Selling Shares Of A Company

[Khun Jean]

Someone in my wifes family owns 10 rai of land in Samui.

He is interested in selling it.

My input was that it is more likely to sell smaller plots of land than the whole 10 rai in one time. And he will get a better price for it.

After a long discussing we concluded it would be a possibility for him to start a company that will own and manage the land. Building through this company could give better prices for building material etc. Later the shareholders will be responsible for maintenance of the land.

As land (shares) are sold his influence gets smaller and smaller and finally disappears unless he keeps some land for himself. A "manager" should be elected by the shareholders.

At that moment 7% tax of the land price has to be paid. But as he will be selling it to "himself" would that still be necessary and if yes can you actually put a low price (not too low!) on the land when you do the transfer.

When there is a buyer, the buyer buys shares from this company and will be a co-owner.

Can you have 10x1600 shares (1 for every sqm) in a company setup?

An effort has to be done to keep the 49/51 foreigner/thai ratio. Is there a good solution for that? Like shares with more voting "weight". You also want to prevent from someone buying 5 rai and have the absolute vote.

From my limited knowledge this transfer of shares is tax free and an easy way for a foreigner to actually own the land. Also the land will not be transfered to a new owner so no tax has to be paid for that too. Is this correct?

When in the future somebody decides to sell, the shares can be sold with again no transfer fees, correct?

Are there any problems with this scenario?

Feedback will be appreciated.

Jean

[OldAsiaHand]

You're working the problem the right way and asking all the right questions, but these are issues on which you really must get advice from a law firm with appropriate experience. You did not say exactly where on Samui the land is located, but regardless, there is most likely a significant amount of money at stake here, far too much to reply on the kind of free advice you will get on this forum. Don't try to do this the Thai way. Do yourself a favor and find a good law firm and get the deal done right.

[Khun Jean]

Thanx, OldAsiaHand. When things are more sure i will (have to) do just that. In the meanwhile i try to gather information about this scenario.

Like what would your feeling be if land was offered this way?

Would you feel comfortable buying like this?

Would you prefer a big laywer firm name as the one who helped develop this senario or does it not make any difference and you consult your own laywer first anyway?

A big part of selling land is marketing and it helps if it is a trustworthy and solid legal way to posess land. I never saw this scenario being used before (i didn't look that hard yet), but it is i think the most straight forward and clear way.

[OldAsiaHand]

What you're thinking of here really isn't all that novel. There are certainly similar structures in common use in a number of places, even if not in Thailand.

At the heart of everything, however, it seems to me that there is a pretty straight-up local land development deal here, regardless of how it is structured. My view is that you need a law firm that is international, but with a solid local base as well. Send me a PM, if you like, and I'll recommend somebody.

[Digger]

Someone in my wifes family owns 10 rai of land in Samui.

He is interested in selling it.

My input was that it is more likely to sell smaller plots of land than the whole 10 rai in one time. And he will get a better price for it.

After a long discussing we concluded it would be a possibility for him to start a company that will own and manage the land. Building through this company could give better prices for building material etc. Later the shareholders will be responsible for maintenance of the land.

As land (shares) are sold his influence gets smaller and smaller and finally disappears unless he keeps some land for himself. A "manager" should be elected by the shareholders.

At that moment 7% tax of the land price has to be paid. But as he will be selling it to "himself" would that still be necessary and if yes can you actually put a low price (not too low!) on the land when you do the transfer.

When there is a buyer, the buyer buys shares from this company and will be a co-owner.

Can you have 10x1600 shares (1 for every sqm) in a company setup?

An effort has to be done to keep the 49/51 foreigner/thai ratio. Is there a good solution for that? Like shares with more voting "weight". You also want to prevent from someone buying 5 rai and have the absolute vote.

From my limited knowledge this transfer of shares is tax free and an easy way for a foreigner to actually own the land. Also the land will not be transfered to a new owner so no tax has to be paid for that too. Is this correct?

When in the future somebody decides to sell, the shares can be sold with again no transfer fees, correct?

Are there any problems with this scenario?

Feedback will be appreciated.

Jean

<{POST_SNAPBACK}>

I think you are going about this the wrong way and likely end up going broke before one piece of land has been sold. Using companies for development is the MOST EXPENSIVE way of doing anything. Your better off having an architecht take the chanot and draw up a plan of how its to sub divided. Then ask the land office to split this chanot into smaller chanots based on the architecht plans. This could take 2-3 months to do. Then you have multiple chanot still in the original owners name and dont forget to make one chanot for the roadway.

