts. Your 33% figure may come from a company that wants to own land. I don't.

I am not worried about the shareholders coming back to haunt me. I am sure they have no idea the company is running under a different name with different management in a different field.

I am just interested (for peace of mind) to know if anyone ever had to produce their shareholders to a Thai authority or prove that they had paid them a dividend.

cheers

[Indo-Siam]

I have never heard of any situation in which shareholders were later required to be assembled by authorities.  Historically, at least in recent times, there have been no "musters" of shareholders.

I can attest personally to having to "muster the troops" - that is, assemble all my employees for scrutiny - this being by an Immigration inspector checking out my own entry permit extension package (all of this was part of his process of extracting a bribe).

As a practical matter, should your bookkeepper indicate that a dividend distribution is called for (based on your reported finances) , you really have no choice but to "virtually' convene a shareholders meeting, declare and vote on a  dividend distribution to be made on a certain date, and then pay out the appropriate total amount - and pay it to yourself.

The documentation trail is now complete - there is record of the required meeting, and evidence that money was distributed.   Based on your reported sceanrio, it is very unlikely that any shareholder is going to emerge from the bushes to challenge your records.

For the record, I have never heard of "nominee" shareholders (strangers, paid to lend their identities by proxy) ever causing anyone any grief.  It is always the non-strangers  (partners, wives, buddies, family-members) who cause the problems.

Good luck!

Steve

Indo-Siam

[dr_Pat_Pong]

I agree Steve. I haven't ever heard of the very silent partner's fronting up wanting a share of profits.

[Papi]

I do not want to start a new thread for this 'shareholder' related question, thus I am asking here:

Can a Thai minor own shares of a company?

I know, he may not be able to sell the shares until he is an adult, but the question is just simply "can he actually own shares"?

[Sunbelt Asia]

Can a Thai minor own shares of a company?

The minor under 21 years old cannot be the promoter of a company. A minor under 21 years old shareholder can only be one by having shares transferred to themselves.

Note: The above is intended to provide general information only. The contents do not constitute legal advice and should not be relied upon as such. If legal advice or other expert assistance is required, the services of competent Thai professionals should be sought. Our firm employs eight such individuals. You're able if you like, to meet a licensed lawyer employed by Sunbelt for your legal needs; the first meeting is always treated as a free consultation. www.sunbeltasia.com

[Bobcat]

Here are answers to some of the questions posed so far:

1. Subject to certain industry specific exceptions, such as the telecoms industry which, at present only allows foreign ownership up to 25%, a single foreigner can hold 49% of a Thai company. One needs to look into the industry involved and see whether there are any regulations that specifically relate to restrictions or limits on foreign shareholdings.

2. If a dividend is declared, all shareholders must share in the dividend. This does not mean that shareholders must be treated equally in terms of dividend distribution if unequal treatment is specified in your articles of association. For example, you can create different classes of shares, say Class A and Class B. Class A can be the 49% held by the foreign party and Class B the 51% held by the 6 Thai shareholders. In order to safeguard the Class A Shareholder, it is often reccommended that (a) Class A Shares have higher voting rights ie one share equals 100 votes whereas one Class B share only has one vote. This way you are able to protect yourself as the foreign shareholder from being outvoted even though you hold less than a majority of the shares ( Class A shares get preferred dividend distributions at say a ratio of 100:1. This means, if you get the ratio correct, that the Class A shareholder will receive most of the dividends.

YOu did the right thing to have siged transfer forms. These are just some of the ways to protect a foreign shareholder who owns a minority shareholding in a Thai company.

3. A limited liability company is under no obligation to distribute dividends. This is a matter for the shareholders to determine.

4. If you issue a dividend, you are required to notify the shareholders by letter at the address contained in the shareholders register.

5. Although people do it often, it is not legal to have a meeting of shareholers without having notified the other shareholders of the meeting. Virtual meetings of this nature can be challenged as void. In practice, however, this is very unlikely to hapen unless you have pissed one of the other shareholders off and that person knows a good lawyer.

Bob

[Indo-Siam]

Concerning pre-signed shareholder transfer forms, these are meaningless as a means of protection - even as you are walking away with the forms, those shareholders could be signing new shareholder sales forms transferring their shares to someone else. What you would then be holding would be useless papers transferring shares that no longer belong to the signers.

