This past week I met with a representative from a European company that sold vitamin products. The company has established branch offices in multiple countries. They were interested in opening a small office in Thailand. Thailand is an attractive place for retail stores. There is a large upper middle income population with disposable income and an established consumer culture.
However, establishing a business in Thailand is not a simple matter. There are many restrictions on foreigners operating in Thailand. The Foreign Business Act restricts foreign owned companies from most professional occupations and business services. In addition, foreign owned businesses are generally not allowed to own land.
For non-Thais who want to do business in Thailand, there are a few options. Some foreign companies form a partnership with Thai nationals to form a Thai company. A Thai company requires that a Thai national or company owns 51% of the shares of the company. This means that foreigners can only own up to 49% of a Thai company.
In Thailand, the most popular form of company is a private limited company. In a private limited company, shareholders have limited liability while the directors have unlimited liability. Thai private limited companies require a minimum of three promoters and minimum of 1 million baht of capitalization.
The benefits of a Thai company are that they are not restricted from engaging in most types of business services. In addition, Thai companies can own property. However, foreign owners need to be careful who they choose to be their Thai partner since they can lose management control of the company because they are not majority shareholders of the Thai company.
The 49% foreign ownership limit for certain business activities can be exceeded or exempted if a Foreign Business License is granted. A Foreign Business License is granted to foreign owned businesses that are unique and do not compete with Thai businesses. Applications for a foreign business license are evaluated on whether the business will violate Thai law or morals and whether the business will be beneficial to the economy of Thailand. The process of obtaining a foreign business license is time consuming and complicated but it allows foreign businesses to operate in Thailand.
The negatives of a obtaining a foreign business license is that there is an increased capitalization requirement of 3 million baht per service and the capitalization must be fully paid up prior to operating. In addition, foreign owned businesses are not allowed to own property and there are additional regulatory requirements when obtaining licenses, opening bank accounts, and doing business in Thailand.
Many foreign own businesses try to bypass Thai regulations by having Thai nominee shareholders. Thai nominee shareholders are unrelated third parties who are registered as shareholders but do not have any real financial interest in the company. They are used to secure the privacy of the actual owners of the company.
The use of nominee shareholders is generally legal unless nominee shareholders are used to by foreign nationals to circumvent the Foreign Business Act and the Land Act. Businesses that use nominee shareholders come under additional scrutiny in the registration of their company and licensure. Foreign businesses who use Thai nominee shareholders to bypass the company’s true owners may have difficulty protecting their interests if there is litigation.
There are legal work arounds which protect the interests of foreign owners without the need of Thai nominee shareholders. While every type of business has different requirements, some of the legal ways of maintaining management control of a company are through the use of preference and ordinary shares, controlling the number and powers of the board of directors, and through internal company regulation. These methods are not a guarantee that foreign owners will not lose management control but it helps to reduce the chances of that occurring. The most important reason for properly registering a company is to protect the company’s legal rights and to do business with confidence without fear of being exposed.
Mr. Robert R. Virasin is a licensed U.S. Attorney and managing director of Virasin & Partners. Ms. Parthomrat Punyacharoenwat is a licensed Thai Attorney whose primary focus is corporate and tax law. They can be reached at email@example.com or at www.virasin.com.