The Classic Lesson from Business Takeover Drama
In business, we often see disputes when one shareholder gains control at the expense of others, so-called “business takeover drama.” These situations usually start the same way: friends or partners form a company, relying only on trust or verbal promises. At the beginning, when the business is small, this seems fine. But as the company grows and assets increase, conflicts often emerge resulting in broken relationships and sometimes the loss of the entire business.
The simple lesson? A properly drafted shareholder agreement is worth far more than its cost; partners can prevent years of conflict.
Related: Company Registration in Thailand
What is a Shareholder Agreement?
A shareholder agreement is a private contract between shareholders that supplements the company’s Articles of Association. It sets out clear rules on how the business will be managed, how decisions will be made, and how disputes will be resolved.
Unlike the company’s official registration documents, a shareholder agreement provides flexibility and protection tailored to the needs of the business partners.
Learn more: Company Secretary Services in Thailand
Key Clauses Every Shareholder Agreement Should Include
1. Board Representation
Example: If three people hold shares in the ratio 45% / 45% / 10%, the two larger shareholders might each appoint one director, while the smaller shareholder has no appointment right. This ensures balance and prevents one side from gaining full control through small additional purchases.
2. Right of First Refusal (ROFR)
This clause prevents shareholders from secretly selling shares to outsiders. If one shareholder wishes to sell, they must first offer the shares proportionally to the other existing shareholders.
3. Tag-Along and Drag-Along Rights
These protect minority shareholders.
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- Tag-along: if majority shareholders sell, minority holders can sell on the same terms.
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- Drag-along: if a buyer wants 100% of the company, minority shareholders can be required to sell, ensuring a clean exit.
4. Deadlock Clause
If shareholders with equal power cannot agree, the business may freeze (deadlock). A classic solution is the “Russian Roulette” mechanism: both sides submit offers to buy out the other, and the higher offer wins. This ensures one clear owner and prevents long-term paralysis.
Why a Shareholder Agreement Matters in Thailand
Under Thai law, holding more than 50% of shares allows control over shareholder resolutions, such as removing directors or appointing family members. Without protective clauses, minority partners risk losing their influence entirely.
- A shareholder agreement:
- Protects minority shareholders.
- Prevents hostile takeovers.
- Clarifies partner expectations from day one.
- Provides clear exit strategies.
Related reading: DBD Filing in Thailand: A Step-by-Step Guide
Conclusion
Starting a business with friends should be about growth and success, not future conflict. A shareholder agreement in Thailand is one of the most cost-effective tools to prevent disputes, protect relationships, and secure your business’s future.
If you are starting a company or already have business partners, now is the time to draft a proper shareholder agreement
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Access expert legal services, tailored to your business needs. Our team can assist with:
• Drafting and reviewing shareholder agreements.
• Company registration and corporate structuring.
• Contract drafting, negotiation, and review.
• Ongoing legal support for corporate governance and compliance.