Family businesses usually start from trust. Parents, siblings or spouses work together and nothing is written down because "we are family". When the business grows and the next generation arrives, the problems surface. Who decides? Who is paid how much, and why? Is the money the family takes salary, a dividend, or a loan from the company? When people see it differently, the only way out is to fall out.
This guide covers roles, pay and decision rules, and shows where company law, labour law and tax law come in. For planning the transfer of the business and assets between generations, see our family business service.
The core answer
Family businesses that survive across generations usually separate three roles: "shareholder" (owner), "director" (who oversees and has the power to bind the company) and "employee or manager" (who works day to day). Then they pay each role appropriately, salary for work and dividends for ownership, and write down decision rules before any dispute arises.
The rule (Thai law). A limited company is a juristic person separate from its shareholders. Directors must exercise the care of a prudent business person (Civil and Commercial Code section 1168). Dividends may be paid only by a resolution of the general meeting and out of profit (section 1201). Minutes of meetings must be recorded and kept at the registered office (section 1207). A relative who works for wages can be an employee under labour law. Loans between the company and a director or shareholder raise tax points that should be discussed with your accountant or auditor.
Our practical view. Most problems arise not because the law is unclear but because nothing is written down. We recommend starting with what can be done immediately: write down the roles, write down how pay works, and record important decisions in minutes. Then consider a shareholders' agreement or a "family constitution" as the next step.
1. Separate the three roles: owner, director, employee
One person may hold all three roles, but each role carries different rights and duties.
| Role | What they receive | What they are responsible for |
|---|---|---|
| Shareholder | Dividends by resolution and in proportion to shares; voting rights at general meetings | Liability limited to any unpaid amount on their shares |
| Director | Power to manage and bind the company as registered; may be paid remuneration as the meeting decides | Duty of care; liable to the company for damage caused |
| Employee or manager | Wages and benefits under the contract and labour law | Doing the agreed work; may be assessed and terminated in accordance with the law |
Holding many shares does not mean being good at management, and being a good manager does not mean holding many shares. A member who holds shares but does not work full time should be rewarded through dividends. A member who works full time should receive a salary for the position, to reduce the feeling of "I do more but get the same".
2. Pay: salary versus dividends
Salary
A family member's salary should relate to the position and actual performance, not to closeness to the owner. If it is set too high for the work done, other shareholders may question it, and for tax purposes the company's expenses must relate to the business. Ask your accountant how it should be recorded.
Dividends
Under section 1201, a dividend may be declared only by a resolution of the general meeting, may not be paid from anything other than profit, may not be paid while the company has a deficit until it is made good, and directors may pay an interim dividend where the company has reasonable profit. Payment must be made within the time that section sets. Have a lawyer or accountant check the wording that applies to your case. How the recipient is taxed depends on the recipient's status.
What not to do
- Pay a "dividend" when there is no resolution or no accumulated profit
- Draw company money for personal use without recording what kind of payment it is
- Have family members receive a salary with no job that can be verified
3. Family members using company money
Money in the company's account is not the owner's personal money. When an owner or family member takes company money, it should be placed in one of the following categories and recorded in the accounts.
| Type | How to do it properly | Points to watch |
|---|---|---|
| Pay for work | Salary through payroll, with tax and social security deducted as the law requires | There must be real duties |
| Return to the owner | Dividend by resolution of the meeting | There must be profit under section 1201 |
| Loan | Loan agreement with agreed interest | May have tax consequences on interest; consult your accountant |
| Company expense | Used for the business and supported by documents | Personal expenses run through the company may be non-deductible for tax |
Loans between the company and a shareholder or director, whether the company borrows or lends, are a matter on which the Revenue Code has provisions on interest or returns for tax purposes. We do not cite a section here because the result depends on the form of the loan and the status of the borrower. Consult your accountant or tax adviser before letting shareholder loan balances, payable or receivable, build up over several years.
Apart from tax, a director who damages the company may be liable to it, and shareholders have mechanisms to act (section 1169). Unsystematic use of company money is therefore a risk for both tax and the family.
4. Employing relatives
- Give a contract and set the duties. State the position, wages, working hours and supervisor, even for a close relative.
- Apply labour law as for other employees. Holidays, leave, overtime and rights on termination under the Labour Protection Act B.E. 2541 apply where the person is an employee.
- Social security and withholding tax according to each person's status.