If your serious about this, build the roadway and the surrounding walls and using tape mark out the plots using the land office chanot posts. If you have more than 9 plots, you need a developers licence - only obtainable by a Thai person or a substantial Thai company however outside of BKK this requirement is often ignored.

Now at this stage you have something to sell. Determine your selling price per TW and price up each chanot accordingly - every chanot will already show the number of TW for that piece of land so its pretty simple.

Then, based upon whoever comes along, they may wish to transfer the land into a Thai name or a Company name. Typically as the seller of that kind of land, you need to pay the land transfer tax. Transfer it before anything is built and the transfer tax is just on the size of the land not the house and land. You should also consider covenants on the land determining how far back from the perimeter wall they can build and the maximum height that they can built to., but thats up to you. Also determine upfront what are the communal charges for the village and make out a contract where they agree to pay for these charges, otherwise their access to the house is closed off.

[Khun Jean]

Digger, thanks for your thoughts.

I think i was not clear explaining the purpose of this company.

The company will be the owner of the land and the plan is to NOT split the land in different chanots but keep it in 1 piece. Buyers are free to decide how much they wan to buy although there is a minimum of 800 m2. Land will NOT be transfered so no 7% tax involved.

A buyer then buys shares and has the right to use a part of the land. For instance each share is 1 sqm.

The buyer has the big advantage that he don't have to start his own company to control the land with all the costs, administration and risks that goes with it.

Every buyer will develop his own piece. The company all the shared infrastructure like roads, electricity, water which are underground by the way. There will be rules like no high concrete walls around the house, no shops except at a designated piece at the front, etc..

This will give the buyer assurance the place will not change into a typical bangkok soi. And the buyer will be a shareholder too, so any decisions will be voted upon.

Calculated maintenance fee for infrastructure, cleaning and security 1000 baht a month.

In this scenario i don't think the company needs a development licence. I still have to find out many things.

[Digger]

Digger, thanks for your thoughts.

I think i was not clear explaining the purpose of this company.

The company will be the owner of the land and the plan is to NOT split the land in different chanots but keep it in 1 piece. Buyers are free to decide how much they wan to buy although there is a minimum of 800 m2. Land will NOT be transfered so no 7% tax involved.

A buyer then buys shares and has the right to use a part of the land. For instance each share is 1 sqm.

The buyer has the big advantage that he don't have to start his own company to control the land with all the costs, administration and risks that goes with it.

Every buyer will develop his own piece. The company all the shared infrastructure like roads, electricity, water which are underground by the way. There will be rules like no high concrete walls around the house, no shops except at a designated piece at the front, etc..

This will give the buyer assurance the place will not change into a typical bangkok soi. And the buyer will be a shareholder too, so any decisions will be voted upon.

Calculated maintenance fee for infrastructure, cleaning and security 1000 baht a month.

In this scenario i don't think the company needs a development licence. I still have to find out many things.

<{POST_SNAPBACK}>

Nobody in their right mind would buy it. Your effectivley a minority shareholder with no legal power. Unless your planning on making everyone a director in which case one director could sell the whole lot out from under the others. VERY VERY dangerous. What happens if one 'shareholder' does not pay their portion of the electric bill? You could never get it out of them. Also nobody can ever sell their house as nobody else is ever going to buy this idea. Its a really really bad idea and I would never touch with a barge pole, nor I suspect would any lawyer worth their salt. The best thing you could do in this scenario is lease the piece of land but even that is fraught with problems.

You cannot assume the best in people, always assume the worst case scenario and you will not lose.

[Khun Jean]

How could someone sell the whole lot without the approval of the shareholders? I don't see that problem. Even if it is sold the new owner is under the same contracts as the original owner. The owner(s) by the way are the shareholders! The director will be responsible for everybody. He will be chosen by the shareholders. But the big decision making power is not with one individual, it will be shared amongst the shareholders. Obvious or not?

What do you mean a shareholder has no legal power? I think just the opposite. The shareholder will have a lot of legal power/protection.

I know this is not a easy thing to set up. But properly done it will protect everybody, more so than starting your own company and that whole route.

