Company Incorporation: Advances Made by Promoters

In preparing to form a limited company, the promoters* may have to make contracts (e.g. a rental agreement) with third parties or advance money for the company incorporation.

Keywords: Mazars, Thailand, Legal, Civil and Commercial Code, Promoters, Company Incorporation

12 March 2014

Promoters shall jointly and unlimitedly be liable for all obligations and disbursements not approved by the statutory meeting; even if approved they remain liable until the registration of the company (Ref. Section 1113).

In the statutory meeting, a matter to be transacted includes “ratification of any contracts entered into and any expenses incurred by the promoters in promoting the company” (Ref. Section. 1108 (2)).

From the above, it can be interpreted that the promoters shall be liable for (i) obligations – includes contracts duly entered into and infringements duly made; and (ii) expenses advanced for forming a company.

In this regard, where the statutory meeting ratifies those contracts as having been made by the company and reimbursing the promoters of the incorporation expenses; and registration of incorporation is made, the promoters maybe free from being individually liable.

Many legal experts are of the opinion that under Section 1108 (2) and 1113 of the Civil and Commercial Code, by strict interpretation, those provisions do not state anywhere that the contracts made by the promoters and ratified by the statutory meeting would limit only the contracts that the promoters have entered into for and on behalf of the company. Nor does it state that after the ratification is made, the promoters are still liable. In this regard, it might be understandable that any contracts or obligations made by the promoters are ratified in the statutory meeting and that when the incorporation registration is completed the company will now be responsible for all liabilities entered into by the promoters. Accordingly the expenses advanced for forming the company can be reimbursed for to the promoters only when (i) the statutory meeting has been ratified; and (ii) the incorporation registration is completed.

In this article, you may note that we refer only to the “promoters”. Therefore, it is clear that the parent company, company directors or the other shareholder(s) who are not the promoters cannot claim for the expenses made in forming the company.

* Under the Civil and Commercial Code, “Promoters” refers to any three or more persons subscribing their names to a memorandum to promote and form a limited company (Ref. Section 1097).