Best Legal Structure For Buying Land/owning A Guesthouse

[simon43]

Having lost control of a previous business (through my own stupidity), when I built a guesthouse in Phuket with my Thai wife, but omitted to consider what would happen to said business if our relationship went sour, I want to get it right this time!

Of course I will be consulting a solicitor in these matters, but I would appreciate comment from other TV members.

My plan is to purchase a small piece of land, to build a 10-room guesthouse on that land, and to live at that guesthouse and work as hotel manager.

The reason for wishing to do this is the success of my last guesthouse project in Phuket, which still gives me an income despite my divorce from my Thai partner.

Running a guesthouse can be enjoyable and profitable if:

- You research the location/opportunity first

- You understand how to market and promote your business via online and other media

- You provide a value-for-money and excellent customer service.

I have no worries about the opportunities here. I am extremely good at running and marketing these types of business.

So, since I am not Thai, and since I trust no Thai partner 100%, the proposed legal entity would be a Thai limited company with 3 shareholders. A Thai person would be the major shareholder, me a minor shareholder and another Thai as a minor shareholder.

How can I control this business legally? I assume it will be via preferential voting shares and signed share-holder transfer forms, (in case I have problems with the other 2 shareholders).

Is this the best legal structure?? Any other way of structuring the business?

Then I would construct my bungalow guesthouse on this land. I would follow my previous procedure whereby I build the structure of each guesthouse, but only internally completed furnish one or two of these buldings, thus enabling me to open the business and to start to receive revenue without the need to complete/finance the whole project in one go.

As to how I actually finance the project, I do not have a lot of money, but I do have a steady job that also allows me to work 'remotely' via the internet.

This is my proposed plan. Please comment if you think it is doomed to failure:

- Set up the Thai ltd company as above

- Pay the major Thai shareholder a salary each month such that their regular income qualifies them to borrow money from a Thai bank to purchase the Chanote land for the guesthouse (2 million baht).

- Obtain the loan from the bank, purchase the land in the company name and deposit the Chanote deed in the bank as security

- Finance the construction of the guesthouse from my existing and regular monthly salary

How does that sound? My 2 objectives are:

- To finance the land purchase and building of the guesthouse when I have little savings

- To protect myself against any unforseen eventually that might occur with my Thai partner - such as her going insane

I'm 50 and really cannot afford to lose the sort of money that I lost with my Phuket guesthouse, (I mean lose in terms of my investment, not in terms of the business profit...)

Advice, derision etc much appreciated

Simon

[longway]

How can I control this business legally? I assume it will be via preferential voting shares and signed share-holder transfer forms, (in case I have problems with the other 2 shareholders).

Is this the best legal structure?? Any other way of structuring the business?

Obtain the loan from the bank, purchase the land in the company name and deposit the Chanote deed in the bank as security

I went quite far in the process of buying into a new development in Karon with a Thai partner, the one next to Soi Aroona, before it all fell through. In my case the Thai partner was not a nominee, but was going supply half the investment capital so our circumstances are a little different.

I found that creating a Thai company with preferential shares was not possible (I cannot remember why) ansd secondly I was advised by the service who was creating the company for us that haiving a foreign name in a company buying land was not a good idea, and could cause problems. The ideas was for me to join the comapny 2-3 months down the line after the purchase. (My security was to be undated pre-signed share transfer forms) Also I found that it is not that easy to find a bank that will lend to a company with no history of financial trading, we were going to create a history over period of 12 months by funneling money through my partners other business through the company bank account.

The idea I had to maintain some kind of control over the company was to put a clause in the articles of the company that no decsions could be taken without the consent of shareholders who own 95 percent of the company. I dont know how effective that would have been, as the whole thing fell through at the last minute (the developer backed out and sold to someone else instead).

Good luck, I hope this helps.

[donx]

I was talking to the owner of a big resort in Chiang Mai and he told me that the way he structured his ownership was by using two companies. I think the company that had direct ownership of the land was a Thai company and the other company owned a controlling interest in the land-owning company. He didn't explain it in detail and I didn't want to turn this casual conversation into a business meeting, but I'm sure there a law firms in Bangkok familiar with this type of setup.

By the way, this is a new resort so this was done within the last two years.

[FarangRed]

Having lost control of a previous business (through my own stupidity), when I built a guesthouse in Phuket with my Thai wife, but omitted to consider what would happen to said business if our relationship went sour, I want to get it right this time!

Of course I will be consulting a solicitor in these matters, but I would appreciate comment from other TV members.

My plan is to purchase a small piece of land, to build a 10-room guesthouse on that land, and to live at that guesthouse and work as hotel manager.

The reason for wishing to do this is the success of my last guesthouse project in Phuket, which still gives me an income despite my divorce from my Thai partner.

Running a guesthouse can be enjoyable and profitable if:

- You research the location/opportunity first

- You understand how to market and promote your business via online and other media

- You provide a value-for-money and excellent customer service.

