Doing Business in Thailand

The second option available to a foreign investor who wants to start a business in Thailand is to register a trading commercial legal vehicle (for example a subsidiary under the form of a Limited Company or a branch of a foreign company). [this post is an updated draft that replace one of my first posts]

What are trading legal vehicles?

Trading or commercial entities are any juristic person or legal entity, which is incorporated to own and operate a business for profits. It can be incorporated either under the form of a completely owned branch of the mother company or as a completely separate business organization.

Of course if a foreign company wishes to operate a commercial or trading branch or to incorporate a majority foreign owned subsidiary in Thailand it will need first to verify if the contemplated sector of activity is not prohibited or controlled under the Foreign Business Act List 1, List 2 or List 3.

If the desired activity is prohibited under the Foreign Business Act List 1 then the foreign investor may only invest under the form of a majority Thai owned legal entity (51% Thai 49% foreign). If the activity is controlled under FBA List 2 or 3 then the foreign investor will need to apply for a Foreign Business license or BOI promotion prior to start its activities in order to exercise this activity under a majority foreign own legal entity.

This being say, Thailand recognizes three types of commercial business organization only, the partnership, the Company (public or private) or the branch of a company and the Joint Venture.

What is a Joint Venture?

Joint ventures are a tool that is commonly used by foreign investors when doing business in Thailand. Curiously, joint ventures are not defined or recognized by the Thai Civil and Commercial Code but by the Revenue Code. Joint ventures are among the legal entities that are subjected to corporate income taxes.

A joint venture is defined in the Revenue Code as a business or profit-seeking enterprise carried on jointly by two or more partners. A Joint venture can be set up under the contractual or corporate form.

In practice, most joint venture will be incorporated under the form of a private limited company that will become the joint venture legal vehicle.

An agreement that does not include the notion of profits and costs sharing between the parties is not a joint venture agreement but a consortium or cooperation agreement.

If you want to do a joint venture with a Thai partner, it is preferable to discuss every possible issue from the beginning of the negotiation. I have seen many joint ventures between foreign and Thai partners failing or being dissolved because of a misunderstanding and/or cultural disagreements between the partners. If you want your joint venture to be successful with your Thai partner put all your cards on the table from the start. Do not withhold information or hesitate to discuss an issue because you are wary of your Thai partner.

What types of partnerships are available?

Thailand knows three types of partnerships as follows: The unregistered ordinary partnership in which all partners are jointly and wholly liable for all obligations of the partnership; the registered ordinary partnership which once registered becomes a legal entity separate and distinct from the individual partners; and the limited partnerships that limits the liability of the individual partner to the amount of capital contributed to the partnership. Limited partnerships must be registered.

Note that some of the legal dispositions applicable to partnerships have been recently updated. I have rarely seen foreign investors using partnerships to invest in Thailand but for the case of a consortium for the purpose of a government contract.

What kind of limited companies are available?

If you wish to form a subsidiary or a new business in Thailand then they are two types of limited companies that you may use, the Private Limited Company governed by the Civil and Commercial Code and the Public Company governed by the Public Company Act. We will discuss the characteristic and conditions of registration of the companies in separate posts

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 2009-10-16 02:09:26.

Related posts:

1. Business Registration:Thai Shareholders Disclosure Requirement
2. Business Registration: Company Registration Step by Step
3. Company Registration: New Companies Registration in 2009
4. Doing Business inThailand: Understanding Thai Legal System
5. Business Registration: The Representative Office
6. Business Registration: Characterisitics of a Limited Company
7. Doing Business in Thailand: Thai PLC and Nominees definition
8. Doing Business in Thailand: Dealing with Thai People