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  • Business Registration: Characterisitics of a Limited Company

    June 29 2013

    The Private Limited Company is the most common legal vehicle used by foreign investors in Thailand, it is therefore useful to review its main characteristics. Note that this post do not deal in an exhaustive manner with the matter of the characteristic of a Private Limited Company. There is a lot more to say. In this post we limited ourselves to the characteristics which are a matter of concern for foreign investors.

    To give some point of comparison to readers that comes from Europe let me first say that the Thai private limited company can be compared to a Swiss “Societe Anonyme” or French “S.A.R.L.”. Private Limited Company in Thailand are regulated by Section 1096 of the Thai Civil and Commercial Code

    Minimum Capital Requirement

    The Thai Commercial and Civil Code do not contain minimal capital requirements. The minimum capital requirements result from the Ministry of Commerce regulations and from the Foreign Business Act.

    Type of company

    Shareholding

    Business of the Company

    Minimum

    Capital Requirement

    Thai  Owned Company 51 up to 100 % Thai

    Any

    100,000 THB or min adequate to exercise the intended business
    Foreign Owned Company 51 up to 100% foreign Per business activity not controlled on FBA List 2 or List 3 2,000,000 THB
    Foreign Owned Company 51 up to 100% foreign Per business Activity that is controlled on FBA List 2 or List 3 3,000,000 THB
    US Owned Company 51 up to 100% US Per business activity not controlled on FBA List 2 or List 3 2,000,000 THB
    US Owned Company 51 up to 100% US Per business Activity that is controlled on FBA List 2 or List 3 3,000,000 THB

    Note (1) If a foreign company wants to exercise more than one business activities controlled under the FBA then the capital requirement will apply per controlled activity. For example a company that wants to exercise wholesales and after sale services will need a minimum capital of 3,000,000 for wholesale and 3,000,000 for after sale service that is to say 6,000,000

    Business Registration: Characterisitics of a Limited Company

    Note (2): Any company that hire foreign employee(s) and need to support work permit (s) will need a paid up capital of 2,000,000 THB per foreign employee irrelevant from the type or business of the company. The company will also need a quota of four Thai employees per foreign employee as well (these criteria are relaxed for BOI company).

    Note (3): Any foreign owned company that intends to exercise an activity which is controlled under the Foreign Business Act List 2 or 3 needs to apply first for a Foreign Business License or a BOI promotion. If the company is US owned the company simply needs to apply for a Foreign Business Certificate to be allowed to exercise a business activity listed under FBA list 2 or 3.

    Minimum Paid Up Capital

    The minimum paid-up capital requirements described below are as stated by the Thai and Civil Commercial Code.

    At least 25 percent of a company subscribed share capital must be paid up and 100% of a company subscribed share must be paid up if the capital is declared as fully paid up. The same ratios are applicable in the case of an increase of the share capital of a company

    Note however that in the case of a foreign or US owned company the minimum capital needs to be fully paid up for the company to qualify

    The minimum par value per share is of five baht per share or above.

    Shares with no par value cannot be issued

    May a Private Limited Company issue Common and Preferred Shares?

    Yes a Thai private limited company may issue common and preference shares.

    Privileges granted by preference shares can be in relation to voting rights, dividends, or privilege of liquidation. The Thai and Civil Commercial Code do not contains any restriction as to the attribution of preference shares to foreign investors.

    As well, the Foreign Business Act does not yet include voting rights in its definition of foreign owned company. Therefore it is still possible to date to incorporate a Thai company that would have articles of associations that attribute voting rights preference shares to the group of foreign shareholders. For example the foreign shareholder would own 49% of the shares with 75% of the voting rights.

    However, this practice while legal for the time being is frowned upon.

    The land department for example will not in general register the transfer of a land to a Thai company in which foreign shareholders controlled the majority of the votes through preference shares. Registering the transfer of the land first and then implementing a preference shares scheme after is not recommended as the Land Department verifies companies’ shares capital every year. Note also that companies that whishes to exercise insurance business may not have voting preference shares scheme any more as a result of a recent interpretation of the Life Non Insurance law by the Council of State.

    May preference shares be cancelled?

