Selling Company Property

[Wanderer]

If you were selling a property which is owned by a company which you are a director.

1. Do you have to pay the shareholders their share of the profit and do you need need their signitures (say you're wife owns 49 %) can she in theory demand 49% share of the profit ?

2. If the company owns 2 properties and wants to sell 1 of them, you want to keep the company running for the remaining property so again to you have to pay the shareholders or what tax do you need to pay ?

thanks in advance

Edited May 17, 2005 by Wanderer

[Sumitr Man]

Wanderer:

You would only need to pay the shareholders:

(1) in the event that you were liquidating the company; or

(2) in the event that a dividend was declared.

In the event of (2), factors such as whether or not you have preference shares would play a role.

A major factor would be whether or not the company had an operating profit - but one-off dividends to shareholders from the sale of assets is permitted.

In short, it is hard to answer you question without more info.

For, 2 - tax would likely be payable on company income (30%), plus individual income (of shareholders), which is between 5- 37%.

SM

Edited May 17, 2005 by Sumitr Man

[Wanderer]

Wanderer:

You would only need to pay the shareholders:

(1) in the event that you were liquidating the company; or

(2) in the event that a dividend was declared.

In the event of (2), factors such as whether or not you have preference shares would play a role.

A major factor would be whether or not the company had an operating profit - but one-off dividends to shareholders from the sale of assets is permitted.

In short, it is hard to answer you question without more info.

For, 2 - tax would likely be payable on company income (30%), plus individual income (of shareholders), which is between 5- 37%.

SM

<{POST_SNAPBACK}>

ok ! if the company was set up with with sole purpose of allowing a foreigner to buy 2 properties with foreigner owning 49% (1milliion baht company) say with properties worth 1 mil. each

First case , you want to sell one property and keep the other for personal use.

Second case , you want to sell both individually and then liquidate the company.

As a director can you just walk away with the cash from the sale or can the shareholders demand some of the profit i.e 51 % or in the case of liquidating a 1 mil baht company can they demand the share price back say 49 % stocks = 490,000 baht.

thx for any info

Edited May 17, 2005 by Wanderer

[Sumitr Man]

Wanderer:

Without wishing to sound too rude, as I don't really know all the ins-and-outs; but as a director of a company you would not be entitled to any of the "profits" of the company as a result of anything - it is the job of the director to earn profit on behalf of the company.

Now, assuming the company makes a profit, and assuming the company doesn't have to make any statutory reservations, etc., and assuming that the articles of association of the company say it can be done, and assuming that a board of directors meeting has passed a resolution to put an agenda at the next shareholders' meeting to discuss dividend payment, and assuming that the shareholders' meeting has passed a resolution to distribute dividend in accordance with the agenda item, and assuming that there is no preference share sturcture (which, BTW, is a BIG assumption, because in the case of a company set up to purchase property where one of the shareholders is a foreigner some form of preference share structure is usually used) THEN

the shareholders will pass a resolution that Baht ** per share will be paid as dividend. In such a case, the amount you get depends on the number of shares you have.

Of course, ANY of the assumptions above changes, and the scenario may change.

As for liquidation of the company, well we then have to get even more technical with the assumptions - no creditors, notice in at lease one published newspaper, etc.

So, to answer your question as best I can, if you are paying a dividend, the number of shares you have is only relevant insofar as it entitles you to thatmuch more of the dividend that is paid per share. But, a preference share structure will most likely kick that into touch - so, without looking at your company's AoAs (articles of association), it would be very difficult to answer this question.

Edited May 17, 2005 by Sumitr Man

[autonomous_unit]

The point being made is that the sale is between the buyer and the company. The company converts real property into liquid assets. The sale transaction is taxed at the land office. Profits on the sale may contribute to the profit on the books for the company and be taxable at the end of the year/quarter/whatever.

I'm not sure why you are getting hung up on the sale... the sale is irrelevant in the question of whether a directory may walk away with assets of the company. The answer is yes he probably can and yes the shareholders can get him strung up for doing so if it appears to be fraud. It amounts to the director issuing himself extra compensation which is taxable as personal income. The director does not have the legal freedom to do things that are against the shareholders' financial interests, even if he has the technical ability to do so.

And of course it is not recommended or appropriate to establish a company for the sole purpose of allowing a foreigner to own property, so the director of such a hypothetical company might already be lining himself up for trouble without getting to the point of embezzling...

