Thai Company Dual Share System How Does It Work?

[longway]

I will be opening a company in thailand soon with a thai partner. as the company will buy land to open a business in phuket i was advised that its best if the thai partner sets up the company first (using thai nominees) to make upto the 7 required and buys the land. then 3 months later 49% of the shares will be sold to me. i am not exploiting any 'loophole', the point to the company is to run a business and the land is required for this purpose.

what can i do about the set up of the company to ensure that my thai partner cannot do anything i object to doing. can this be written into the the articles of association? i have heard a dual share system mentioned in another sub forum, but no explanation of what it is, can someone enlighten me?

the service provider we are using to set up the company said that i can keep shares sold to me over the 49% mark unsigned and undated. he says that this is perefctly normal and legal, but it doesn't sound right to me.

i would appreciate any advice in making sure that the company is run as a 50-50 partenership despite me having only a 49% shareholding.

[cclub75]

I admire your honesty and/or your ingenuity... But I hope you do know that nominees are illegal... ? Maybe not because you say that you don't "exploit any loophole"...

Furthermore, foreigners can't own a land.

Therefore, there is a special attention given to the "thai" companies (but with foreign shareholders) buying and holding lands...

http://thaicrisis.wordpress.com/2007/09/04...olated-the-law/

Now... the system of dual share is not illegal, eventhough it's clearly a way to bypass the FBA's provisions (Foreign business act).

And this is precisely why the junta and other thai authorities (still at work, watch out) wanted to amend the FBA by including a criteria of "voting rights" and/or "management control" to qualify a company as thai or foreign.

http://thaicrisis.wordpress.com/fba-special/

Anyway.

The system of dual share is very simple : some share have less voting rights than other. That allows a minority shareholder to have the last word.

Last point : you could get into a TRAP.

The calendar your describe seems very dangerous.

-Your thai partner set up the company (100 % thai, and with his full control)

-he buys the land (I presume with... your money)

-then 3 months later, your thai partner sale you 49 %...

I mean : can you imagine, if he changes his mind Or change the conditions ? Or whatever else ?

What's the point of such calendar ? Is it to bypass the risks I've highlighted (attention given to "thai" companies with foreign shareholders that buy land) ?

In any case, you should use pro services, and/or lawyers... don't do it alone. Ask Sunbelt.

I will be opening a company in thailand soon with a thai partner. as the company will buy land to open a business in phuket i was advised that its best if the thai partner sets up the company first (using thai nominees) to make upto the 7 required and buys the land. then 3 months later 49% of the shares will be sold to me. i am not exploiting any 'loophole', the point to the company is to run a business and the land is required for this purpose.

what can i do about the set up of the company to ensure that my thai partner cannot do anything i object to doing. can this be written into the the articles of association? i have heard a dual share system mentioned in another sub forum, but no explanation of what it is, can someone enlighten me?

the service provider we are using to set up the company said that i can keep shares sold to me over the 49% mark unsigned and undated. he says that this is perefctly normal and legal, but it doesn't sound right to me.

i would appreciate any advice in making sure that the company is run as a 50-50 partenership despite me having only a 49% shareholding.

[midas]

I admire your honesty and/or your ingenuity... But I hope you do know that nominees are illegal... ? Maybe not because you say that you don't "exploit any loophole"...

Furthermore, foreigners can't own a land.

Therefore, there is a special attention given to the "thai" companies (but with foreign shareholders) buying and holding lands...

http://thaicrisis.wordpress.com/2007/09/04...olated-the-law/

Now... the system of dual share is not illegal, eventhough it's clearly a way to bypass the FBA's provisions (Foreign business act).

And this is precisely why the junta and other thai authorities (still at work, watch out) wanted to amend the FBA by including a criteria of "voting rights" and/or "management control" to qualify a company as thai or foreign.

http://thaicrisis.wordpress.com/fba-special/

Anyway.

The system of dual share is very simple : some share have less voting rights than other. That allows a minority shareholder to have the last word.

Last point : you could get into a TRAP.

The calendar your describe seems very dangerous.

-Your thai partner set up the company (100 % thai, and with his full control)

-he buys the land (I presume with... your money)

-then 3 months later, your thai partner sale you 49 %...

I mean : can you imagine, if he changes his mind Or change the conditions ? Or whatever else ?

What's the point of such calendar ? Is it to bypass the risks I've highlighted (attention given to "thai" companies with foreign shareholders that buy land) ?

In any case, you should use pro services, and/or lawyers... don't do it alone. Ask Sunbelt.

