Capital Company Shareholder and Director Liabilities In Thailand and in Turkey
Thapakorn Saeheng
I. Introduction
According to Section 1012 of the Thailand Civil and Commercial Code (“TCCC”), the formation of a company or partnership is made by two or more persons having a mutual agreement to unite for a common undertaking. The sole proprietor is still not recognized by the law of Thailand. The sole proprietor shall be responsible for all the costs and have unlimited liability for any business transactions.
There are three types of companies in Thailand these are: Ordinary Partnerships, Limited (Commandite) Partnerships, and Limited Liability Companies. The liability of shareholders depends on the type of the company therefore, the liability may differ depending on the type of company. This article focuses on the limited liability companies in Thailand.
In Turkey, a person, or a group of people may establish a company with their common will. According to the Turkish Commercial Code No.6102, published in the Official Gazette No.27846, dated February 14, 2011, the companies in Turkey could be divided into five types such as Joint Stock Company (“JSC”), Limited Liability Company (“LLC”), Limited (Commandite) Partnership, Collective Company, and Cooperative Company are the capital companies.
II. Liabilities in Thailand
A. Limited Liability Companies
The limited liability companies in Thailand can be categorized into two types; Private Limited Liability companies and Public Limited Liability Companies.
1. Private Limited Liability Company
a. Shareholders’ Liability
According to Section 1097 of the TCCC, private limited companies may come into existence with the gathering of at least three and at most fourteen persons. The limited liability company may be dissolved under Section 1236 of the TCCC by:
- the regulation
- period or expiry date
- termination of the undertaking
- special resolution and bankruptcy.
In addition, according to Section 1237 of the TCCC, if the company defaults in the presentation of the statutory report or the holding of the statutory meeting, the company may be dissolved by the Court for non-operation or cease of operation within one year from the date of registration. According to Thai law, the company’s shareholders are liable for the damages.
The limited liability company is formed by the capital dividend into shares and the shareholders have the liability to the company depending on the number of their shares in the company under Section 1096 of the TCCC. Therefore, in case of the capital of the company is fully paid up, the shareholders cannot be liable for the damages incurred by the company individually.
However, if the shares are not fully paid up by the shareholders and there is no call for payment of the respective shares by the director or the general meeting, thus meaning that the shares are fully paid up.
The registration of the company or partnership is made according to Section 1015 of the TCCC. The Private Limited Liability Company is recognized as the juristic person apart from the partners of shareholders, which means the shareholders’ liabilities are limited. They are not liable for public or government debts.
Under Section 44 of the Consumer Lawsuits Act 2008, if the company is sued and it is discovered that the company has been operating or established dishonestly using deceptive behavior towards consumers or has embezzled company assets to obtain sufficient capital for repayment, the plaintiff or the court may call the shareholders, directors, or persons who received the misappropriated assets as joint defendants, unless proven innocent. The benefit of action in this section is that the company has to first be sued in a consumer case. The plaintiff is required to file a further claim, or the court may summon shareholders to be co-defendants in the case at the discretion of the court. Shareholders may be summoned whether or not they have paid for their shares in full. Even so, if they prove their innocence, they may not be held liable at all.
b. Directors’ Liability
According to Sections 1150 and 1151 of the TCCC, the number of directors and the amount of remuneration/salary are depending on the general meeting to determine and only the general meeting may be set up or withdraw the directors. If the director goes bankrupt or loses capacity, he/she shall be terminated from his/her position under Section 1154 of the TCCC. The appointment of new directors has to be registered within fourteen days from the date of such change under Section 1157 of the TCCC.
To carry out the business of a company, directors need to act like prudent merchants. Directors, be jointly responsible for various matters as follows:
- to use the company funds
- to arrange and keep the books of accounts and documents required by law in an order
- to distribute dividends and interest based on law
- to enforce general assembly resolutions
According to Section 1168 of the TCCC, the director is prohibited from any trading activities of the same section. Also, without the consent of the general meeting of shareholders, competing with that company whether doing it for one’s benefit or the benefit of others or entering into a partnership with unlimited liability in another business that operates the same condition and competes with it is prohibited by the article. The above provisions shall also apply to persons who are representatives of directors.
According to Section 1169 of the TCCC, if the director causes any damage to the company, a lawsuit may be filed against him/her. If the company refuses to sue the directors, a claim may be brought against any of the shareholders, and the creditor of the company may enforce it as long as the creditor still has the right to claim against the company. However, according to Section 1170 of the TCCC, if the director’s acts have been approved by the general assembly, the director is not liable in such a matter to the shareholders who have approved it or to the company anymore.
2. Public Limited Company
a. Shareholders’ Liability
A public limited company was established by the Public Limited Company Act (“PLC”) in 1992, with the requirements for companies that are already doing business a certain amount of the company’s shares may be sold to the general public and the people who buy shares, therefore, own the business in proportion to the shares held and this share may be sold to others according to the share price each day. According to Section 16 of the PLC, the minimum limit for the establishment of a public limited company is fifteen (15) persons, but there is no upper limit.
