Dividends and the Legal Reserve: Limited Companies vs. Public Limited Companies

Note: The English text of the laws is an unofficial translation for reference. The Thai text is authoritative.

Limited company (บริษัทจำกัด)

Dividends

No dividend may be paid out of any funds other than profits. If the company has incurred losses, no dividend may be paid until the losses have been made good (Section 1201, Civil and Commercial Code).

Legal reserve

Each time a dividend is distributed, the company must set aside as a reserve at least one-twentieth of the profits arising from its business, until the reserve reaches one-tenth of the company's capital or more (Section 1202, Civil and Commercial Code).
*The Civil and Commercial Code only says the reserve must come from profits; it does not specify which profits.

Penalties

Public limited company (บริษัทมหาชนจำกัด)

Dividends

No dividend may be paid out of any funds other than profits. While the company still has accumulated losses, no dividend may be paid (Section 115, Public Limited Companies Act).

Legal reserve

The company must set aside as a reserve at least 5% of its annual net profit less any accumulated losses brought forward, until the reserve reaches at least 10% of its registered capital (Section 116, Public Limited Companies Act).
*The Public Limited Companies Act clearly states that the reserve must come from annual net profit.

Penalties

Frequently asked questions

1. If there is a profit, must a legal reserve be set aside every year?

• A limited company sets aside the legal reserve only when it pays a dividend.
• A public limited company, however, must set aside a reserve from net profit even in a year in which it declares no dividend.

2. Or must the reserve be set aside each time before a dividend is paid?

• See the answer to question 1.

3. Must the reserve be complete (one-tenth of capital or more) before a dividend can be paid?

• No, there is no need to wait until the reserve is complete. If a limited company pays no dividend, it does not need to set aside a reserve at all.
• The same applies to a public limited company: there is no need to wait until the reserve is complete. However, a public limited company must set aside a reserve from net profit even if it declares no dividend.

Civil and Commercial Code (unofficial translation)

Section 1201. No dividend may be declared except by a resolution of a general meeting.

The directors may from time to time pay interim dividends to the shareholders when it appears to them that the profits of the company justify such payment.

No dividend may be paid out of any funds other than profits. If the company has incurred losses, no dividend may be paid until the losses have been made good.

Payment of the dividend must be completed within one month of the date of the resolution of the general meeting or of the directors, as the case may be.

Section 1202. Each time a dividend is distributed, the company must set aside as a reserve fund at least one-twentieth of the profits arising from its business, until the reserve fund reaches one-tenth of the capital of the company or such larger proportion as may be provided in its regulations.

If shares have been issued at a price above their face value, the excess must be added to the reserve fund until the reserve fund reaches the amount prescribed in the preceding paragraph.

Act Prescribing Offences Relating to Registered Partnerships, Limited Partnerships, Limited Companies, Associations and Foundations, B.E. 2499 (1956) (unofficial translation)

Section 19. A limited company that pays a dividend in violation of Section 1201, paragraph one or three, of the Civil and Commercial Code, fails to pay a dividend within the period prescribed in Section 1201, paragraph four, or distributes a dividend in violation of Section 1202 of the Civil and Commercial Code, is liable to a non-criminal fine (phinai) of not more than THB 20,000.

Public Limited Companies Act B.E. 2535 (1992) (unofficial translation)

Section 115. No dividend may be paid out of any funds other than profits. While the company still has accumulated losses, no dividend may be paid.

Dividends are divided equally per share according to the number of shares, unless the articles of association provide otherwise for preference shares. Payment of dividends requires the approval of the shareholders' meeting.

Where the articles of association so permit, the board of directors may from time to time pay interim dividends to the shareholders when it considers that the company has sufficient profits to do so, and must report the payment to the next shareholders' meeting.

Dividends must be paid within one month of the date of the resolution of the shareholders' meeting or the board of directors, as the case may be. The shareholders must be notified in writing, and a notice of the dividend payment must be published in a newspaper.

Section 116. The company must set aside as a reserve at least 5% of its annual net profit less any accumulated losses brought forward, until the reserve reaches at least 10% of its registered capital, unless its articles of association or another law require a larger reserve.

Section 118. If the company pays dividends to shareholders in violation of Section 115, 116 or 117 and this prejudices its creditors, the creditors may sue the shareholders for the return of the dividends received. The action must be brought within one year of the date of the shareholders' resolution. Shareholders who received dividends in good faith cannot be compelled to return them.

Section 91. The directors are jointly liable for any damage caused to the company in the following cases:

(1) calling on share subscribers to pay for shares, or to transfer ownership of property to the company, without complying with Section 37 or 38;

(2) spending share payments, or disposing of property received as payment for shares, in violation of Section 43;

(3) any act in violation of Section 85;

(4) lending money in violation of Section 89;

(5) paying money or any other property to directors without complying with Section 90;

(6) paying dividends to shareholders in violation of Section 115, or liability under Section 118, unless they prove that they acted in good faith in reliance on evidence or financial reports certified as correct by the chairman, the company's financial officer or the auditor;

(7) failing to prepare or keep the company's accounts, registers or documents under this Act, unless they prove that they took reasonable steps to prevent the violation.

Section 93. Where directors are liable for damage caused to the company under Section 91(6), they are entitled to recover the excess dividends from shareholders who received them knowing that the payment violated Section 115 or gave rise to liability under Section 118.