7-up

[Erick]

I want to set a Ltd Co. with my partner but my understanding is that a minimum of seven shareholders are needed. Unfortunately, we don't know (or trust) 7 people to become shareholders. I read somewhere about lawyers providing, for afee of course, nominee shareholders. Please could some one expalin the details and pitfalls of this arrangement. Any other solutions?

[Indo-Siam]

For a Thai Private Co. Ltd., there must initially be at least seven "promoters" as shareholders - even for a company started entirely by Thais.

Although I have not directly seen the Thai law, I understand that "nominee" shareholdersare not supposed to be used.  Nevertheless, it is VERY common for companiesto be formed with one or several shareholders holding a significant number of shares, and the balance of shareholders (to round out the seven) owning one share each.  This would seem to me to blatently represent use of nominees, but the registration office does not care.  By the way, the typical par value of a  share is 100 baht, so a company capitalized at, say 2,000,000 baht, will have 20,000 shares.

What is common is that "serious" shareholders secure the required shareholder headcount via use of "nominee" (proxy) Thai shareholders.   I should note that shareholdeer signatures are only needed for filing of the Memorandum of Association for a company - and are never needed again, unless their shares are sold.  Companies that offer registration services can typically come up with "warm bodies" who will sign as shareholders, and allow submission of copies of their identity documents, to make up the required quorum of seven individuals.  Typically, "serious shareholders" should expect to pay a one-time "honorarium" to nominees, for use of their services.   Depending on who these folks are, you are typically talking 2,000 - 8,000 baht per head.

Although many incorporation firms do not take this into account, nominees do have personal shareholder financial liability - up to the par value of shares for which they sign - in cases where registered capital is NOT paid in, and the company accumulates debts, and then defaults.  Astute companies will thus charge a significantly higher fee for nominees (as they are taking much greater risk) if you are forming a company without paying in the registered capital (and I know of very few companies formed by folks requiring nominees that can afford to pay-in their registered capital).

A common request by "serious investors" is that all nominee shareholders sign a blank share sale certificate, meaning that in the future, their shares can be transferred to another party without their knowledge (or - should they become a problem - they can be replaced).  This helps the "serious investors" sleep well at night.  It shouldn't.  Use of presigned share sale certificates is absolutely meaningless AS A PROTECTIVE MEASURE - because after you obtain their signatures on the blank certificates, nothing prevents the nominee from selling their shares to someone else, the moment you have departed.  New owners can then go have their share purchase registered - and what the "serious investors" are now holding (in total ignorance) are certificates by past shareholders, selling shares that they no longer own.  Use of pre-signed certificates is still a prtactical way of preparing for the eventuality of transferring proxy shares to another shareholder.  One tip - If you are paying 1,000 or 2,000 baht for nominees, you should not expect to ever be able to locate such shareholders again if you need them - your nominees are most likely motorcycle couriers, or cleaning ladies.  So it is a good idea to collect pre-signed share certificates for low-rent nominees.

If you are talking about the situation of giving 51% share ownership to four Thai strangers, you are probably very concerned about losing control of your company.  There is a fully legal way of drafting articles of incorporation so as to give the 49% shareholders a little more than 90.5% of voting power in shareholder meetings.  This is significant in that Thai law requires 75% of voting shares to be in support of significant shareholder actions - such as replacing directors, increasing capitalization, declaring dividends, and liquidating a company.

Final comment.  While my knowledge in this matter does not represent "ultimate truth" (whatever that is), I have NEVER heard of even one case of paid nominee shareholders (who are strangers to "serious investors") ever causing so much as a flicker of a problem to "serious investors."   Paid nominees accept their money, and in return do what they agreed to do - which is go "blind, deaf, and dumb" as far as the company is concerned, thereby "rubber stamping" (by default) whatever the "serious investors" come up with.   In most cases, I suspect that "serious investors" and "nominee shareholders" never have any contact with one another in their lives.

It is from within the ranks of the other "serious investors," or the "Thai girlfriend (or Thai wife, or farang wife) nominees" that ALL the problems arise.  Given the choice between using a non-investing friend (particularly an intimate friend of the opposite sex) as a nominee for free, or using a Thai stranger as a nominee for 5,000 baht per head - I would personally advise you to always go with the mercenary strangers - and you will always sleep well thereafter.