But - and few people realize this - shareholder transfer forms do not travel above company level - they are only kept in company files. What changes shareholders is a fresh Bor Or Jor 5 form, listing new shareholders, and signed only by one company director. That director can file a change transferring all shares from seven old to seven new shareholders - without any shareholder signatures - and actually without any of the 14 shareholders even knowing about the registration change.

Cheers!

Steve

Indo-Siam

[daveh]

...the first meeting is always treated as a free consultation. www.sunbeltasia.com

I tend to be the type of person who likes to know all the options before making a decision. This, unfortunately, involves lots of consultations. However, I don't mind paying for this service. How much do you charge just for consultations? Basically, answering what may appear to be stupid questions. I assume there is some kind of hourly rate.

[Sunbelt Asia]

Never a fee for the second or third consultation either on company set up. Its free. Just call it a value added service for our clients.

For a law consultation on other matters with a licensed Thai Lawyer ( Case-By-Case) its 5,000 Baht

If after your consultation on company set-up, if you decide to to use our legal department then here is the fees...

GOVERNMENT FEES:

Service Fee

- Duty Stamp 220 Baht

- Capital Registration 5,500 Baht

per million registered capital

- Certification of Document 450 Baht

- Work Permit 750 Baht

Example One million Baht Company (220+5500+450+750) is 6,920 Baht

Note: If you are a Director that is a foreigner and will be applying for a work permit. The minimum registered capital is 2 million Baht. Then add 5,500 to the 6,920 total)

OUR PROFESSIONAL LICENSED LAWYERS FEES… Please add 7% VAT:

- Company Registration 3,900 Baht

- Personal Tax ID and Corp ID 3,000 Baht

- VAT and Social Fund 3,000 Baht

- Work Permit 7,800 Baht

- Visa 7,200 Baht

Example: (3,900+3,000+3,000+7,800+7,200) is 24,900 Baht

Additional Professional Legal Fees that you may or may not require later …

Renewal of a work permit is 3,900 Baht

Extension of a work permit is 1,600 Baht

Cancellation of a work permit is 1,600 Baht.

Investor or Retirement or Marriage Visa is 7,200 Baht

Dependent Visa (per person) is 3,700 Baht

Residence Permit is 12,800 Baht

Food License is 3,000 Baht

Alcohol License is 3,000 Baht

Cigarette License (Domestic or International) is 2,000 Baht

Entertainment License is 3,900 Baht

Increase in Capital is 2,900 Baht

Trademark and Trade name Registration is 9,500 Baht

Copyright is 3,900 Baht

Representative or Regional office of overseas office is 29,000 Baht

Local Branch Office Registration of Thai Company is 4,000 Baht

Change Address of Company is 2,900 Baht

Import/Export Card is 8,800 Baht

Letter of Intent is 1,600 Baht

Asset Purchase Agreement is 8,900 Baht

Share Purchase Agreement is 17,500 Baht

Land/House Purchase Agreement is 18,500 Baht

Lease Agreement is 9,500 Baht

Share Transfer of Shareholders is 6,000 Baht

Change of Director is 3,000 Baht

Title Deed Search is 6,500 Baht

Due Diligence is 2,000 Baht per one million Baht of proposed acquisition

(Example: Factory to be sold at 25 million would be 50,000 Baht in fees)

Note: Due to Conflict of Interest, Sunbelt licensed Lawyers cannot do due diligence on Sunbelt Asia listings)

Other Options..........

Office

A commercial address with a lease in your companies name is required to register for Vat and a one year Visa. You may use virtual office space which includes use of a meeting room for this purpose..