[William Osborne]

The point being made is that the sale is between the buyer and the company.  The company converts real property into liquid assets.  The sale transaction is taxed at the land office. Profits on the sale may contribute to the profit on the books for the company and be taxable at the end of the year/quarter/whatever.

I'm not sure why you are getting hung up on the sale... the sale is irrelevant in the question of whether a directory may walk away with assets of the company. The answer is yes he probably can and yes the shareholders can get him strung up for doing so if it appears to be fraud. It amounts to the director issuing himself extra compensation which is taxable as personal income. The director does not have the legal freedom to do things that are against the shareholders' financial interests, even if he has the technical ability to do so.

And of course it is not recommended or appropriate to establish a company for the sole purpose of allowing a foreigner to own property, so the director of such a hypothetical company might already be lining himself up for trouble without getting to the point of embezzling... 

<{POST_SNAPBACK}>

I'm sure a lawyer could set it up without too much problems ,considering how much property is owned by falangs through companies set up for this purpose. Not 100 % legal but not illegal is how one lawyer put it to me, with a disarming smile.

[Sunny Valentine]

Maybe someone could evaluate the following (simplified, and hypotehetical) situation:

1.) Company with registered, paid-in capital of 2 Mill Bt.

2.) Farang paid in 49%, Thais paid in 51% (by means of a loan from the farang, this is documented, and agreed on seperate paper that the loan must be paid back first, before they can cash in any dividends, or other payments from the company, with the possible exception of compensation for work for the company.)

3.) Company buys house and land for 2 Mill. Baht.

4.) Company rents house and land to farang (director), the income is used to cover company costs, and taxes.

5.) After some Years, company sells house and land for the same amout of 2 Million Baht.

6.) Company will be liquidated, no other transactions, liabilities and such, so the total assets of the company will be 2 Million Baht then.

7.) Rafang takes 49% (the amoutnt of capital paid in originally), Thais take 51% and refund the loan to Farang.

Result: Farang has his investment back, and no taxes paid.

Correct? Or not?

Also:

5b.) After some Years, company sells house and land for now 4 Million Baht. What now?

Sunny

[~G~]

I'm sure a lawyer could set it up without too much problems ,considering how much property is owned by falangs through companies set up for this purpose. Not 100 % legal but not illegal is how one lawyer put it to me, with a disarming smile. 

<{POST_SNAPBACK}>

Don't look at the smile, look at the eyes... easy to imagine what goes through their heads at that time... "not 100% legal, but legal enough to take a fee."

[~G~]

Maybe someone could evaluate the following (simplified, and hypotehetical) situation:

1.) Company with registered, paid-in capital of 2 Mill Bt.

2.) Farang paid in 49%, Thais paid in 51% (by means of a loan from the farang, this is documented, and agreed on seperate paper that the loan must be paid back first, before they can cash in any dividends, or other payments from the company, with the possible exception of compensation for work for the company.)

3.) Company buys house and land for 2 Mill. Baht.

4.) Company rents house and land to farang (director), the income is used to cover company costs, and taxes.

5.) After some Years, company sells house and land for the same amout of 2 Million Baht.

6.) Company will be liquidated, no other transactions, liabilities and such, so the total assets of the company will be 2 Million Baht then.

7.) Rafang takes 49% (the amoutnt of capital paid in originally), Thais take 51% and refund the loan to Farang.

Result: Farang has his investment back, and no taxes paid.

Correct? Or not?

Also:

5b.) After some Years, company sells house and land for now 4 Million Baht. What now?

Sunny

<{POST_SNAPBACK}>

Apparantly they want you to pay minimum vat every year. If the director will pay high enough rent to match that, there will profit for the company, upon which corporate tax needs to be paid.

what is the rent you had in mind? just enough to cover accounting?

[Wanderer]

Thx for info guys, just want to do some research as there is so much conflicting stories around not including ' a bloke I met in the bar'

[Sunny Valentine]

Don't see the reason to register this company for VAT, as it definitely wont make 100000 Bt turnover a month and no need for a WP for a foreigner.

Again, the question is hypothetical, and basically aimed for further understanding the business structures and consequences of running such a company.

As to your Question: Yes, ideally it should be aimed to cover the running costs (Accounting, Auditing, legal advice) only, with a little overhead aka "Profit". Now I understand this might well be questionable by the authorities. Are there guidance figures available what rent would be "sufficient" in their minds

Sunny

Maybe someone could evaluate the following (simplified, and hypotehetical) situation:

1.) Company with registered, paid-in capital of 2 Mill Bt.