There will be no problem with electricity water etc, because everyone would have their own meter. Every shareholder will have the right to use the land, that is the written deal. It is not a lease, so no 30 year limit!! Nobody can change that! Or am i completely missing something here?

Can you not compare it with a appartment building. Everybody that owns an appartment actually owns the space between the four walls,floor and ceiling. It is agreed upon that people can use the facilities. Same would apply here. Everybody can use the road, security etc..

With business i allways expect the worst, that was the start of this whole idea. To protect the shareholders (buyers) from difficult land ownership constructions. I am one of the potential buyers, so i will be very carefull about it all

What do you think about it now? I am interested in your thoughts. Not only a don't do it. But how to make it better and legally solid for everybody. I know/feel it can be done right , i want to have things clear for myself first before i go to a laywer and work out the details.

[Digger]

How could someone sell the whole lot without the approval of the shareholders? I don't see that problem. Even if it is sold the new owner is under the same contracts as the original owner. The owner(s) by the way are the shareholders! The director will be responsible for everybody. He will be chosen by the shareholders. But the big decision making power is not with one individual, it will be shared amongst the shareholders. Obvious or not?

What do you mean a shareholder has no legal power? I think just the opposite. The shareholder will have a lot of legal power/protection.

I know this is not a easy thing to set up. But properly done it will protect everybody, more so than starting your own company and that whole route.

There will be no problem with electricity water etc, because everyone would have their own meter. Every shareholder will have the right to use the land, that is the written deal. It is not a lease, so no 30 year limit!! Nobody can change that! Or am i completely missing something here?

Can you not compare it with a appartment building. Everybody that owns an appartment actually owns the space between the four walls,floor and ceiling. It is agreed upon that people can use the facilities. Same would apply here. Everybody can use the road, security etc..

With business i allways expect the worst, that was the start of this whole idea. To protect the shareholders (buyers) from difficult land ownership constructions. I am one of the potential buyers, so i will be very carefull about it all

What do you think about it now? I am interested in your thoughts. Not only a don't do it. But how to make it better and legally solid for everybody. I know/feel it can be done right , i want to have things clear for myself first before i go to a laywer and work out the details.

<{POST_SNAPBACK}>

Khun Jean - in Thai companies and others for that fact, all the power is vested in the director(s). They can sign away the company in an instant. If I wanted to, I could sell any of the assetts of my company for a $1 including land. The other shareholders are not empowered to do anything in the company. You really need to look hard at how a company is legally structured.

Also the condo comparison is flawed. Condo's are sold Freehold with the land vested into a Juristic Person. They are registered at the land office as such but these are Houses. Whole different set of rules. The juristic person is normally a major comapny such as a big developer or a real estate management firm like CB Richard Ellis.

I truly believe your on a non starter - split up the land into different chanots is my recomendation otherwise I suspect you will not be able to sell anything. Now if you go down this route and place the land in a company and it does not work, you will have to split it up again, at which time you have another set of land office taxes and declare the income through your company. From that you then need to pay corporation tax of 20-30% on something that has not actually been sold. Furthermore, if you register the company for VAT, which is likely based on its size, then you have to pay 7% vat as well. VAT is a serious business and they are very thorough in examing any companies where they smell some kind of tax evasion. Now are you going to provide a work permit for the project director - thats the person the Tax authorities will be wanting to talk to. Company taking an income from others is working - if a foreigner he or she needs to be paid a salary out of the communal charges and then you need to look at other requirements such as 4 Thai employees.

I suggest you really need to go and see a VERY specialist property lawyer, most likely in BKK, describe your plan in detail and ask him for an opinion. If they do not agree with me that its a non starter I will be very very surprised. Thats not to say you could not set something up, but for example, I could set up a sandwich business, selling 1000baht sandwiches - but it does not mean anyone is going to buy those 1,000 baht sandwiches. I have bought, sold and own lots of property in Thailand and I for one would not go near this. You might be lucky and get somebody to do so but your storing up a heap of problems for the future in my opinion.

[splitlid]

agree with digger here.

why would anyone give money to a company and not have any power over the property they are supposedly buying.would get ery messy down the road also.

family members wanting a share, what if a major director died and their greedy wife or husband took over.