Registration is 2,000 Baht

Monthly Fee is 2,500 Baht

(Minimum of three month rental term)

Accounting

Financial Monthly Report 4,500 Baht

Withholding Tax (Salary, Company) 1,000 Baht

Vat Payment Monthly 1,500 Baht

Half Year Report 3,000 Baht

Annual audit 18,000 Baht

Personal Income Tax (Half Year) 2,800 Baht

Personal Income Tax (End of Year) 2,800 Baht

www.sunbeltasia.com

[Bobcat]

Although they can be revoked, I still beleive that signed, undated share transfer forms are not totally meaningless as a means of protection if coupled with other relevant protection methods such as (i) keeping physical possession of all share certificates, (ii) have a short agreement with each shareholder pursuant to which they agree not to transfer their shares, (iii) having a pledge over the shares as security for the performance of the obligations of the shareholder not to sell its shares and having the pledge noted on the share certificates themselves, (iv) having yourself as the only director of the company - that way nobody has the right to file a change in the register of shareholders except for you and (v) different classes of shares with different voting and different dividend distribution rights. Even though a share transfer transaction may occur between the nominee shareholder and a new purchaser, that share transfer will not be valid vis-a-vis the company and any third parties until it is registered in the share register of the company. Make sure you are the registrar so that such a transfer, in violation of the protection you have created, can never be registered or enforced.

[Indo-Siam]

Bobcat -

If someone avtually goes the certificate share route, this might be true. I have never actually encountered anyone using share certificates in Thailand.

Otherwise- without certificate shares - this is not true. I can go get a blank shareholder transfer form and sell some or all of my shares in my company to you. You give me the money, you and I sign the form, two witnesses sign the form, and you own those share forever, and no one else has any say about that. No one except the four signatories need to know about this. This transaction dose not need to involve anyone else in the company.

Realistically, relatively few people know how to obtain public records, to even fillout transfer details correctly, and know what they are doing.

You can then show up at my company, and present the form, and ask that your new owership be noted. But nothing else needs to happen. The directors do not immediately have to create a new Bor Or Jor 5 form, and go down and register this change with the Commecial Registration Office. Evidently, the only time that they MUST do this is once per year (I am not exactly sure what the legal requirement is, but I know it can be months later).

Which means - it is REALLY risky buying shares of another company from shareholders, It is virtually impossible to confirm that the person trying to sell you his shares is still the owner of thise shares - just because he is listed on the Bor Or Jor 5 form you printed out this morning at Commercial Registration Office. That form just shows who shareholders were the last time a Bor Or Jor 5 form was filed. If your "seller" sold his shares two days ago, and the previous buyer has a properly witnessed share sale transaction that predates yours - you are out of luck. You bought something from someone who was not the actual owner. Even though the previous sale had not been registered yet at the Commecial Registration Office - or even at the company. The share transfer form,with all proper signatures, is the sale - no awareness (no director signatures, no stamps) by the company is required.

Now - the false seller can be prosecuted for fraud- but that does not make you the owner of the shares. Unless you can prove that the previous buyer colluded to specifically defraud you, he is the owner - period.

Pre-signed share sale forms are convenient, for neat processing and records-keeping in the event of a fully legitimate transfer of all shares - but they are all but meaningless as a means of protecting yourself against a purposeful defrauding. Anyone who recommends this course FOR PROTECTION (as opposed to convenience) does not understand the process correctly.

My advice is - if you are sufficiently paranoid and "victim" oriented to need to go the certificate shares route, you are probably not going to do well here.

It is technically illegal to pay proxy nomineee shareholders to sign and go away, so I cannot officially endorse that process - but I will say with near certainty that most company promoters are best off using near-strangers, as opposed to having as a shareholder anyone with who you are even REMOTELY likely to get in an disagreement with any time during the next 3-5 years. I've never heard of a "ghost" shareholder ever causing so much as a "peep".

Steve Sykes

Managing Director

Indo-Siam Group

Bangkok

[email protected]

www.thaistartup.com

[Bobcat]

All you need to do to avoid a situation where your nominee transfers when it has agreed not to is this - make it clear in the articles of association that any share transfer, before being registered in the share book, must be approved by the board (ie you) and show that the shareholder of the nominee class must, when selling, first offer the shares to the existing foreign class sharehoder or its designated nominee. Even if a rogue nominee did transfer in breach of an agreement not to do so, the board would not need to register the new person as a shareholder. Therefore, effectively, the transfer would be of no effect and the new person would not be regarded as a shareholder of the company.

This is all very interesting stuff.

