This year is profitable: can a Thai private company pay dividends now?
Current profit is not automatically distributable profit
A company seeing profit in its latest report may want to transfer money to shareholders immediately. First verify the basis for distribution rather than treating the latest monthly profit or bank balance as approval. This article concerns Thai private limited companies under the Civil and Commercial Code, not public-company rules, and provides a preparation framework for management, accountants and advisers.
Section 1201 restricts dividends to profits and prohibits payment while losses remain uncorrected. Review accumulated balances and accounting adjustments, not just a newly profitable year. Borrowed cash increases liquidity but does not become distributable profit merely because it is in the account.
A simple example of earlier losses
Assume opening accumulated losses of THB 800,000 and confirmed current-year net profit of THB 500,000, with no other movements. THB 300,000 of losses remain. The example shows why this year’s profit does not establish distributable profit; even a larger cash balance does not remove the legal checks.
Even if another company has no remaining losses after the accounts are checked, it should not automatically distribute all profit. Reserves, articles of association, share rights, approvals and operating cash needs still matter. This example separates decision stages; it is not an automatic dividend formula for a particular company.
Check the reserve basis and opening balance
Section 1202 requires allocation of at least one twentieth of business profits to reserve on dividend distributions until the reserve reaches one tenth of company capital, or a higher amount required by the articles. Do not simply deduct 5% of a desired dividend without checking the relevant profit basis and existing reserve.
Ask accounting to show the capital basis, opening reserve, earlier allocations and the proposed allocation, alongside relevant articles. If share premium exists, examine its addition to reserve under the same section. Reserve allocation is an accounting classification; it does not itself show available cash, so prepare a separate liquidity schedule.
Approval and payment dates belong together
Under section 1201, declaring a dividend requires a general-meeting resolution, while directors may pay interim dividends where sufficient profits appear available. Identify the route and supporting evidence. Do not retrospectively label every shareholder withdrawal a dividend merely to balance the accounts.
The current provision requires payment to be completed within one month of the relevant general-meeting or directors’ resolution. Prepare recipient records, amounts and applicable rights, transfer dates and tax matters for responsible review before approval. Do not approve first and merely hope cash arrives, or automatically substitute 30 days for one month.
What the decision pack should contain
Organize four parts: reconciled profit and accumulated losses; reserves and articles; a draft resolution with allocation by rights; and post-payment cash planning including obligations falling due. Separate confirmed accounting figures from forecasts. If balances disagree or key documents are missing, assign an owner and conditions to resolve before seeking approval.
Kerwin & Vance provides accounting, management reporting and business legal advisory within its stated services. This information pack helps distinguish profit restrictions, approval issues and liquidity constraints. A useful answer explains not only an amount, but its evidential basis, decision authority and an auditable process.