[Sunny Valentine]

Also the condo comparison is flawed.  Condo's are sold Freehold with the land vested into a Juristic Person.  They are registered at the land office as such but these are Houses.  Whole different set of rules.  The juristic person is normally a major comapny such as a big developer or a real estate management firm like CB Richard Ellis. 

A question dreived from this answer:

What will happen to the land in case the Condominium Building gets teared down? Who owns the land (and has a right to sell it or build a new Condo or houses ...) then?

The group of Condo owners? Or this Company? In the latter case they might have an interest to tear it down, construct a new, more profitable condo, and sell it again, even after a few Years? What does stop them from legally doing so?

Sunny

[Digger]

Also the condo comparison is flawed.  Condo's are sold Freehold with the land vested into a Juristic Person.   They are registered at the land office as such but these are Houses.   Whole different set of rules.  The juristic person is normally a major comapny such as a big developer or a real estate management firm like CB Richard Ellis.  

A question dreived from this answer:

What will happen to the land in case the Condominium Building gets teared down? Who owns the land (and has a right to sell it or build a new Condo or houses ...) then?

The group of Condo owners? Or this Company? In the latter case they might have an interest to tear it down, construct a new, more profitable condo, and sell it again, even after a few Years? What does stop them from legally doing so?

Sunny

<{POST_SNAPBACK}>

Condo law is very different from the law that governs a house sitting on a piece of land. The juristic person cannot just tear down the condo, as they do not own it - every condo if a freehold purchase owned by its individual owners.

[OldAsiaHand]

Look, there really isn't anything weird about what Khun Jean is talking about. It's more or less the same structure as the co-op form which is used for virtually every building in New York as well as a goodly number of buildings in San Francisco, Paris, London et al. There's probably a hundred years of solid legal history behind such a structure and hundreds of billions of dollars of property held in that form whether you guys understand it or not.

[Digger]

Look, there really isn't anything weird about what Khun Jean is talking about. It's more or less the same structure as the co-op form which is used for virtually every building in New York as well as a goodly number of buildings in San Francisco, Paris, London et al. There's probably a hundred years of solid legal history behind such a structure and hundreds of billions of dollars of property held in that form whether you guys understand it or not.

<{POST_SNAPBACK}>

And what relevance has that got to Thailand? Different legal system, different laws on landowning and this is not repeat not a condo, mansion building etc. In the UK, properties like this are held under leases, secured in law and precedence. Show me any kind of precedence for this being done before in Thailand. It aint going to fly and the costs for this kind of huge commercial structure will be like an out of control co-operative.

Take this scenario. In the rules of the company, everybody has to approve something that binds the company. Say owner number two wants to put up a UBC satelitte dish in direct view of owner number 3. So owner number 3 objects and can effectively block any contract being entered into with UBC. As due to the rules of the company, everybody must agree and sign. One more additional problem could be that owner number 4 is actually only using his house in the European winter. So, nothing can be approved by the company until he comes back and signs all the papers. Your UBC contract, telephone contract, electric contract are all in the company name - an absolute nightmare waiting to happen. Who pays these suppliers? How does this company generate an income? It is a legal company with all the obligations that go with it. How are they going to handle withholding tax payments? Keep all the cash in a jam jar? Company bank accounts can only be set up by a Thai or a farang with a work permit. How are you going to get 10 signatures on a company cheque? Shareholders cannot sign for the company, only directors can. To protect everybody, each must be a director not just a shareholder. Absolute lunacy.

[thedude]

Khun Jean, i think this discussion has gone down the wrong path. Strategy before structure.

Firstly, can you tell me more about the land. Your first assumption that you can get more by splitting it up is not necessarily true. If the location, shape, topography, access etc is good, you may have a case for selling it whole.

There is little merit in transfering the land to a company before you sell it because you will incur transfer taxes twice. Even if your intention is to first develop the land before subdividing it for sale, there are good reasons to do it privately and avoid incorporation. The only good reason to transfer the land to a new company is if you want to use it to raise capital for the development. And if this is the intention, i think you have a lot more to worry about than the structuring of the deal. I think, unless you are an experienced developer, it is best to explore the simple option of a direct outright sale first.

[Khun Jean]

I now officialy HATE the fast reply function!

[OldAsiaHand]

In the UK, properties like this are held under leases, secured in law and precedence.

<{POST_SNAPBACK}>

To quote some nitwit I read somewhere on this board, "And what relevance has that got to Thailand?"

