Declaring and paying dividends

Keywords: Mazars, Thailand, Accounting, Dividends, Shareholders, Board of directors

30 September 2022

The shareholders (either at the annual general meeting or an extraordinary general meeting) must pass a resolution to declare dividends, and dividends can be paid only if the company has earned a profit. If the company has incurred losses, dividends cannot be declared unless such losses have first been made good.

However, the board of directors may pass a resolution to declare interim dividends from time to time if it appears to the directors that the company has sufficient profits to do so. However, a company’s articles of association may specify that the declaration of dividends must be made and passed at a shareholders’ meeting.

Scenario

Company A was incorporated in Thailand in 2018. It has share capital of THB 5 million, consisting of 500,000 ordinary shares at a par value of THB 10. 

The results of its operations from 2018 to 2021 were as follows:

Company A’s board of directors would like to propose to the shareholders’ meeting on 31 August 2022 that it approve dividends to its shareholders. 

Issues

1. What is the total amount of dividends that Company A can declare and pay to shareholders? 

2. How can Company A calculate the amount from the dividends that must be appropriated to the reserve fund?

Response

Sections 1200 to 1202 of the Thai Civil and Commercial Code state:

• Dividends must be distributed in proportion to the amount paid for each share, unless stated otherwise in regard to preference shares.
• No dividends may be declared except by a resolution passed at a general meeting of shareholders.

• The directors may, from time to time, pay to the shareholders such interim dividends that appear to the directors to be justified by the profits of the company.
• No dividend shall be paid other than out of profits. If the company has incurred losses, no dividend may be paid unless such losses have first been made good.

• A company must appropriate to a reserve fund, at each distribution of dividends, at least one-twentieth of the profits arising from the business of the company until the reserve fund reaches one-tenth of the share capital or higher if the company’s articles of association require such.

Therefore, the response is as follows:

1. Company A can declare interim dividends of no more than THB 3.5 million. 

2. At each distribution of dividends, Company A must set aside a reserve fund of at least one-twentieth (5%) of the profit until the reserve fund reaches one-tenth (10%) of the registered share capital of the company. For instance, Company A has registered share capital of THB 5 million and has retained earnings as of 31 December 2021 of THB 3.5 million. An extraordinary general meeting of shareholders can pass a resolution to declare dividends of THB 3.5 million. The amount to be appropriated to the reserve fund is THB 175,000 (THB 3.5 million* 5% of the total amount of dividends declared).

References (in Thai): The Department of Business Development