Bob

[Indo-Siam]

Hi Bobcat -

Are you talking about a Thai Private Co. Ltd. (TPCL) in Thailand? Have you done this? I have been dragged into the messassociated with registration of a TPCL with articles of incorporation specifying "ordinary" and "special" shares - the regsitration officials do NOT like these. The first two things they say are:

1) If you set up these articles, your articles are irrevocable - you may never again change them.

2) You must write the articles such that the "special" shareholders (with 1/10th voting rights) MUST be awarded priority distribution rights AT THEIR FULL SHARE VALUE - in preference to ordinary shareholders - at time of liquidation. They get the same preference at time of distribution of dividends. The articles can reduce their voting rights, but this does NOT dilute their share value.

Given the trouble they raised with this, I find it very hard to believe that they would alow the articles you describe.

Tell me more about this "share book." Also, tell me about where you get "certificate shares" printed. I know that there is a provision for them in Thai law, but there is evidently no standard format - but I am interested to hear more.

I have the easy ability to recover the articles of incorporation, shareholder list (Bor Or Jor 5 form), submitted company financials, and incorporation papers (including Director Signatures and image of company seal) for any TPCL in Thailand - these are all public records. So - all you have to do is name the company, and I can take a look at the articles - and I will then render the report here.

There is a theoretical world, and there is a real world. I know what is normal in the real world. But I may yet have things to learn at the fringes - in the "twilight zone."

Cheers!

Steve

Indo-Siam

[Bobcat]

Hey Steve,

Yes, I am talking about private limited liability companies established under the Civil and Commercial Code of Thailand (CCC), and yes, over the past five years I have worked on setting up many of these types of two-tiered share structures for overses companies investing in Thailand. The articles can be amended, notwithstanding what the CRD have told you - except that it is true that provisions relating to the nature and extent of the preferrential rights attached to the preferred shares cannot be changed- that is correct (Section 1142 of the CCC). Otherwise, a special resolution can be passed to change any other provisions of the articles of association. I have drafted numerous articles of association, which have been registered, that give the preferred shareholders (in my scenario - the foreign shareholder) and 100:1 voting right as well as a 100:1 distribution right (both with respect to dividends and liquidation). These structures are used by very sophisticated investors and, as you say, are not the norm. I cannot name the clients on this board due to confidentiality obligations, but if you email me we can talk about this further and I would be happy to send you some sample provisions (in Thai and English) with the relevant names expunged.

The share book that I referred to is the company's register of shareholders. Each company is required to have a register of shareholders. The register must contain the names, addresses etc of the shareholders, the number of shares issued, shar numbers, the date the shareholders were entered into the register, dates persons ceased to be a shareholder, share certificate numbers etc. The register is required to be kept at the registered office of the company. Sections 1138 and 1139 of the CCC deal with issues relating to the share register. There are a number of companies who prepare register of shareholder books.

It is the obligation of every company to deliver share certificates to its shareholders (Section 1127 of the CCC). Again, as with the register, there is no prescribed format but the certificates must be signed by a director of the company, bear the seal of the company and contain (i) the nae of the company, (ii) the number of shares to which it apples, (iii) amount of each share, (iv) if the shares are not fully paid up, the amount paid up and (v) the name of the shareholder. Again, there are a number of companies which provide the service of printing share certificates. Please let me know if you would like me to provide you with any further information about this.

Best regards,

Bob

[Indo-Siam]

Well, after sniffing around a bit, it turns out that I was wrong (or at least unaware), and Bobcat is right - at least in the theoretical world.

See: http://www.thairegistration.com/eng/regist...g_compltd.phtml

This all seems to me to be little more than a curiosity to me - but it is evidently in the code.

I think the real power in a company resides in a director who holds enough shares, according to the articles of incorporation, to prevent himself from being removerd from his position, or anyone else being added as a director. Without director's signature, company (and shareholders who- cumulatively - are below "critical mass" percentage) can basically do nothing.

In public companies, a certain percentage of directors must periodically resign - but this does not apply to private companies (I believe).

Cheers!

Steve

Indo-Siam

[Bobcat]

Steve,

Directors of private companies are also required to resign periodically and, as is the case with public companies, are eligible for re-election. You are spot on - make sure that you have sufficient voting rights (not necessarily a majority of shares) so that you are and will remain the sole authorised director of the company.

Regards,

Bob