Jeez, Khun Jean, you see what you've done? You ask a simple enough question and you start getting dumb legal advice from belligerent, uneducated folks who can't even write English decently.

Good Lord.

[Bobcat]

A couple of thoughts and observations on the things I have read so far:

1. The company will be the legal owner of the land - not the individual shareholders. As such, the individual shareholders have no right to transfer their "piece" of the land. They simply do not own it. However, see last paragraph for possible solution.

2. The authority of directors can be limited by the Articles of Association. Therefore, it is not correct to say that the directors can do anything they want. However, unless specific safeguards are put into place, directors do pretty much have free reign.

3. The most the individual shareholders could have is a right to use the land pursuant to a lease agreement with the company. That right could be made transferrable. so that any transferee is also subject to the provisions of the lease agreement.

4. You cannot sell individual pieces or parcels of land within a single chanote. You would need to divide the land into individual chanotes in order to sell such pieces.

I think the bottom line is that you are incorrect in your assumption that by owning shares in a company that owns a piece of land, the shareholders of that company somehow acquire a right of ownership to their "portion" of that land. This assumption is simply incorrect. The company owns the land and, therefore, has the power to sell it. Such power is usually able to be exercised by the authorised directors. If you split the land into different chanotes it may be possible to appoint the persons who "own" that chanote to have authority to sign any transfer documents relating to that chanote only, but this would get quite complicated and the land department may take issue with it.

My two cents.

Bob

Edited March 3, 2005 by Bobcat

[Khun Jean]

Khun Jean - in Thai companies and others for that fact, all the power is vested in the director(s). They can sign away the company in an instant. If I wanted to, I could sell any of the assetts of my company for a $1 including land. The other shareholders are not empowered to do anything in the company. You really need to look hard at how a company is legally structured.

You are right and wrong. It is all about how much power is given to the director.

If setup right a director can sell his own shares, not somebody elses!

I quess you are familiar with a foreigner owned company that is typically 49% owned in shares but has 99.9% voting rights. In my scenario this is impossible. Never it will be possible for a person to sell something else than his own shares.

Firstly, can you tell me more about the land. Your first assumption that you can get more by splitting it up is not necessarily true. If the location, shape, topography, access etc is good, you may have a case for selling it whole.

This is land in a good location and it will be much easier to sell in plots of 400sqm or larger than the 1 Rai minimum that you see quite often. Smaller residential plots are in much higher demand. The price will be slightly better. It will be a "village" with only houses, no shops allowed, no concrete prison walls allowed, etc.. Because of these "rules" the company idea started to form.

The intention is to be different and think of the buyers first, second and third. Only that will be a novelty here, someone who actually cares about a buyer.

All the brokers and developers i have seen think of baht first and buyers, well who cares about them after the sale. Most 10+ plot developments even squeeze 10.000 baht per month!! for maintanence out of their pockets. 100.000 baht or more for watering the flowers and pay the securityguard. Things are sometimes very very wrong. The stupid thing is many people accept it, like 10.000 baht.... oh that is only 300 dollars. In my small appartment in NY i pay a lot more.

In replies i read that many small things that can go wrong, about electriity, UBC installations etc.

Naturally a buyer is free to do whatever he wants except when he will be disturbing his neigbours. See it as bringing a little of the western world where everything is overregulated to this "village". The people who will live there will only appreciate it that the neigbours can not start a metal workshop or laundry shop or hang a big satelite disc in front of there livingroom. Nothing special just caring for other peoples property.

To get back why i want a different solution for landownership.

Now you have 3 choices if you want to "buy" land

1. put it in your thai spouse name, and hope you will be happily maried forever. or else.... LOOSE EVERYTHING.

2. Start a company, and file your reports, shareholder meetings, profit and tax every year, or have the risk you will be seen as someone who is circumventing the landownership law and LOOSE EVERYTHING. (Actually the thai judges are friendly on this one. Probably you get a year to sell everything)

3. Lease the land for 30+30 years and see what happens after 30 years when the owner decides to sell his land to someone else who has no obligations to honour this "option". The new owner being his brother. I know what will happen. you will LOOSE EVERYTHING.

In all 3 cases it is hopefull that at least the house will be in the buyers name.

I was just trying to think of a better one. One in which you can keep control of the land indefinately and even pass it on to relatives and children.

