Shareholding

[chanchao]

Hi,

My wife (Thai national, not yet registered marriage) is doing freelance software development. She has programming and project management experience and also holds an MBA; these things make me quite confident that she can take her freelancing/consulting thing to the next level. So it's time to make this an official company, especially for tax reasons, for hiring staff, professional image among potential customers, etc.

While it will be pretty much her show for now, I can see myself getting more involved if/when it really takes off as I work in the same field. Also some of the running expenses will initially come from me, though my wife can source money from her family and perhaps other investors as well if needed. Money isn't really the problem, and initial investment for a software company is not like you need acres of land or expensive machinery anyway.

We're currently looking into getting BOI approval, mostly for tax reasons and secondary would be ease of getting work permits and help with other government rules. We don't really expect difficulty there as well, other than having to come up with 1 million baht's worth of things to invest money in.

With BOI approval a foreigner can hold up to 100% of the company, but clearly as it's as much (if not more) my wife's thing, we're looking at some kind of 50-50 split. However you need like 7 shareholders, so exactly 50-50 is not going to happen.

Question: What would be a good split and for what reasons? Is there any benefit to the company if Thai or Foreign shareholding is over 50%? Does there have to be one majority shareholder who is authorized to sign cheques and confirm other official obligations the company makes?

We're trying to decide if one shareholding over 50% is needed, or that something like 48-48-2 is advisable. (with 2 percent going to the remaining shareholders).

Long term, and in case of trouble between my wife and me, is any kind of minority shareholding (no matter if it's 49 or 19) worth anything anyway?

!!!Thanks!!!

Cheers,

Chanchao

[Indo-Siam]

It is routine (although not required) for companies to assign par value at 100 baht per share. So - a company with 2,000,000 baht registered capitalization will typically have 20,000 shares. Giving five shares to five symbolic shareholders satisfies the requirement - without giving meaningful value away.

Once you know how things work, you generally never run a Thai private company to make corporate profit, and pay dividends. Why is that? Because dividends are taxed as ordinary income. So - let's say you make 800,000 baht pre-tax profit - which is first taxed at 20% corporate tax rate - so you give the government 160,000 baht. You then distribute the remaining 640,000 baht as dividends. If you are already making significant income, this additional income may be taxed at a rate as high as 37%. So - of the 640,000 baht paid out to high-earning shareholders, another 236,800 baht goes to government. That means - of the 800,000 baht, a total of 396,800 baht went to the government. Better to just pay out that 800,000 baht as salary - which is taxed once, at 37% - giving the government just 296,000 baht.

So - if you don't run the business to make profit for shareholders - but instead to reward employees - then the BOI route is just going to a lot of effort for little gain.

As far as control of company goes - it all depends on articles of incorporation. You can draft artivlse to stipulate that at least (for example) 80% of voting shares must approve critical changes in company posture (such as adding or removing a director). If you are sole director, holding 21% of shares, no one can unseat you. You have sole signature authority. Shareholders have no effective power.

Shareholders of a company must appoint one or more directors to exercise signature authority on behalf of company. There is no specific requirement that a director be a shareholder - he can just be an employee, serving at the pleasure of the shareholders.

Good luck!

Steve Sykes

Managing Director

Indo-Siam Group

Bangkok

[email protected]

www.thaistartup.com

Skype: sykesbkk

[penelope]

why not incorporate a hong kong private company....where all foreign earned income is taxed at 0%. I know and work with many independent IT consultants who use this method.

this would however not aid your visa/permit situation.