Doing Business In Thailand: The Nominees Issue (part 1)

February 4 2012 Categories: Doing Business In Thailand, Thailand Business No comments yet

Note: This post is not entirely new. This subject was first posted as a Page called “Nominee Issue”. I’m about to modify the look of the blog and decided that some of the subjects discussed in pages would now be treated as posts. Of course I updated the content of this post to reflect the current situation.

The “Thai Nominee” issue is the more acute problem of foreign investment in Thailand and we will discuss here the many aspects of this problem.

What is a Nominee?

A nominee is defined as “one designated to act for another in his or her place. It is used sometimes to signify an agent or a trustee. It has no connotation; however, other than acting for another, in representation of another, or as grantee of another” [In Henry Campbell Black M.A; Black Laws Dictionary; vol2 pg 947].

In other words, a nominee shareholder is an individual or a company that agrees to hold shares on behalf of another person the true owner of the shares whom retains all rights of ownership and control of the shares even if those rights appear to be exercised by the nominee.

Is the use of nominees always illegal?

No, to be a nominee or to use a nominee is not always illegal. For example, a well-respected doctor might not want his family, friends or relations to know that he invested in a pub or a bar (a controlled activity under List 3) and might want (for discretion purposes) to have another foreigner or even a Thai person hold his shares of the company that operate the pub.

The use of nominee is therefore legal as long as one does not use nominees (if they are Thais) for the purpose of securing the majority and control of a prohibited or controlled business.

Who are the nominees?

Most nominees are spouses, spouse’s family and/or friends. Because of Thai people’s generosity, most of Thais that become nominees do so to help their foreign friend or relative, without any financial advantage or consideration in return.

Because Thais are not formalist, many Thais become nominees without understanding the legal issues attached to their role and the risks involved.

Why use Thai Nominees if it is illegal?

The Foreign Business Act that rules foreign investment in Thailand contains 3 annexes called list 1, 2 and 3 that list the activities that foreign investors may not exercise under a majority owned form either because they are fully prohibited to them (list 1) or that they are controlled and may be exercised only upon authorization (the foreign business license) which authorization it may not be possible to obtain (please see my posts on the Foreign Business Act and Foreign Business License, also see my posts on BOI)

Now a foreign investor who wants to exercise a controlled business that is not promoted by the BOI and who cannot obtain a foreign business license for said business will have only one option left that is to say to find a Thai partner to do the business with him. Now if you are multinational firms, for example you will not have any trouble finding Thai investors eager to invest in a joint venture but if you are an unknown foreign investor new to Thailand, the task of finding and convincing a Thai partner to invest with you in a new business is nearly impossible. Why would a Thai risk investing 3 million baht to open a pizzeria or a bar with an unknown foreigner when he could do it by himself?

At the end of the day a foreign investor, who wants to invest into a controlled activity, but there is no promotion from the BOI available and the Foreign Business License option is closed to him and who does not find a Thai partner to invest will have only two options left to him:

(1) To take his money and go invest in another country

(2) To find a Thai nominee

We will continue on the subjet in my post the Nominees Issue (Part 2). On the same subject I also recommend you to read my post on The disclosure requirement applicable to Thai shareholders.

Note: This page is an excerpt of Rene Philippe Dubout next book: “How to Safely Invest Into Thailand” to be published in December 2009

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

Originally posted 2009-10-12 01:18:43.

Doing Business in Thailand