I have no worries about the opportunities here. I am extremely good at running and marketing these types of business.

So, since I am not Thai, and since I trust no Thai partner 100%, the proposed legal entity would be a Thai limited company with 3 shareholders. A Thai person would be the major shareholder, me a minor shareholder and another Thai as a minor shareholder.

How can I control this business legally? I assume it will be via preferential voting shares and signed share-holder transfer forms, (in case I have problems with the other 2 shareholders).

Is this the best legal structure?? Any other way of structuring the business?

Then I would construct my bungalow guesthouse on this land. I would follow my previous procedure whereby I build the structure of each guesthouse, but only internally completed furnish one or two of these buldings, thus enabling me to open the business and to start to receive revenue without the need to complete/finance the whole project in one go.

As to how I actually finance the project, I do not have a lot of money, but I do have a steady job that also allows me to work 'remotely' via the internet.

This is my proposed plan. Please comment if you think it is doomed to failure:

- Set up the Thai ltd company as above

- Pay the major Thai shareholder a salary each month such that their regular income qualifies them to borrow money from a Thai bank to purchase the Chanote land for the guesthouse (2 million baht).

- Obtain the loan from the bank, purchase the land in the company name and deposit the Chanote deed in the bank as security

- Finance the construction of the guesthouse from my existing and regular monthly salary

How does that sound? My 2 objectives are:

- To finance the land purchase and building of the guesthouse when I have little savings

- To protect myself against any unforseen eventually that might occur with my Thai partner - such as her going insane

I'm 50 and really cannot afford to lose the sort of money that I lost with my Phuket guesthouse, (I mean lose in terms of my investment, not in terms of the business profit...)

Advice, derision etc much appreciated

Simon

Not to difficult if you like to PM me I have someone who can do for you and make it look very simple

[Mercury]

Sounds like you have the idea but not the money. You basically want some land and then use your income to finance the buildings on it. I don't think your paying some Thai guy and then him getting a loan and then that money being used for the business etc. is very good.

I think a better bet is to look for a long term investor / partner. He brings the capital, you bring the experience and you put the hours in. Your company structure could allow you to buy back or be allocated a certain percentage of shares at start up with more added over time or you could be loaned money from the company to buy the shares and own the agreed percentage from day one. This, or a similar scheme removes any shady backhand dealings with Thais and lying to banks and borrowing money as well as having the whole thing go belly up for some "Thai" reason.

Of course, it is not easy to find such investors. However, a potential investor could be the person who owns the land in the first place. He commits a one off investment, namely the land and you commit your regular investment, plus agreed hours etc. Perhaps not exciting and you'd have to find the right person but you could structure it as a term deal where he is bought out according to set parameters based on profits, asset valuation etc. at some future date.

What about someone lending you the money ? They could have a charge over the company's assets.

You say you need Bt2m to buy the land. Should we say another Bt2m to get sufficient buildings and facilities started and built, if not perhaps finished ? Trouble is, that unless you have cash and not just income, then you're not going to be able to buy into the business very much as you'll be paying back something to your investor.

I don't see you being able to do anything with a loan as you'll cannibalise yourself making repayments before you start. You need an investor, with or without an exit strategy. I'd focus on that market, preparing some projections, based on some of the figures from your previous venture. If you can offer someone perhaps 25% plus ROI and some capital appreciation, then you might have a viable proposition.

[stdn]

A 30 years registered lease at the Land Department would give you the full rights on the piece of lands. You can add some renewal options to the contract but those cannot be registered.

Then you can own 100% the buildings on it for the next 30 years ++ in the case of a successful renewals.

By the time the lease expire you will be 80, another crossroad

Once you got your lease, you can attract investors in your project.

You can make a thai company but remember that it ain't really legal as this matter has been discuss over and over on this forum.

The way you explain that the major thai shareholder will buy the chanott and then lend from the bank etc worries me a bit even if the logic of it holds

Best of luck

[Somrak]

A 30 years registered lease at the Land Department would give you the full rights on the piece of lands. You can add some renewal options to the contract but those cannot be registered.

This way i woud prefere to. But for this way you need the money to pay for the lease too (2 mil. bath).

The first problem for you is not how to secure your business, how to open the business without money!?

Did you consider the idee may renting an existing business? This woud allow you to start soon and pay for the fist expences with your income.

[hhgz]

simon43,

I've followed your story, and you've been through the ringer - for sure. I'd speak with an expert, Sunbelt Asia, who can do this for you.

[keestha]

- Pay the major Thai shareholder a salary each month such that their regular income qualifies them to borrow money from a Thai bank to purchase the Chanote land for the guesthouse (2 million baht).

Simon

It has become more difficult to borrow money from a bank to build a hotel for a person who already owns the land, I doubt if it would be possible to find a bank who would be willing to finance purchasing the land.

Maybe I am wrong, does anybody have experience with this?

Another thing: when establishing a company, it is highly essential who has the right to sign on behalf of the company, this will be written on the front page of the company book, it can be one or more persons.