I will be opening a company in thailand soon with a thai partner. as the company will buy land to open a business in phuket i was advised that its best if the thai partner sets up the company first (using thai nominees) to make upto the 7 required and buys the land. then 3 months later 49% of the shares will be sold to me. i am not exploiting any 'loophole', the point to the company is to run a business and the land is required for this purpose.

what can i do about the set up of the company to ensure that my thai partner cannot do anything i object to doing. can this be written into the the articles of association? i have heard a dual share system mentioned in another sub forum, but no explanation of what it is, can someone enlighten me?

the service provider we are using to set up the company said that i can keep shares sold to me over the 49% mark unsigned and undated. he says that this is perefctly normal and legal, but it doesn't sound right to me.

i would appreciate any advice in making sure that the company is run as a 50-50 partenership despite me having only a 49% shareholding.

cclub when you say " still at work, watch out " are you suggesting that if such legislation

is eventually introduced, that it is likely it will be retrospective ?

[cclub75]

cclub when you say " still at work, watch out " are you suggesting that if such legislation

is eventually introduced, that it is likely it will be retrospective ?

Difficult to answer.

The FBA 2 amendement had cleary a "retro" aim.

It even included special provisions for the existing companies (section 10).

Read the project :

http://www.dbd.go.th/eng/FBA%20Amend%20Eng...0April%2007.pdf

That was by the way a point of strong critic.

Now :

-the interests (thais related to services businesses and thais nationalists) who wanted to push FBA 2 are still there. No doubt. But will they be able to do it ? Impossible to say. It's linked to politics. And thai politics has never be so volatile...

[longway]

thx for ur reply cclub. it will take me a while to go through ur post. just to clarify a couple of points:

Furthermore, foreigners can't own a land.

Therefore, there is a special attention given to the "thai" companies (but with foreign shareholders) buying and holding lands...

well thats the point of setting up a thai company right. i though what was illegal was setting up a company as a front to buy land. its not a front it will be a legitimate business.

The calendar your describe seems very dangerous.

-Your thai partner set up the company (100 % thai, and with his full control)

-he buys the land (I presume with... your money)

-then 3 months later, your thai partner sale you 49 %...

I mean : can you imagine, if he changes his mind Or change the conditions ? Or whatever else ?

yes fair enough, i am not over the moon about it. though its not all with my money. the payments are due in installments. the first 2 being the largest. he has paid the first and i will pay the second prior to my buying my shares. there will be 3 further monthly installments that he will pay until i can join the company.

But I hope you do know that nominees are illegal

my partner is not a nominee, he is paying his share. on a side note i have worked with him before lending money on the basis of a written agreement, and had no problem at that time. we have a good friendship, and i would not consider this at all unless i trusted the guy. however i would still like a straightforward way of making sure my interests are protected, the business could go on for 5-10 years or more if all goes well. it would be good to start off on a solid footing as you never know the twists and turns of the future.

the bottom line is that once the business is up and runnning he doesnt need me but i will laways need him.

What's the point of such calendar ?

if i am included in the formation of the company and we buy the land, then the company will be scrutinised closely including the other 5 'shareholders' are nominees as such. if i am not involved then the compay will not attract any attention from the authorities. in another thread it says we can reduce the shareholders to 3 in july, which will make everything a alot cleaner in the legal sense.

Edited March 29, 2008 by longway

[longway]

Thanks very much for those links cclub, they have explained evrything i needed to know.

from what i understand under fba1 if i have preference shares then i can have my voting rights extended beyond 49%. under fba2 this would now be illegal, and no-one knows if fba2 will rear its ugly head again.

in my case i don't need control i just want a way of ensuring he cannot do anything without my written agreement. i dont mind having 49% ofthe shares and voting rights as long as we can set up an agreement that does not allow him to do anything without my consent. for example can we not have it written in the formation articles that 100% of the shareholders must agree on any decision regarding the company?

[JimmyGreaves]

Just put your name down when you initially start the company up, you'll be surprised that you may not have any problems and do not have to wait the 3 months.

If you do have any issues then as a last resort do it your way!

[Wekhin]

in my case i don't need control i just want a way of ensuring he cannot do anything without my written agreement. i dont mind having 49% ofthe shares and voting rights as long as we can set up an agreement that does not allow him to do anything without my consent. for example can we not have it written in the formation articles that 100% of the shareholders must agree on any decision regarding the company?

You can do it by using company bylaws. Bylaws must be registered with Ministry of Commerce to be effective.

You should be aware that shareholders exercise their rights on "main issues" such as, appointing directors, appointing auditor, approving dividend, capital increase, liquidation, etc. Then, directors will appoint and control managements. If shareholders must agree on "any decision", it will be difficult to manage and operate the business.

Bylaws can limit authorities of directors other than those already stipulated in Civil and Commercial Law. Bylaws can override some articles of the law.

Edited April 2, 2008 by Wekhin