How Does an Owner Take Money Out of a Thai Company? Salary, Dividends, Advances and Loans Compared

In a small company the owner often treats the company account as a second wallet: money goes in when the company is short, comes out when the owner needs it, and the house, the car or the children's school fees are paid from the same account, because "the company is ours anyway". The problem appears when the accounts are closed and the auditor finds a large "director receivable", when the Revenue Department asks where a payment came from, or when another shareholder disagrees.

This guide is written for Thai company owners who handle money day to day. If you are a foreign parent company that wants to take profits out of a Thai subsidiary, see the guide on structuring a Thai subsidiary and repatriating profits instead.

The short answer

A limited company is a legal person separate from its shareholders. The money in the company account belongs to the company, even if the company has only one real owner. An owner can take money from the company in four main ways, and each has a different reason, set of documents and approver.

The rule to remember: money that leaves the company for the owner must be explainable as one of these four routes. If it cannot be, the auditor will usually record it as a director receivable, and the Revenue Department may treat it as a loan that should carry interest or as a non-deductible expense.

1. Why must company money be kept separate from shareholder money even when there is one owner?

• The company has its own creditors. If the company gets into financial trouble, money the owner withdrew without a legal basis may be clawed back, and mixing funds weakens the separation between the company and the owner in the eyes of creditors and the court.
• Tax treats each type of payment differently. Salary is taxed one way and dividends another. A loan is not income but must be repaid. If you do not label the payment, someone else will decide its tax treatment later.
• Other shareholders have rights. Even a holder of a few shares, such as a relative or a partner who co-founded the company, has them. See the guide on minority shareholder rights.
• Banks and investors read the accounts. A large director receivable on the balance sheet makes it harder to obtain credit or sell the business.

How to separate them in practice

• Open a separate company bank account and do not pay personal expenses from it.
• Fix the owner's salary at a set amount each month instead of withdrawing as needed.
• Have an expense and advance policy that the owner must also follow.
• When the owner puts money into the company, record at once whether it is a loan or a capital contribution. See the difference in the guide on registered capital and working capital.

2. Who approves an owner's salary and director remuneration, and what documents are needed?

An owner may receive money from the company in two capacities: as a person doing work, for example as general manager, and as a director.

• Director remuneration. Section 1150 of the Civil and Commercial Code provides that the general meeting fixes directors' remuneration. Directors should therefore not vote themselves pay without a shareholders' resolution behind it.
• Salary as a working person. There should be an employment contract or a letter setting out the position, duties and salary rate, approved by whoever the company authorises, and run through payroll like any other employee.

Documents to have

• A general meeting resolution on director remuneration, or an employment contract for salary
• Payroll records, and evidence of withholding tax and the filing of returns
• If the owner is an employee, check social security as well

Caution: pay that is high compared with the work actually done, or paid as a lump sum whenever the company has spare cash with no set criteria, may be questioned as to whether it is a genuine company expense. A regular salary with supporting documents is easier to verify.

3. What must be checked before the company pays a dividend?

A dividend is a matter of company law before it is a matter of tax. A company that has spare cash is not necessarily able to pay a dividend. The main conditions are in sections 1201 to 1205 of the Civil and Commercial Code, and the Legal Execution Department's limited company handbook explains them in the same way.

Gate one: there are profits and no accumulated losses outstanding. Section 1201 allows dividends to be paid only out of profits. If the company is still in deficit, no dividend may be paid until the deficit is cleared. In practice you must look at both this year's profit and the accumulated profit or loss shown in the statement of financial position. If this year is profitable but there are accumulated losses from earlier years, the profit must first be used to make good the losses in full.

Gate two: set aside the reserve fund. Section 1202 requires the company, each time it pays a dividend, to allocate at least one twentieth of the profit to a reserve fund until the reserve reaches one tenth of the company's capital, or more if the articles provide.

Gate three: a proper resolution. Section 1201 provides that no dividend may be declared except by a resolution of a general meeting, usually the annual ordinary meeting that also approves the financial statements. Without a resolution, even a profitable company cannot pay. An interim dividend may be paid by the directors when they consider that the company's profits justify it; there should be interim accounts or figures to support it on the date of the resolution.

Gate four: notify and pay in time. Section 1201 requires payment within one month of the date of the resolution of the general meeting or of the directors. Section 1204 requires written notice of the dividend payment to every shareholder named in the register, and section 1205 bars interest from being charged against the company on unpaid dividends. The shareholder register must therefore be up to date. For register problems, see the guide on inherited shares and dividend payments.

Gate five: enough cash, and tax. Profit in the accounts is not the same as money in the bank. A company may be profitable while its cash is tied up in receivables or stock; see the guide on being profitable but short of cash. On tax, the company must withhold tax and file returns as the tax law requires. An individual shareholder may choose to treat the tax withheld as final, or to include the dividend in their income calculation and claim the dividend tax credit if the conditions are met. Ask the accountant before choosing.

If a dividend is paid in breach: section 1203 allows the company's creditors to require dividends paid in breach of section 1201 or 1202 to be returned to the company, although a shareholder who received them in good faith does not have to return them. An owner who is both director and shareholder will find it hard to say they did not know the company's financial position.

Dividend document set: audited financial statements, the directors' resolution proposing the payment, the meeting invitation, the minutes of the shareholders' meeting, the notice to shareholders, evidence of the bank transfer, and evidence of tax withheld and paid over.