- Assess by the same criteria. Perceived unfairness among other staff is a source of conflict in the organisation.
- Prepare termination rules in advance. Terminating a relative is the most sensitive matter. Assessment records and warning letters are important evidence. See employee warning letters.
For wages and what counts as wages for calculating entitlements, see position allowances, commission, shift pay and travel: which payments count as wages.
5. Decision rules
Family businesses often decide badly because big and small matters are mixed together. Try three groups.
- Day-to-day matters. The manager delegated to do so may decide.
- Important matters. Directors decide together in accordance with the articles, such as large investments, hiring senior executives and long-term contracts.
- Matters requiring a shareholder resolution under the law and the articles, such as paying dividends, amending the articles, increasing or reducing capital and electing directors.
Also write down who chairs, who has the casting vote when votes are tied, and which matters need unanimity. If two sides hold equal shares, read 50/50 shareholders deadlock: when the company cannot move forward to put a deadlock mechanism in place in advance.
Minutes help as evidence. Section 1207 requires directors to see that minutes of shareholder and board meetings and their resolutions are recorded and kept at the registered office. Even for decisions made within the family, a short record prevents misunderstanding later.
6. When a director or shareholder has an interest in the matter
Transactions the company makes with a director, a major shareholder or their relatives, such as renting the owner's land, buying goods from a brother's company or hiring a spouse's company, should be done transparently.
- Disclose the relationship to the other directors and shareholders
- Compare the price with the market and keep the documents
- Have those with no interest approve, as far as the articles allow
- Record the reasons in the minutes
- Check whether the company's articles have rules on voting where there is an interest
The main legal basis is the directors' duty of care (section 1168) and shareholders' right to act when directors damage the company (section 1169). The specific question of abstaining from voting depends on each company's articles and facts.
7. When people disagree, what to do
- Negotiate or mediate through someone all sides trust, such as a family elder or a professional mediator. See our alternative dispute resolution services.
- Shareholders' agreement setting pre-emption rights, share sales, exit and deadlock-breaking, before problems arise.
- Use company law rights, such as asking to inspect minutes and calling a shareholders' meeting. See rights of minority shareholders in Thai companies.
- Litigation as a last resort, because cases between relatives affect both the business and the family.
If the founder dies or cannot work, a plan must exist in advance. See if the sole director dies, how the company pays and signs contracts.
8. How far a family constitution can be enforced
A family constitution is a document in which the family agrees on values, roles, the entry of children and grandchildren into the business, dividend policy and ways to resolve disputes. It is useful as a shared agreement, but its legal effect depends on how it is written and what it says.
- Parts that are principles or moral commitments may not be enforceable as a contract.
- Specific agreements, such as pre-emption rights over shares, should be put in a shareholders' agreement or the articles, which have clearer effect.
- Content that conflicts with the law or the company's articles cannot replace them.
Have a lawyer help separate what should remain a principle from what should be written as a contract or in the articles.
9. Checklist for family businesses
- Write down the role of each family member: shareholder, director or employee
- Set salary by position and keep the criteria, without using the relationship as the criterion
- Pay dividends only by resolution and only when there is profit
- Stop taking company money for personal use without recording it; use salary, dividends or a loan agreement
- Give employment contracts to relatives who work, and follow labour law
- Write down the three groups of decision rules: day-to-day, important, and requiring a shareholder resolution
- Keep minutes of important matters at the registered office
- Set an approval procedure for transactions with relatives or related companies
- Consult your accountant on shareholder loan accounts and tax
- Consider a shareholders' agreement and a succession plan
Further reading
- Family business — structuring and succession planning services
- Rights of minority shareholders in Thai companies — meetings, information and suing directors
- 50/50 shareholders deadlock: when the company cannot move forward — setting up a deadlock-breaking mechanism
- If the sole director dies, how the company pays and signs contracts — when the founder is gone
- Position allowances, commission, shift pay and travel: which payments count as wages — when a relative is an employee
A family business that relies on written rules and not on trust alone, separating owner, director and employee, paying each according to their role and recording important decisions, has a better chance of passing between generations without losing both the business and the relationships.
We help structure family companies, draft shareholders' agreements and articles, prepare employment documents and minutes, and plan for when the owner is absent. For an initial consultation, call +66 92 254 2045 or send us the details. See also family business and HR documents.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