2.) Farang paid in 49%, Thais paid in 51% (by means of a loan from the farang, this is documented, and agreed on seperate paper that the loan must be paid back first, before they can cash in any dividends, or other payments from the company, with the possible exception of compensation for work for the company.)

3.) Company buys house and land for 2 Mill. Baht.

4.) Company rents house and land to farang (director), the income is used to cover company costs, and taxes.

5.) After some Years, company sells house and land for the same amout of 2 Million Baht.

6.) Company will be liquidated, no other transactions, liabilities and such, so the total assets of the company will be 2 Million Baht then.

7.) Rafang takes 49% (the amoutnt of capital paid in originally), Thais take 51% and refund the loan to Farang.

Result: Farang has his investment back, and no taxes paid.

Correct? Or not?

Also:

5b.) After some Years, company sells house and land for now 4 Million Baht. What now?

Sunny

<{POST_SNAPBACK}>

Apparantly they want you to pay minimum vat every year. If the director will pay high enough rent to match that, there will profit for the company, upon which corporate tax needs to be paid.

what is the rent you had in mind? just enough to cover accounting?

<{POST_SNAPBACK}>

[~G~]

If you are not employed by the company, who is running it? who signs the checks? who deposites the money in the bank? who pays the bills? A company with no employees whatsoever? Otherwise, if you have a Thai manager, its extra overhead.

As for rent, I don't have a clue what will seem right for them, my understanding of these things is that as long as they get enough taxes from you you're ok, otherwise you may expect troubles.

Eventually I believe you can do this kind of thing, but all the overhead around it might be difficult to estimate.

Edited May 19, 2005 by ~G~

[Wanderer]

If you are not employed by the company, who is running it? who signs the checks? who deposites the money in the bank? who pays the bills? A company with no employees whatsoever? Otherwise, if you have a Thai manager, its extra overhead.

As for rent, I don't have a clue what will seem right for them, my understanding of these things is that as long as they get enough taxes from you you're ok, otherwise you may expect troubles.

Eventually I believe you can do this kind of thing, but all the overhead around it might be difficult to estimate.

<{POST_SNAPBACK}>

lets face it, it is way most foreigners get around the law, even this website condones it, as i said before its all the conflicting stories which are confusing,

Is there any documented cases of farangs losing "swindled" out of their investments i.e buying property through a company which he/she has laid out the cash but has gone through a reputale (spelling)lawyer thx , forgive me for the ignorance but i was never the one to walk through airports pretending to know where i was going

[expatinasia]

sunnyvalentine,

You posted:

2.) Farang paid in 49%, Thais paid in 51% (by means of a loan from the farang, this is documented, and agreed on seperate paper that the loan must be paid back first, before they can cash in any dividends, or other payments from the company, with the possible exception of compensation for work for the company.)

Have you set up a company yet, or are you just getting educated? Although the law allows a 49/51% split, two attorneys advised me to do something different. According to both of them, the company should be set up as 39/61% - using the "loan" strategy, common stock for "ownership", and preferred stock (me, 100%) for "voting rights". The reason: any company set up with more than 40% farang-owner is scrutinized VERY carefully and would be subject to additional audits by the government, AND, if it was determined that the company was a "shelf" arrangement (non-traded, to buy real estate only), it would be shuttered.

Your attorney might have a different perspective.

[Sunny Valentine]

Expat, keep hearing that the rule that made them check the companies with more than 40% foreign ownership has been cancelled some two Years ago.

By all means, I am just gathering information (and understanding!) of the process, I would not feel too comfortable by owning land via a company myself.

Sunny

[JimmyGreaves]

Expat, keep hearing that the rule that made them check the companies with more than 40% foreign ownership has been cancelled some two Years ago.

By all means, I am just gathering information (and understanding!) of the process, I would not feel too comfortable by owning land via a company myself.

Sunny

Anyone confirm that checking companies with over 40% has ceased?

[Cabana]

Indo Siam advised me to set up 49/51 and the owner of that co is (or seems to be) very well read on this subject, quoting thai law via govt websites. Doubt he would advise it if there were problems with his existing clients (stands to reason). However many people I know go 39/61 on the basis of the rumour repeated in this post that could it MIGHT cause a problem.

Expat, keep hearing that the rule that made them check the companies with more than 40% foreign ownership has been cancelled some two Years ago.

By all means, I am just gathering information (and understanding!) of the process, I would not feel too comfortable by owning land via a company myself.

Sunny

Anyone confirm that checking companies with over 40% has ceased?