How Can I Own Shares In A Thai Company?

[zaz]

Can a non-Thai (farang) own shares in a private Thai registered company? What rules/restrictions are there? What is the process?

Thanks

[steveromagnino]

as far as I know yes; notwithstanding that only 49% of the shares can be in foreign hands excluding Treaty of Amity which allows up to 100% for Americans only (but presumably does not apply if this is a Thai company).

Process?

Share transfer, money transfer, change in the share holding structure and you might have to submit some forms - I would seriously consider hiring an expert to do this stuff.

[Sumitr Man]

The first thing you need to do is check the Article of Association of the company to make sure they do not contain a provision limiting foreign ownership (many do).

Then check the Alien Business Law 1999 to see if the company's activities are restricted.

If the AoAs limit foreign shareholding ownership - then you'll be limited to that amount (assuming you are the only shareholder - or aggregately if there are more than 1).

If the ABL restricts the activity of the company (in one of the 3 annexes), then you will be restricted by the terms of the ABL (which very much depends on the nature of the business).

If netiehr the AoAs nor the ABL restrict your ownership of shares, and provided it is a private limited company 9as opposed to a public limited company where there may be further restrictions, such as in the Commercial Banking Act), you should be allowed to own 100% of company less 6 shares - as to form a private limited company you need 7 shareholders.

SM

[zaz]

Thanks guys that's helpful.

Let's say the company in question is not a small one and it isn't being setup for sole ownership by a farang, as far as the farang owning the shares is concerned are there any restrictions/requirements for him/her except for the % of the total share capital he/she purchases? I am really comparing share/equity ownership to property/real eastate ownership in Thailand where a farang can only purchase property in 3 ways i.e. (1) by setting up a Ltd company, (2) by lease or (3) by registering in their Thai spouse's name. So my query is if share ownership has any requirements such as these?

Thanks

[Sumitr Man]

I would like to suggest that you take a read of the following website and then if you have any specific questions, ask away

http://www.boi.go.th/english/how/company_establishing.asp

As a general comment, if you are looking to establish a company to own land, the company would need to be "Thai" (50%+1 share - but we normally say 51% to be safe) as foreigners, which includes foreign companies, cannot own land (provisio - if the company trades in particular specific areas, such as a petroleum company or an IEAT zone, this may not be the case).

This link will help you with company formation questions

http://www.ethailand.com/index.php?company_formation

This site will give you a little background in the FBL

http://www.ethailand.com/index.php?foreign_business_law

SM

[zaz]

Thanks, I'll have a look there.

[Indo-Siam]

There are several incorrect statements in this discussion thread.

First - nothing stops anyone from buying all but six of a private company's shares - the only rule is that there must be at least seven total shareholders (each holding at least one share).

Similarly, seven foreigners can register a Thai Private Co. Ltd. - nothing prevents this - including the Alien Business Law.

The restrictions on a foreign majority-owned company are NOT on the EXISTENCE of such a company - the restrictions are on what ACTIVITIES such a company may pursue.

The full text is available in English at: http://www.thailawforum.com/database1/foreign.html

To give just one example: the Act does not prevent a 100% foreign owned company from pursuing manufacturing - manufacturing is NOT on any of the Lists of restricted activities.

So - again - beware the "barstool experts."

Cheers!

Steve Sykes

Managing Director

Indo-Siam Group

Bangkok

[email protected]

www.thaistartup.com

[Sumitr Man]

Provided the AoAs of an already established company do not specify otherwise, and provided further that it is private limited company and not a public limited company, everything you say is true Steve.

However, I do not see how what you say is any different to what has already been said above that would make you make a comment such as "barstool experts"?

SM

EDIT:

On re-reading your post:

The restrictions on a foreign majority-owned company are NOT on the EXISTENCE of such a company - the restrictions are on what ACTIVITIES such a company may pursue.

technically you are correct - the FBL does not prohibit the existence of such a company - merely what the company may do.