Good luck!

Steve

Indo-Siam

www.thaistartup.com

[Sunbelt Asia]

Although many incorporation firms do not take this into account, nominees do have personal shareholder financial liability - up to the par value of shares for which they sign - in cases where registered capital is NOT paid in, and the company accumulates debts, and then defaults.

They have more risk than just this..

Section 36. Any Thai national or juristic person that is not a foreigner under this Act, aiding or abetting or taking part in the business operation of the foreigners whose business falls under the Lists attached hereto and the foreigners are not permitted to operate the business or taking part in the business operation of the foreigner by showing that he or it is the sole owner of the business or holding shares on behalf of the foreigners in any partnership or limited company or juristic person in order for the foreigners to operate the business in avoidance of or violation to the provisions of this Act, including the foreigners allowing Thai nationals or juristic persons that are not foreigners under this Act to do so, shall be punished with an imprisonment of not exceeding three years or a fine from 100,000 Baht to 1,000,000 Baht or both, and the Court shall order a stoppage of the aiding or abetting or order a stoppage of the joint business operation or order a stoppage of share holding or a cessation of the partnership as the case may be. Violators of the Court's order shall be subject to a punishment with a fine

http://www.thairegistration.com/eng/law/fba_e1999.phtml

Granted, most lawyers use nominees but it is illegal. There are strategies however that are legal as I 've pointed out before.

[Indo-Siam]

Greg -

But - the section you cite specifically refers only to the lists of prohibited activities that are attached to the Act at Lists 1, 2, and 3.  These lists represent those businesses in which foreigners are not allowed to engage (growing rice, making Buddha images, etc.).

So - Section 36 applies only to situations where a  foreigner is specifically trying to run a business that he is not supposed to be eligible to run, and doing so by the artifice of hiring Thai "front men".

As far as I can tell, if your business involves something other than the activities which appear on the prohoibited lists, the rule does not apply.

With that said, List 3 is a pretty general list, that covers a lot of activities.

Also, you can do just about anything here, if you get approval to do so from the BOI (where applicable) or the Department of Foreign Business.  On Friday, I received the company regsitration documents for a Thai Private Co.Ltd. in which the British majority shareholder holds 19,994 shares, and six Thais each own one share.  Theorectically, this should not be possible.  But there it was - and this company has been around for a couple of years, and has been procesed for several changes of address, directors, etc (we will be helping them accomplish a capitalization increase).

I asked the director how his situation came to pass - and he said:  "I always hear all this stuff about 51% Thai ownership, so when we went in, I asked if I could get an exception to run my trading business, and they said - no problem - and approved my registration."

So - I think the rules can be invoked when they feel like it, but Thai bureaucrats have discretion to grant exceptions.  

Cheers!

Steve

Indo-Siam

www.thaistartup.com

[Sunbelt Asia]

With that said, List 3 is a pretty general list, that covers a lot of activities.

That it does...

(21) Other categories of service business except that prescribed in the ministerial regulations.

(14) Retailing all categories of goods having the total minimum capital less than 100 million Baht or having the minimum capital of each shop less than 20 million Baht.

(15) Wholesaling all categories of goods having minimum capital of each shop less than 100 million Baht.

(19) Selling food or beverages.

That is where they get most businesses!

"I always hear all this stuff about 51% Thai ownership, so when we went in, I asked if I could get an exception to run my trading business, and they said - no problem - and approved my registration."

If they don't get a work permit, I don't doubt it. From our lawyers experience, thats where they catch it. At least they do on Americans. Noone says anything when the company is registered but the labor board ask to see the Amity treaty before granting the work permit.

" think the rules can be invoked when they feel like it, but Thai bureaucrats have discretion to grant exceptions"

That they do! That they do!

[Indo-Siam]

The guy does not have a work permit, nor a non-immigrant visa.  He travels constantly back and forth to Hong Kong, so there is evidently no big need.  He has a Thai director who signs all the papers.

Indo-Siam

[Sunbelt Asia]

Is the Thai Director the Managinging Director and binds the company?