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Fractional Ownership Of A Hotel Business


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My Thai ex-wife is the sole-proprietor of a profitable Phuket hotel, the construction of which was financed by myself during our marriage. We have been divorced for over 2 years, but we have a legal agreement to equally share the proceeds of the sale of the hotel. My ex and her lawyer have recently re-acknowledged the validity of this agreement, and that all payments by the purchaser of the hotel are to be made initially to myself. (So that sounds ok, despite what some scare-mongerers have been saying!).

Since our divorce, my ex has been wanting to sell the hotel, since she cannot manage it efficiently on her own, (as detailed in a long TV thread a few years ago).

Although I have found several potential purchasers over the past year or so, none of their interest has proceeded through to a sale, although they all acknowledged the profitability of the business. (Annual ROI is never less than 30%). Their main concern was the level of investment required to purchase 100% of the business ownership (10 million baht).

So I want to consider a different route, which is to offer 50% ownership of the hotel business to 5 'silent' investors, each holding 10% of the business. The investment would then be 1 million baht for a 10% share of ownership. I would own 50% of the business, and it is I who would manage the business, since I already have that experience, and have demonstated that the business can make a very good return on investment. My ex would receive the 5 million baht investment from the 5 x 10% shareholders, and would then have no further involvement in the business. Shareholders would also benefit from periods of free stay at the hotel throughout the year, or could 'sell' this on to friends. But shareholders would primarily be investing in the business for the ROI, not for the opportunity to have a free holiday.

I understand that a typical ROI for a rented condo in Thailand is perhaps 12-14%. So a proven return of 30% looks attractive, (I got the annual ROI up to 45% when I was directly managing the hotel). The only downside is that the investment is for a fixed term of 10 years, since that is the remaining length of the land lease. (This might be renewed, but it is not guaranteed). But earning > 30% ROI for 10 years sounds attractive to me.

Assuming all the above, what is the best company/business structure to be able to legally offer and operate this type of fractional ownership in Thailand, whilst ensuring that the rights of myself as major shareholder are sufficiently protected? The minor shareholders could be either Thai or non-Thai, and so I cannot easily see a solution to this concept that meets Thai business/company legislation requirements..

Any advice,comments, criticisms etc much appreciated.

Simon

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Sell a percentage of the shares equal to the %age ownership. Do a JV (joint venture) agreement with the minority shareholders spelling out their and your rights and responsibilities. The JV agreement will spell out that it cannot be overridden by the MD or any vote of the shareholders without complete agreement by the minority shareholders.

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Rama, your suggestion makes some sense but doesn't meet the requirement to have majority Thai shareholders in the company.

It is possible that all investors (and me) in this business are non-Thai. I think I may have to register a Thai ltd company with a majority Thai shareholder (50%), then allocate the remaining 50% of the shares according to the % of investment. Eg - I would have 25% and then each of the minor shareholders would have 5%. The majority Thai shareholder simply exists to meet the Thai company requirments and would not be entitled to any dividend or share of the profits, (not quite sure how I structure this)

But this requires me to have a trusted majority Thai shareholder which can be an issue...

Simon

Edited by simon43
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Understand what you're saying, but remember that the JV agreement overrides all percentages and votes. You can have the Thai with whatever percentage, doesn't matter. In the JV you can say that one person with 5% gets 90% of the profit, JV rules. Don't focus on the %age ownership, make the JV watertight. You can spell out in the JV that the MD is only allowed to do certain things or is limited in what he can sign company for, etc. When the multinationals open shop here with a Thai partner they have a JV agreement limiting the powers of the Thai partner, giving them (the multinational) the right to name a majority of the Board of directors, rights to name the CFO, etc.etc so they keep control.

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actually the real return based on your 30% quote over the 10 year period would around 17.2% per annum. and that is without taking into account the taxation implications for each investor.

you forgot to factor in the potential "walk away at the end of ten years with nothing" factor into your 30% return equation.

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Rama is right, although I would cover this in a shareholders agreement rather than a JV. I would also discuss it with a Lawyer. PM me if you want an excellent recommendation.

Hagler is also right, the potential loss of capital isn't very attractive. I would suggest negotiating an extension clause now if you can.

How many years accounts have you got? How real are they?

We are in the middle of a similar deal, albeit on a bigger scale, so I would be interested in having a look at this.

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  • 8 months later...

What yuo are proposing is very unsound for the 10% minority shareholder.

Having a minority share in anything - particulalrly if you are a foreigner holding shares in a Thai company.

It is not possible either for you as a foreigner to hold 50% shareholding in any Thailand Company.

So it is back to the drawing board again for you!

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There seems to be a bigger risk to the other investors with the Thai ltd. company as now they only own 5% under the scenario you describe.

Would it be possible to set up a ltd company in the business of purchasing and managing hotels, this company is owned by you and a Thai partner and it purchases YOUR 50% of the business and the investors purchase 10% each from your wife.

That way their risk is minimised but you have a greater risk and it's then up to you how you secure that risk with your Thai partner.

The asset of the company would be 50% of a hotel (your 50%) and you would be the MD of the holding company.

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There seems to be a bigger risk to the other investors with the Thai ltd. company as now they only own 5% under the scenario you describe.

Would it be possible to set up a ltd company in the business of purchasing and managing hotels, this company is owned by you and a Thai partner and it purchases YOUR 50% of the business and the investors purchase 10% each from your wife.

That way their risk is minimised but you have a greater risk and it's then up to you how you secure that risk with your Thai partner.

The asset of the company would be 50% of a hotel (your 50%) and you would be the MD of the holding company.

Forget about the notion of ownership of shares in a Thai company as a way for you to own and control things!

The Thai laws make that a no-go zone.

There are a number of legitimate ways to CONTROL anything and everything that moves - NOT requiring ownership of shares.

If you seriously want assistance please PM me and we can arrange a face to face so you can achieve what you are endeavouring to do.

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