    Be warned that once a company has issued preference shares it is not possible to suppress them per se.  The only way to get rid of preference shares is through the mechanism of a reduction of capital. If your company support works permits then a subsequent increase of capital shall follow because you will have to maintain a 2,000,000 THB capital per work permit ratio.

    Therefore, think it twice before to choose the option of preference shares for your company.

    May a Private Limited Company own its shares?

    A Thai company cannot own its own shares and all shares must be subscribed. If bearer shares are issued, they are deemed foreign shares for calculating the ratio of foreign shares.

    How many persons are needed to set-up a private limited company?

    Since 1 July 2008 a minimum of three promoters only (all individuals) are required to set up a company. Thereafter the company shall have at all time a minimum of three shareholders. Shareholders may be individuals or juristic person.

    Note: A company that will purchase land will need to fulfill at all time a double majority requirement of 51% of Thai shareholders holding 51% of the shares.

    Therefore, if they are three foreign partners the company will need at least four Thai shareholders holding together 51% of the shares for the double majority requirement to be fulfilled.

    There is no limit as to the maximum number of shareholders.

    The company shareholders shall enjoy limited liability. If their shares are not fully paid, their liability is limited to the remaining unpaid amount.

    Are they any rules applicable to the ownership of Private Limited Company?

    The Thai Civil and Commercial Code do not contain any regulation that would limit the right of foreigners to own shares into a private limited company. Therefore, in theory you can incorporate a 100% foreign owned company without any problems. In practice and as already explained above the amount of foreign share ownership will depend whether the company will exercise a business activity that is reserved to Thai nationals or which exercise by  foreigners is controlled pursuant to Foreign Business Act List 1, 2 or 3 or other laws or whether the company intend to purchase land or not. Please refer to our comments about the Foreign Business Act and BOI above.

    May foreigners be company directors?

    A private limited company is managed by a board of directors according to the company’s memorandum of association and articles of association. The minimum number of Director is one.

    The Thai Commercial Code itself does not contain any restriction as to the nationality of directors. Therefore, a foreign investor can become a Director of a company without any problems. A foreigner can even be the sole director of a company.

    In other words, you do not need a work permit to become a director of a company. But once you become a director you should apply for a work permit even if you do not receive remuneration because the Labor Department definition of “work” is very broad and activities such as operating a bank account, hiring employees, signing agreements with third parties may all be deemed “work” by the labor department.

    We believe that you will definitively need a work permit if you live in Thailand, become director of a company and start to regularly sign documents on behalf of the company.

    If you are living overseas, you should not need a work permit even if you sign regularly documents for the company as long as you do this from overseas. It is very difficult to say whether a foreign director that comes to attend a board of director should need a work permit.

    Does a company need to have Thai directors?

    As explained above the Thai Civil and Commercial Code does not impose such requirement

    But other laws may contain requirements obliging a company to have a minority or a majority of Thai Directors. For example, a company that has a foreign business license to exercise an activity controlled under Foreign Business Act List2 will need to have at least 2/5ths of Thai board members. Other laws may require Thai companies to have a majority or up to 3/5 of Thai directors.

    Also they are formalities that may only be accomplished by a foreign director with a work permit or by a Thai director. Now in the best case foreign directors will not be able to obtain a work permit in the first few months of incorporation of a company. Therefore, even when not required to do so by law a company will need a Thai director at the beginning until such time when the foreign director has obtained his work permit.

    Private Limited Company Accounting Requirements

    A privat limited company must maintain accounts and prepare a balance sheet at least once in every twelve months or at the end of such twelve months as constitute the financial year of the company.

    The company balance sheet must contain a summary of the assets and liabilities of the company and a profit and loss account and must be examined by one or more auditors and submitted for adoption to a general meeting within four months after its date.

    The balance sheet must hereinafter be filled with the Ministry of Commerce and the Revenue Department. Sanctions are applicable to companies and companies’ directors that do not fulfill these criteria. Please see our post Thailand Taxes and Reporting Requirements for more information on a company reporting duties

    Note: This post is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010

    About the Author:

    The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

    http//:www.renephilippe.com

    © Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact.

    Originally posted 2009-10-19 02:22:16.

    Business Registration: Characterisitics of a Limited Company

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