4. What should be done when the owner pays on the company's behalf, or the company advances money to the owner?

The owner pays for the company and claims it back

• Obtain the tax invoice or receipt in the company's name, not the owner's name
• Prepare an expense claim stating the purpose and the job it relates to
• Have an authorised person approve it. If the owner is the only approver, have another person check it, such as the accountant. For dividing approval authority, see the guide on approval authority matrices
• The company transfers the money back to the owner's account in the amount shown by the documents

The company advances money to the owner for company work

• Use an advance request stating the job and the deadline for clearing it
• Clear it with receipts by the deadline, and return any unspent balance
• An advance that is not cleared remains as a director receivable

Director receivables arise most often here: money is withdrawn without documents, or an advance is taken and never cleared. The balance also has tax consequences. Section 65 bis (4) of the Revenue Code allows the assessment officer to set interest at the market rate when a company lends money interest-free or at below-market interest without good reason.

5. How should loans between the owner and the company be handled properly?

The owner lends to the company, which is common at start-up or when liquidity is tight.

• Prepare a loan agreement stating the amount, interest (if any) and repayment date. Section 653 of the Civil and Commercial Code provides that a loan of more than two thousand baht cannot be enforced by legal action unless there is written evidence signed by the borrower, and that proof of repayment must be by written evidence signed by the lender, or by the return or cancellation of the loan document.
• Interest must not exceed the legal limit. Section 654 prohibits interest above fifteen percent per year.
• Have a directors' resolution approving the loan, and record it in the books as a loan from a director.
• Make transfers through the bank in both directions, so that the evidence is clear.

The company lends to the owner

• There must be a business reason and approval within the proper authority. When a director is the borrower, it is a conflict-of-interest transaction. For how to approve it, see the guide on transactions between a company and its directors.
• Prepare a loan agreement and charge market-rate interest, because of the section 65 bis (4) risk mentioned in section 4.
• Set a repayment schedule that is realistic, and pay according to it.
• If the company has other shareholders, disclose the loan and seek their approval.

Do not use a loan in place of a dividend. Lending to the owner year after year with no repayment avoids the dividend conditions in section 3 and carries risk under both company law and tax law.

6. If the company account has already paid personal expenses, what should be collected for the lawyer and the accountant?

This can be fixed, but it must be fixed with the facts, not with documents created after the event.

Documents to collect

• The company's bank statements for the relevant period
• A table of payments with date, amount, payee and reason, divided into three groups: company expenses with documents, company expenses with incomplete documents, and personal expenses
• The receipts and tax invoices that exist, and any input tax invoices the company may already have claimed
• Assets bought in the company's name but used personally, such as a car or equipment
• Minutes, resolutions and agreements that really exist
• The previous year's financial statements and the director receivable balance recorded by the auditor

Common fixes. The lawyer and the accountant will help choose according to the facts, for example:

• The owner repays the part that was personal expense
• A loan agreement is made reflecting the true position on the date it is signed, with a repayment schedule and interest
• The amount is reclassified as remuneration with tax withheld and returns filed correctly, if the facts support it
• Offset against a dividend that is later properly declared under section 3
• Personal expenses are not deducted as company expenses, and input tax that cannot be claimed is adjusted

What not to do is prepare resolutions or agreements dated in the past to make it look as if approval was given in advance. A newly prepared document should carry the real date and record that it ratifies or corrects past transactions. If the Revenue Department has already sent a letter, see the guide on responding to a Revenue Department letter, and if tax filings have been missed because the accountant changed, see the guide on changing accountants.

7. Checklist for company owner money

Set up the system

• The company bank account is separate from personal accounts, and personal expenses are not paid from it
• The owner's salary is a fixed amount, supported by an employment contract or resolution
• Director remuneration has a general meeting resolution (section 1150)
• The expense and advance policy applies to the owner too
• Money the owner puts into the company is recorded as a loan or a capital increase, with an agreement or resolution

Before paying a dividend

• The financial statements show profit and no accumulated losses outstanding
• The reserve fund is set aside under section 1202 and the articles
• There is a general meeting resolution, or a directors' resolution for an interim dividend
• Cash is sufficient without affecting payment of debts and salaries
• Shareholders are notified in writing, payment is made within one month, and tax is withheld and paid over

Every year end

• Check the director receivable and director loan balances and clear them before closing the accounts
• Outstanding advances are cleared with receipts or repaid
• Every loan agreement has a repayment schedule and interest recorded

Further reading

• First-year company accounting — the document system and closing the accounts
• Registered capital and working capital — director loan or capital increase
• Profitable but short of cash — before deciding to pay a dividend
• Transactions between a company and its directors — lease, purchase or loan with a director
• Inherited shares, shareholder register and dividends — when the register does not match reality
• Minority shareholder rights — when other shareholders examine the company
• Responding to a Revenue Department letter — when you are called for examination
• Service: Corporate secretarial · Corporate legal retainer

Money that leaves the company for the owner must be explainable as salary, dividend, reimbursement or loan, and each route needs its own reason, documents and approver.

We help prepare resolutions, loan agreements between the company and its directors and shareholder meeting documents for dividend payments, and we work with your accountant to clear outstanding director receivables. For an initial consultation, call +66 92 254 2045 or send us the details. See also corporate legal retainer.

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.