According to Section 154 and 155 of the PLC, the public limited company may be dissolved:
- when a bankruptcy decision is made by the court,
- when the general assembly decides to terminate,
- when the founder of the company violates or does not comply with the provisions of the company establishment meeting or does not prepare a company establishment report
- when the Board of Directors does not comply with the provisions regarding the transfer of ownership of the shares and the number of shareholders is reduced to less than fifteen persons.
- when the company continues to make losses and there is no way for the company to make things work the company’s business shall continue to have losses and there is no hope to run the business
The shareholders agree to purchase shares of the company and have obligation to pay for the shares. When they pay the full amount of the shares should be requested or proof of payment for shares from the company or the counterparty.
In case, the payment for shares is not fully paid up according to the number of shares held, the shareholders are responsible for the payment of shares fully. Shareholders are not responsible for the company or its creditors.
According to Section 1015 of the TCCC, a company when registered under the provisions is classified as a legal entity separate from the partners or shareholders which merged into a partnership or a company for public limited companies. After the registration, the company will have the status of a juristic person as provided in Section 41 of the Public Company Act.
Therefore, both a limited company and a public limited company, once registered, are legal entities that can be considered as another person separately from the shareholders concerning the liability of the company's liabilities. The creditors of the company cannot enforce the shareholders liable for the company’s debt except in the case of being a shareholder in a limited company whose shares have not been fully paid. The creditor may use the right of the debtor's company to demand the shareholders to pay for the outstanding shares to be able to repay the debt liability of the shareholders.
b. Directors’ Liability
The directors have no joint liability with the company because they are separate persons from the company even if the company has debt, the directors are not liable as well. If the creditor sues the company for its debts, the director is the second defendant, and the court shall dismiss the case against the director because the director cannot be liable for the company’s debts.
In case of director signs to guarantee the company for borrowing money, the director and company shall become the debtors together or if the director signs a cheque to pay off the company’s debts after that the check bounces the directors shall be prosecuted as a criminal case under the Offence Arising from the Use of Cheque Act 1991.
In addition, if the director causes the creditors disadvantage under Section 40 of the Act Determining Offence Relating to Registered Partnerships, Limited Partnerships, Limited Companies, Associations and Foundations, 1956, whereby the directors know that the creditor has used or should have used the right to claim the court to pay the debt and move, hide, or transfer assets to others in order not to avoid the creditors to receive full or partial repayment, the director becomes liable. In this case, he has to be personally liable even after resigning from the director of the company.
According to Section 97 of the Public Limited Companies Act 1992, the relationship between directors and companies, companies, and third parties is by the TCCC governing representatives in the same way as the relationship between directors Companies and third parties in the case of a limited company implied like these Directors. Therefore, they act as agents who act on behalf of the company to outsiders.
The directors are holding a position as a director of the company, the Public Limited Company Act stipulates the prohibition of committee actions in various matters as provided in Section 86:
a) The director is prohibited from operating a business within the same Section and in competition with the business of the company.
b) The director is prohibited from becoming a partner in an ordinary partnership or being a partner with unlimited liability in a limited partnership or being a director of a limited company or other public limited company that operates a business of the same section and is in competition with the business of a public limited company in which he or she is a director. If the director violates the stated duties, the company may claim compensation for the damage caused by the company from that director but must sue within one year from the date the company becomes aware of the violation and not more than two years from the date of the violation.
c) According to Section 87 of the PLC, the duty to prohibit the director from trading assets with the company is acting or selling assets to the company or operating business with the company whether acting on behalf of oneself or that of another person without the consent of the Board of Directors.
d) The duties of public limited companies, for the transparency of the company’s directors in addition to the PLC. The PLC also stipulates duties on the part of the company as stipulated in Section 89/2-a of the PLC, that is, a company is prohibited from lending money to its directors including spouses or a minor child of the director as well.
III. Liabilities under the Turkish Laws
1. Limited Liability Companies (“LLC”)
According to Articles 573 and 574 of the Turkish Commercial Code No. 6102 (“TCC”), published in the Official Gazette dated January 13, 2011, LLC is a company whose capital is definite and divided into shares and is responsible for its debts only with its property holdings. A limited company with a single shareholder may be established but the number of shareholders may not exceed fifty (50). Natural or legal persons may be partners of a limited company. The capital of the limited company is at least 10,000 Turkish Liras. The shareholders have twenty-four (24) months after the registration of the company, to fully pay their capital commitments.
a. Shareholders’ Liability
The shareholders are not liable for the debts of the company, they are obliged to pay only the capital shares they have committed and to fulfill the additional payment and performance obligations stipulated in the company agreement. However, shareholders are responsible for capital debts due to uncollectible public debts at the rate of their capital shares. Under Article 35 of the Law on Collection of Public Claims No.6183, published in the Official Gazette No.8469, dated July 28, 1953, the shareholders are directly responsible for the public debts (taxes, social security premiums, etc.) that cannot be collected from the company in whole or in part, in proportion to their capital shares.
For limited company partners to be liable for public debts, the debt should have failed to be paid by the company. As mentioned above, it is not possible to collect directly from the shareholders for public receivables, unless such non-payment by the company is initially established.
