How to set up share classes for new company

Under Thai law, shares are divided into two types; common shares or ordinary shares and preferred shares or preference shares. Both ordinary and preference shares have the rights and owe duties to the company under the Civil and Commercial Code, however, their rights are different significantly.

Ordinary shares

The ordinary shareholder has right to present at any annual general meeting and has voting right of a corporation which is one voting right per one share. The ordinary shareholder will receive the dividends respect to the shares that are being paid up and after the dividend have been paid to the preference shareholder. In the event of company dissolution, the initial investment will be returned to the ordinary shareholder if the assets exceeds after being paid all debts and liabilities and after being paid to preference shareholders.

Preference share

The preference shareholder has right to present at any annual general meeting and has lees or more voting right depends on the clauses in the Article of Association of the corporation. The preference shareholder is entitled to receive the preferential dividend before the ordinary shareholder. In addition, in the event of company dissolution, once all debts have been paid to the creditors, preference shareholders shall be reimbursed for their share before the ordinary shareholder.

For example, in setting up company limited, basically, the ordinary shares are registered, if there is no specification for the voting rights or shareholder rights. The preference share is registered when the company would like to limit the voting right to a group of shareholders and  10 preference shares has one voting right. For setting up a company limited in Thailand, 49% of share is limited to foreigner and 51% of shares must be hold by Thai shareholder unless obtain foreign business license. Therefore, in case of foreign shareholders would like to have more voting rights over Thai shareholders, the article of association needs to be modified for ordinary share by foreigner side and preference share by Thai shareholder side.

Therefore, you can decide to register for ordinary share or preference share when setting up limited company.

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