New comments still very welcome because i know it can be done. I am in no hurry and have time enough to investigate and read about thai laws about companies and land ownership.

I just thought of a new example which can be used as a reference for many pratical things. Many people have shared property when they're very expensive like airplanes, boats etc even horses! These shared properties have a lot of the same "fine print" that will be needed for my scenario. Yes also the condominium "contracts" have a lot of valuable information that can be used.

Think of this as an exercise in Thai law, and to sell land to a foreigner properly. It sure can be better than the current options. The current options are easy but not solid. Unfortunately many people in Thailand -even the foreigners who are often in a hurry and sometimes very naive- prefer things easy instead of good. I am not one of them. Are you when it comes to buying something major?

[Bobcat]

. Start a company, and file your reports, shareholder meetings, profit and tax every year, or have the risk you will be seen as someone who is circumventing the landownership law and LOOSE EVERYTHING. (Actually the thai judges are friendly on this one. Probably you get a year to sell everything)

If properly structured a 39/61 foreign/Thai company (or 49/51 if you are less conservative in your interpretations of the Land Depatment's decision to appeal its 40% rule) can quite happily own land without any concern about being accused of circumventing the law. This structure has been used for years and to my knowledge no properly established structure of this sort has been challenged or deemed to be illegal.

Do remember, a Thai company owning land needs to have at least half of its shareholders as Thai persons or entities.

Bob

[Khun Jean]

I agree Bob, the nuisance is that you do have to do the reporting, annual meetings, profit and tax every year. Someone can do it for you but is that 100% safe?!.

I mean if you do not run it as a company. (Trying to make a profit, pay salary, pay tax) you will be seen as circumventing the law. I agree it is unlikely with the current state of enforcement but will it allways be like that or will there be a 'crackdown'.

[Digger]

Khun Jean - in Thai companies and others for that fact, all the power is vested in the director(s). They can sign away the company in an instant. If I wanted to, I could sell any of the assetts of my company for a $1 including land. The other shareholders are not empowered to do anything in the company. You really need to look hard at how a company is legally structured.

You are right and wrong. It is all about how much power is given to the director.

If setup right a director can sell his own shares, not somebody elses!

I quess you are familiar with a foreigner owned company that is typically 49% owned in shares but has 99.9% voting rights. In my scenario this is impossible. Never it will be possible for a person to sell something else than his own shares.

Khun Jean - In direct response to this point, you have to seperate directors from shareholders. In law they are different. A director could sell the land and still have an intact company with all your little shareholders still owning their piece of the company - the scenario I described is of a bad director doing the worst kind of thing - now the odds of this happening are quite small but it is possible. In this scenario he would not need to touch the other shareholders shares. A share is a part ownership of a company, not the assets that that company owns. Therefore the 'company' may sell an asset at a directors instruction without any reference to the shareholders. This is the area that needs to be very tightly controlled and which is why I suggested you get some very good advice in order to make things as tight as you can but to still allow the company to operate so that it does not get caught up in its own articles of association and mean it cannot function.

However the point you need to consider is are you trying to make it so complicated that it becomes un-saleable. You have probably already got your Thai family members totally confused and the danger is that this could turn full circle and bite you - all I am saying is keep it simple, easily understood and rationale. I really believe you are making this too complicated for your own good. Its your choice of course, but if your scheme does not work, you might have some very upset family members to contend with who just wanted to sell a piece of land and walk away with some cash in their pocket. Generally these are not educated folk and with respect you must remember that.

There you go, I have rung the warning bell for you as someone who has bought and sold many pieces of land, split land and been directors and shareholders in many Thai property owning companies. I find it too difficult and unmanageable as you describe it, but you may get there. Good luck with your endeavours and I hope it works out well for you.

