Directors’ duties and liabilities: fundamental requirements to keep a director safe from legal exposures
The directors of a private limited company are considered the lawful representatives of the company and they act for and on behalf of the company. In performing their role, the directors, regardless of their nationality, are bounded by the same directors’ duties and liabilities under the Thai Civil and Commercial Code and other related laws.
The main duty of the directors is to manage and operate the company in accordance with the company’s business objectives, articles of association, and shareholders’ resolutions. In doing this, they must apply the diligence of a careful businessman and to preserve the interests of the company and its shareholders.
The key duties of directors are as following:
To fill monthly tax returns and make payments to Social Security
The directors are responsible for filing the withholding tax form and value added tax form (if registered) every month, even if there are no transactions during that month.
The directors are required to register all employees with the social security system and make monthly contributions for them to the social security fund and workmen’s compensation fund. A missing month’s filing, even if thereafter is covered, may lead to a rejection when an application or renewal of a visa and work permit for a foreign employee is submitted.
To fill annual tax returns
The directors must ensure that the corporate income tax form and the audited balance sheets are prepared, certified by a CPA, and submitted every year by the end of May, regardless of the company’s fiscal year. The filing must be completed even if the company has shown a loss or has not generated any revenue over that year.
To report any change in the company details
The directors must notify any change in the company details, such as the company’s relocation, change of number of directors on the board, change of directors’ authority, and change of company’s business activities, with all relevant authorities.
In case of relocation, the directors must also change the company’s address in all work permits. Failure to do so, may subject the employee to a fine of THB 5,000 to 50,000 and the employer to a fine of THB 10,000 to 100,000.
To act within powers
The directors are acting on behalf of the company and their scope of authority is described in the company’s Articles of Association and the shareholders’ resolutions. Therefore, they are released from personal liability as long as they perform their directors’ duties and liabilities within the scope of given authority and in accordance with the company’s objectives.
To exercise reasonable care and diligence
All company’s directors must act with diligence and prudence in the course of implementing and aiding the company’s objectives, as if it was their own business. Decisions must be made on an informed basis.
All directors have an equal and joint liability towards the collection of share capital payment, safe keeping of accounting book and legal documents (e.g. share registry book, share transfer instrument, commercial contract), distribution of dividends and interest, and enforcement of shareholders meeting’s resolutions.
To avoid conflicts of interests
All company’s directors must act in good faith for the best interests of the company and to avoid conflicts of interest. In performing their directors’ duties and liabilities, they must not put their personal or other business interests ahead of the ones of the company.
The directors are prohibited from engaging in a business of the same nature as and in competition with that of the company, or being a partner or director of a partnership or company of the same nature, unless otherwise consented by the shareholders. The non-compete restriction extends also to the persons representing the directors.
To hold the shareholders’ meetings and the board of directors’ meetings
The directors must ensure that the Annual General Meeting of Shareholders (AGM) and the Extraordinary General Meetings (EGM) are held properly and in a timely manner, upon the shareholders’ request. Unless otherwise agreed, the chairman of the board of directors shall preside the AGM or EGM where he must run the meeting agenda and produce the minutes of meeting.
The directors should also summon and held the board of directors meeting for a significant agenda or transaction, as regulated by the Articles of Associations.
To follow all requirements regarding employment
In addition to the social security filing, the directors are responsible to produce and maintain the company’s work rules and conditions, as required by the Thai labor law. The work rules and conditions are normally transliterated in the employee handbook, which must be distributed to the employee on the first day of service. Any change in the work rules and conditions would require the employee’s prior written consent, unless the change favors the employee.
The key duties outlined above are owed by the directors of the company.
A director who is not complying with any of his duties or obligations may be liable to significant consequences, such as dismissal, pecuniary penalties, liability to compensate the company, its shareholders, or a third party for the loss suffered.
If a director’s breach of duty constitutes a criminal offence, such as forgery of documents, counterfeiting of currencies, public cheating and fraud, defamation and offences against officials, he will be liable to substantial criminal penalties, as long as the offence was a result of his negligence, instruction, action, or omission.
Most commonly, the liability will result from not fulfilling tax requirements (on time), where the directors will be held jointly liable with the company. The company and its directors will be subject to a fine plus a surcharge and interest on the overdue tax and contribution. Continued omission of the directors’ duties and liabilities might trigger an investigation and prosecution by the authorities.
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This article is written by lawyers from the Antares Group of Asia Law Network.
This legal update was originally published on the Antares website.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.