According to the same Article, if the capital share in the company is transferred, the persons transferring and transferee the shares shall be jointly and severally liable for the payment of the public receivables before the transfer. Therefore, in the case of the transfer of the shares, the public debt may be collected from the transferor partner according to the ratio of the capital share, or it may be collected directly from the new transferee partner.
b. Managers’ Liability
Under Article 623/1 of the TCC “Company’s management and representation shall be laid down by the articles of association. Management and representation of the company can be delegated to one or more partners with the title of “manager” or to all partners or to third parties. At least one partner must have the authority to manage and represent the company.” If the manager is already a partner of the company, he/she shall already be jointly and severally liable for the public receivables (there is also a requirement for LLC companies in Turkey to have at least one of the shareholders as a manager with powers to represent and bind the company). At the same time, if it is a third party, he/she cannot avoid responsibility under Article 35 of the Law on Collection of Public Claims No. 6183 and is still considered jointly and severally liable as a legal representative.
In this sense, it is seen that the responsibility is at the level of strict liability and the manager cannot avoid his/her responsibility. According to Article 333 of the Tax Procedure Law No. 213, published in the Official Gazette dated January 4, 1961, the administrator shall also be responsible for tax penalties. The manager, whose faulty behavior causes the limited liability company to be subject to a tax penalty, is personally liable for the penalty by the principle of the individuality of the penalties. The manager who caused the default cannot recourse for the tax penalty he/she has paid to others.
When Article 10/2 of the Law No. 213 is examined, it is stated that taxes and related receivables that are not fully or partially collected from the taxpayers, the personal assets of the shareholders, and the liable managers may also be subject to collection claims.
The statute of limitations regarding public receivables is regulated in Article 102 of the above-mentioned Law No.6183. Subject to the relevant Article: “Public receivables shall be subject to a statute of limitations if not collected within five years from the beginning of the calendar year following the calendar year during which the public receivable was due.”
2. Joint Stock Companies
Under Article 329 of TCC “A joint stock company (“JSC”) is a company whose capital is certain and divided into shares and which is solely responsible for its debts as a number of its assets.”. The minimum capital amount is TRY 50,000. At least one-quarter of the nominal value of the shares committed in cash has to be paid before registration. The remaining amount shall be paid within twenty-four (24) months following the registration of the company. The payment schedule may be set out in the articles of association of the company or may also be determined by the board of directors.
a. Shareholders’ Liability
In JSC, shareholders are only responsible for paying the capital shares they have committed. This is a responsibility towards the company. Therefore, the shareholders do not have any responsibility for the private or public debts of the company. In the event that the tax debt comes to the collection stage, the shareholder may only be asked to pay the committed capital share. It should be noted here that the shareholders, who are members of the board of directors, are responsible for all public debts of the company regardless of their capital shares.
Articles 367 and 370 of TCC, stipulate that the board of directors may transfer its management and representation authority to an executive member or to third parties as directors/managers, provided that it is stated in the articles of association and internal directive. In this respect, unless the members of the board of directors transfer their representation powers, they remain legal representatives and will be liable for public debts.
b. Legal Representatives’ Liability
If the public receivables are not fully or partially collected from the assets of the company or if it is understood that they cannot be collected, only the board members or third parties, who have authority to represent them, shall be responsible for their personal assets. No action can be taken against the members of the board of directors who do not have the authority to represent. If there is no assignment related to the management of the company in the articles of association of the company, the joint and several responsibilities of all members of the board of directors are taken into account, and action is taken in accordance with Article 35 of the Law No. 6183 as above explained.
IV. Conclusion
A private company in Thailand is made by at least three (3) people to agree to establish the company but not over fourteen (14) people because it will become a public limited company. It is different in Turkey; the limited liability companies could be made up of one person only but not over fifty (50) people establish the company. If more than fifty (50) people, it will become a joint stock company.
In Thailand, in a limited company (private/public), the shareholders need to be liable for the damages of the company in case the shares are not fully paid up. If the shares are fully paid up, they do not have to pay for the damages because the law recognized the limited company as the main legal entity responsible. In the case of public and government debts, the result is the same and again the shareholders do not have to pay for the damages if the shares are fully paid up.
In Turkey, however, the shareholder’s liabilities are depending on the type of company. In limited liability companies, the shareholders may still be held liable against public debts (and also because of their management position if any) and only in joint stock companies, the shareholders are only exposed to cover their capital commitment and are free from any further liability (unless they also assume a director position).
The directors of a limited company (private &public) under Thai Law will be liable for the damages in case they are not acting on behalf of the company or act against the approval of the shareholder general assembly meeting. If the directors make the decisions that are approved by the general meeting, they are not liable for the damages for any debts unless they are also guarantors (for instance when the company borrows money).
The board of director members for joint stock companies and the managers of the limited liability companies under Turkish Law are responsible (also with their personal assets) for public debts. Such liabilities extending to limited liability company shareholders and managers and board of directors of Turkish capital companies are quite punitive and thus, one needs to consider all such liabilities before agreeing to become one.