[thedude]

points well made Digger.

as i have pointed out earlier in this thread, the OP needs to first sort out what it is that he wants to achieve from this exercise before getting his knickers in a twist about all the "creative" structuring. anything is possible in terms of structuring, but why would you want to make it more complicated than it already is? strategy precedes structure.

okay don't make me break this down for nothing. if you can, always look to sell the entire lot off in one single transaction instead of splitting up the land. if the land is really that good, the buyer would find more value in a transaction involving a contiguous parcel rather than to contend with the complications of separate subdivided title deeds. furthermore, if you were to subdivide, a plot with road frontage will always be valued higher than a subdivided rear plot with no access. the buyer will bargain you down for the rear plots because he knows you have no access other than through the front plots which he has bought from you earlier, its a zero sum game with a lot of unnecessary headache.

if you think that you can make more money by developing the land, subdividing it and selling it to end-users etc, your biggest worry is CAPITAL, not structuring. if you have capital, forget your fancy structure and just do it all privately. pay some small contractors to top up the soil, get an engineer to do the necessary design and subdivision application, get power, water, phone lines connected through the respective authorities, get a trading license, set up a marketing channel and sell the plots privately.

if you DON'T have capital, then maybe you should revert to plan A above and just sell the entire parcel outright, because no bank, under the present credit environment, will lend you money unless it is secured against your land title deeds (in which case you will first have to agree on a land value). this is irregardless of whether you incorporate a company or not. if you can actually convince a bank to lend money to a developer with 0 experience, then you will have to be 100% certain that you can deliver the returns and stick to the repayment plan or else you risk losing your land title to the bank and end up with nothing but a red face and a lot of angry relatives. this is why i keep suggesting that you just try to sell the land outright.

most of the structuring you talk of is actually because of the difficulty with foreign ownership. the last thing you want is continued obligation after you have sold your units. as an alternative to the capitalised leasehold approach, have you thought about outright sales to Thai vehicles that are owned by directly by the foreign parties? the units owners will form a separate juristic person who will engage a professional to manage the property. the juristic person will also buy over the common area from you by way of a sinking fund or whatever. the title deed of the common area will have the servitude of the respective units registered on it, so no issue with right of access etc.

its only 10 rai, and in the end the required work given the scale may not be worth it. just do an outright sale.

[Wekhin]

Khun Jean,

As a financial advisor, I can see your idea. I have to say that your idea is really something, quite a financial engineering. Please accept my respect.

I would like to comment on top of your idea (whether you already know or not.)

1. When Mr.A(the exitsting landowner) transfer the land to the company, he has to pay personal income tax. I will not go into details on this since it is a tax code as is.

2. You mention selling land in the form of shares. What about costs of house construction? A buyer(shareholder) may prefer his own kind of house. Costs of construction will vary. I think costs of construction should be included and transformed into shares. Otherwise, it would not be attractive if he/she the shares without value added they put in.

3. Yes, of course. The Articles of Incorparation can limit power of directors and preserve the rights and benefits of the shareholders. In other words, you can write it as you see it would contribute to benefits of those who get in.

4. As for 7% VAT, it has nothing to do with it. VAT will play its role when you consider that the company should register itself into VAT system. This will happen when the company earns revenue from project services and has to pay VAT when it buy goods or services from outsiders. In this case it will be better for the company to apply for VAT.

Cheers !!!

[Khun Jean]

most of the structuring you talk of is actually because of the difficulty with foreign ownership.

You are right why i am thinking this. It is the foreign ownership. Now it is very complicated for every single foreigner to buy property. everytime a company have to be formed etc.. I was playing with these ideas to find a "better" soluition to the foreign ownership problem. One that will enable for example: a retired couple who wish to buy some property for their twilight years and be able to give it to their children later". For those people it seems nearly impossible to do that (If i understand the law right). You are right about an outright sale of the whole plot. That would be the most easy. Only there is enough land for sale and most individuals want to buy a smaller plot. It is what investors do, buy big split it, make sure their is a private road and sell it with a good profit. The land i am speaking about is owned by him for a long time, he is in no hurry to sell. The longer he waits the more it will be worth.

the last thing you want is continued obligation after you have sold your units. as an alternative to the capitalised leasehold approach, have you thought about outright sales to Thai vehicles that are owned by directly by the foreign parties? the units owners will form a separate juristic person who will engage a professional to manage the property. the juristic person will also buy over the common area from you by way of a sinking fund or whatever. the title deed of the common area will have the servitude of the respective units registered on it, so no issue with right of access etc.

This is almost what i am looking for, except the Thai vehicles owned directly by the foreigner. That last part is many times a 'not buy' decision. If it could be better more secure, less hassle. You have to have a "real" company with profits, bankccounts, administration etc. That is for most people too complicated and they opt for something in another country where things are more foreigner friendly.

Thanks for the info, more to think about.