Acquiring Existing Thai Company With Work Permit(s)

[sunluvr]

I've noticed in searching for available business opportunites in Thailand that some of the businesses for sale include a registered Thai company and one or more work permits, and wondering what the pros and cons are of assuming such an existing company. I have read that one risk is that you would assume any existing liabilities of that company. In that regard, what ways can one determine if there are such liabilities? Has anyone had direct experience in such an acquisition? What are some of the other complexities or advantages in acquiring such a business?

[digitalchromakey]

I've noticed in searching for available business opportunites in Thailand that some of the businesses for sale include a registered Thai company and one or more work permits, and wondering what the pros and cons are of assuming such an existing company. I have read that one risk is that you would assume any existing liabilities of that company. In that regard, what ways can one determine if there are such liabilities? Has anyone had direct experience in such an acquisition? What are some of the other complexities or advantages in acquiring such a business?

It is important as to how old the company you purchase is. If it is more than abround 3/5 years old, then the tax dept will expect the company to be showing a profit to pay corporation tax in addition to salary tax.

[p_brownstone]

It’s not strictly correct to say that a Company for sale can “include …… one or more Work Permits” .

Whilst the Company may meet the Registered Capital and other requirements to be able to justify a Work Permit for a foreigner, Work Permits are issued to individuals who the Labour Department determines are qualified to hold a particular position in a particular Company.

A Company does not have a certain “Quota” of Work Permits which they can issue at whim.

Patrick

[ubonjoe]

I beleive the term "due diligence" would apply.

Check them out the best you can yourself and if things look good then hire a Lawyer/Accountant to do a more thorough check of the company and their books. There are credit reporting agencies here that can do a check for outstanding debts.

And then make sure you are well covered in the purchase contract.

[sunluvr]

It’s not strictly correct to say that a Company for sale can “include …… one or more Work Permits” .

Whilst the Company may meet the Registered Capital and other requirements to be able to justify a Work Permit for a foreigner, Work Permits are issued to individuals who the Labour Department determines are qualified to hold a particular position in a particular Company.

A Company does not have a certain “Quota” of Work Permits which they can issue at whim.

Patrick

Do I understand that to mean that a business offered for sale with this statement in its advertisement that " this business comes complete with a Thai Ltd Company and two workpermits" would be of no benefit to me, relative to the requirement of obtaining a work permit?

[digitalchromakey]

Do I understand that to mean that a business offered for sale with this statement in its advertisement that " this business comes complete with a Thai Ltd Company and two workpermits" would be of no benefit to me, relative to the requirement of obtaining a work permit?

It could be, but you employees/yourself would have to met the criteria currently laid down by your local labour dept; in some areas this might include the number of Thai employees, salary and job description as wellof course as registered capital.

Work permits are never automatic and are not 'grandfathered' per se.

[Sunbelt Asia]

I've noticed in searching for available business opportunites in Thailand that some of the businesses for sale include a registered Thai company and one or more work permits, and wondering what the pros and cons are of assuming such an existing company. I have read that one risk is that you would assume any existing liabilities of that company. In that regard, what ways can one determine if there are such liabilities? Has anyone had direct experience in such an acquisition? What are some of the other complexities or advantages in acquiring such a business?

At Sunbelt Asia, 90% of the business transfers we are involved are with asset purchase agreements. Sometimes however the reward out weighs the risk of potential outstanding liabilities ( even with indemnification) because of the benefit such as a long term lease, entertainment license, the foreign employees have extension of stay based on business( as a start up you could not qualify in the first year)or the registered capital is very high. In these cases we reco to minimize the buyers risk by leaving funds in a third party escrow account for 6 months to a year. This % is always negotiated but can be around 20% of the purchase price to offset potential liabilities of unpaid bills "forgotten under the fax machine." If its a foreign managing director, it is pretty hard to get credit anyway but always good to see a offset fund account if you are the buyer, no matter how strongly worded the contract is.

The wording in the advert would imply that this company currently meets the criteria for two work permits with registered capital. However as the tide changes in Thailand, this is not guaranteed that the new owner would qualify. Registered capital ... yes in most cases, unless the seller was married to a Thai (1 MILLION BAHT REGISTERED CAPITAL) and the buyer is single( THEN 2 MILLION BAHT REGISTERED CAPITAL IS REQUIRED) then the capital may have to be raised to get the work permit for the single work permit holder.

However other criteria have changed in the last year such as some areas are requiring 4 Thai employees per work permit while before they were not. Other provinces were before requiring these criteria of 4 Thai employees and now are not. Due Diligence would be required. If a company is losing money in most cases you are not looking to buy it anyway but if that was indeed the case, the third year it will be harder to get a work permit.

In most cases the maximum number of work permits granted to a company is ten.

One thing to keep in mind, it is very hard to "transfer" a work permit now so you are legal on day one. I will give an example. Let’s say the registered capital is 4 million Baht. You want to take over on November 1st. The seller needs to run the business till October 31st. This is the date of the closing. On this date the seller resigns as the director and a shareholder meeting is held which appoints you as the new director. It now takes around three weeks to register this change. (Before July 1st, it was one day) On Nov 21st you are appointed the director and you apply for your work permit. This takes 12 days taking you up to Dec 2nd. You now can apply for the employee who may be a foreign Manager to get his work permit. This takes 12 days which means it was Dec 14th before your Manager has a work permit.

Of course solutions exist. It may be suggested to increase the registered capital to 6 million but the seller would be reluctant as he would no longer be a SME and his tax bill will go higher if you change your mind on buying the business and your tax bill will go higher as well if you increase it over 5 million Baht.

The best avenue is to do your due diligence. After you are committed to acquire the business and if you decided not to keep the guy with the second work permit, the seller would have to pay severance to this employee. If this was agreed upon, put 100 % of the purchase price on Oct 7th in a non refundable escrow account to be held to closing. The employee with the second work permit is out and you can get your work permit in 12 days. This way you are legal before Nov 1st and are a director around Oct 28th. Your employee will be able to get his work permit around Nov 15th as the foreign managing director resigns with his work permit on Oct 31st. You apply for your Manager on Nov 3rd( because of the weekend)

To sum it up... it’s much easier to form a new company and acquire the assets unless the benefits of the existing company are very high.

www.sunbeltasiagroup.com

[sunluvr]

However other criteria have changed in the last year such as some areas are requiring 4 Thai employees per work permit while before they were not. Other provinces were before requiring these criteria of 4 Thai employees and now are not.

www.sunbeltasiagroup.com

I recognize that things can change at any given time, but can you expand on this as you see the current situation? Of specific interest would be for the Bangkok, Phuket and Koh Samui areas/provinces.

[digitalchromakey]

However other criteria have changed in the last year such as some areas are requiring 4 Thai employees per work permit while before they were not. Other provinces were before requiring these criteria of 4 Thai employees and now are not.

I recognize that things can change at any given time, but can you expand on this as you see the current situation? Of specific interest would be for the Bangkok, Phuket and Koh Samui areas/provinces.

Phuket Labour now look for 4x Thai employees per WP on new applications.