Doing Business in Thailand

One thing I find interesting when blogging is that Google and WordPress have tools that permit me not only to check what articles are the most successful but also the search queries of my blog readers. Now when looking at the queries I notice that there is still a lot of confusion among readers as to definition of legal concepts such as Thai or Foreign Private Limited Company and nominees. I tried hereinafter to clarify those concepts.

Private Limited Company:

 In Thailand means a legal entity, which name end with “limited”, formed by a minimum of 3 persons (individuals only at the time of incorporation), with a capital divided into equal shares of not less than five baht per share, and the liability of the shareholders is limited to the amount of the unpaid shares (if any held by them), and no invitation to subscribe may be made to the public.

“Thai” Private Limited Company:

Under the Foreign Business Act means a Private Limited Company registered in Thailand with Thai shareholders holding together more than half of the Company shares.

What makes it confusing is that in order to exercise certain business activities a Thai Company will need to fulfill additional criteria’s such as qualified Thai majority, double Thai majority and also a board of director that have a majority of Thai directors.

For example, under the Land Code Act a company that purchase land needs to fulfill the double majority criterion meaning that more than half of the Company shareholders must be Thai and the Thai shareholders must hold together more than half of the company shares.

Under the Non Life Assurance Act a Thai Private Limited Company must to exercise insurance businesses have Thai Shareholders that hold together more than 75% of the “voting shares sold”. According to a recent interpretation by the Council of State the term “voting shares sold” is deemed to be synonymous to “voting rights”.  As a result of this interpretation a Thai Private Limited company must in order to exercise Life and Non Life Assurance business have Thai Shareholders that hold together 75% of the shares and more than 75% of the voting rights.

Another example is a company that wants to purchase a boat. It will need to have Thai shareholders holding together 75% of the shares and a board of director that is composed of a majority of Thai directors and there are many more example like that.

“Foreign” Private Limited Company:

Under the Foreign Business Act means a Private Limited Company registered in Thailand with foreign shareholders holding together half or more than half of the Company shares. For the time being the Foreign Business Act does not taken into account to define a foreign juristic person matter such as:

• Other sources of funds to finance the business , e.g. a loan; or preferential rules about dividend distribution; or
• Preferential rules about voting rights (note however that a company that purchases land should not use preference shares); or
• Preferential rules about management.

To date, companies in which foreigners own a minority of the shares but have a majority of the votes still qualify as Thai companies under the Foreign Business Act. The fact that a company qualify as a Thai company under the FBA is however not enough for the purpose of exercising certain businesses activities as explained above. While not illegal per se the fact the use of preference voting rights is frowned upon by Thai authorities.

Also one has to be careful because the fact that a company has been registered with a preferential voting structure that favor foreign shareholders or that the shares of the Thai partner have been financed through a loan granted by the foreign partner may be used within the context of an inquiry of a company structure as elements indicating that the Thai shareholder is a nominee.

Thai Nominee:

Means a Thai individual or a Thai company that agrees to hold shares on behalf of the foreign shareholder who remain the true owner/beneficiary of the shares and whom retains all rights of ownership and control of the shares even if those rights appear to be exercised by the Thai nominees. The use of a nominee or even of a Thai nominee is not illegal per se. What makes the use of a Thai nominee illegal is when said nominee is used to aide a foreign investor to exercise business activities said foreign investor is not permitted to operate under the form a majority foreign owned investment (in fine the business activities listed under list 1, 2 and 3 of the Foreign Business Act.

Thai nominees and the foreign investors who used them may be punished with imprisonment not exceeding three years or a fine from 100,000 THB up to 1,000,000 THB, or both.

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 2009-10-07 04:38:15.

Related posts:

1. Investing in Thailand: Nominees Issue, the witch hunt?
2. Doing Business In Thailand: The Nominees Issue (part 1)
3. World Bank:Thailand ranks 12th/183 for ease of doing business
4. Corporate: Disclosure requirement of Thai shareholders
5. Doing Business In Thailand: The Nominees Issues (3)
6. Doing Business in Thailand: The Nominee Issues (Part 2)
7. Starting a Business: The One Start One Stop Investment Center
8. Investing in Thailand: what is a Foreigner under the FBA?