Articles of Association (AOA) are an essential aspect of company incorporation. Articles of Association determine how a company will operate and undertake specific procedures. The content contained in a company’s Articles of Associate is determined at the company’s statutory meeting and can be revised later with Shareholders’ meetings.

Articles of Association are a document that specifies the regulations for a company’s operations and company’s purpose. Articles of Association also establish the procedure for the completion of tasks within the organization, for example, how to appoint directors and the handling of financial records.

In this article, we take a look at some of the key provisions contained within a typical set of Articles of Association.

Benefits of Articles of Association

The Articles of Association (AOA) provide multiple significant advantages for business operations and corporate management. One of the crucial benefits is the ability to divide shares into two or more groups, which brings several advantages as follows:

1. Control and Voting: Dividing shares into groups can help founders or managers gain more control over voting by having shares with higher voting rights than common shares.
2. Raising Capital without Losing Control: Companies can issue non-voting shares to attract additional investment without risking losing control.
3. Managing Interests: This can meet the needs and desires of different groups of investors or costs, such as investors seeking regular income from dividends versus shareholders willing to wait for long-term company growth.
4. Innovative Investment Structuring: Special types of shares can be issued with different investment characteristics, such as preference shares that have the right to receive dividends first or redeemable shares that can be redeemed at a specified time.
5. Negotiation Tool: Having multiple share groups provides a negotiation tool to attract investors or negotiate with various partners.

The issue of splitting shares in companies to allow foreigners to hold land rights in Thailand has garnered close attention and monitoring by the Department of Special Investigation (DSI) due to the potential use of legal loopholes that might circumvent actual legal restrictions. The division of shares into two categories, common shares and preference shares, makes some companies feel that they can use this method to allow foreigners to hold shares without losing control in terms of voting rights (e.g., giving common shares more voting rights than preference shares). However, this practice is often seen as a mechanism to circumvent the law.

Consequently, if there is investment or business activity related to land ownership involving foreign shareholders, it is advisable to consult with a specialized legal advisor to ensure everything complies with the law and to avoid potential issues in the future.