However, the MoC will not register (as new) a Thai private limited company that is majority foreign owned if such company has, as one of its objectives, a stated objectivity that is a restricted/prohibited activity AND no exemption (such as BoI exemptions, etc.) has been given.

So, while the FBL may not prohibit the existence of such a company, generally the MoC would not agree to the registration.

Edited August 26, 2005 by Sumitr Man

[Indo-Siam]

SM - where do you come up with this??? This is completely incorrect.

The Commercial Registration Office does not bat an eye if seven foreigners come in and register a company with them owning 100% of shares. No problem whatsoever.

Every US Amity Treaty Company, and every company that applies for an Alien Business License MUST be at least majority foreign-owned - otherwise your application will not even be accepted.

It is routinely possible to form a majority (or fully) foreign owned company - and obtain tax registration, open a bank account, hire Thai employees, and commence business.

I know specifically of three companies - whose Bor Or Jor 5 I have personally seen - that were majority foreign-owned, and operated here for quite some time.

What is true is that - if operating like this in violation of the law - a company is subject to the penalties in the Foreign Busines Act - some of which are fairly severe. But - there is no routine active enforcement against violators. They simply will not allow you to:

1) Obtain a work permit for a foreigner

2) Obtain an import license

3) Purchase land

If you try to do any of these, they do not persecute or prosecute you - they just refuse to accept your application.

The same situation of tolenace goes for companies pursuing BOI - you can form as majority foreign-owned, and then apply for BOI - and nothing blocks you from carrying out routine business operations - using Thai employees - while you prepare your application, or while it is processing.

Although it is not clearly stated in the Foreign Busines Act, I understand that - from a practical standpoint - it is almost impossible for a for a company to purchase land in Thailand if less than 60% of shares are owned by Thais.

Cheers!

Steve Sykes

Managing Director

Indo-Siam Group

Bangkok

[email protected]

www.thaistartup.com

[Sumitr Man]

SM - where do you come up with this???    This is completely incorrect.

The Commercial Registration Office does not bat an eye if seven foreigners come in and register a company with them owning 100% of shares.  No problem whatsoever.

True - provided that you do not have as an objective of the company  something which is restricted to Thais, in which case the MoC will likely ask you to amend your objectives prior to restrigration <-- if you have no other exemption.  This has been my experience, yours may be different.

Every US Amity Treaty Company, and every company that applies for an Alien Business License  MUST be at least majority foreign-owned - otherwise your application will not even be accepted.

Again, true.  But these are the exact exemptions I am talking of.

It is routinely possible to form a majority (or fully) foreign owned company - and obtain tax registration, open a bank account, hire Thai employees, and commence business.

Exactly right - provide that company in not active in a restricted area - in which case it will need one of the exemptions - such as those you have mentioned above.  Otherwise problems may be encounter.  For example, if I open a holding  company in Thailand - that could be 100% foreign owned and I would agree 100% with what you have said.  However, if I have no exemptions whatsoever, and, as a foreigner, I tried to incorpoate a company to own and run a farm, I may well encounter problems.

I know specifically of three companies - whose Bor Or Jor 5 I have personally seen - that were majority foreign-owned, and operated here for quite some time.

Again - this is not impossible, if the area of their activity is not restricted; or, if restricted, they have an exemption.  If they do not have an exemption AND are active in a restricted area, then 100% ownership would be rare and are likely to be companies that operated for a long time, which have likely been grandfathered.

What is true is that - if operating like this in violation of the law - a company is subject to the penalties in the Foreign Busines Act - some of which are fairly severe.  But - there is no routine active enforcement against violators.  They simply will  not allow you to:

1)  Obtain a work permit for a foreigner

2)  Obtain an import license

3)  Purchase land

If you try to do any of these, they do not persecute or prosecute you - they just refuse to accept your application.

which is effectively what I am saying.  The difference, as I see it, between what you are saying and what I am saying is that you say you can establish the business, but you cannot do anything with it.  Whereas I'm saying when you submit your application, you will be restricted from doing those things set out as restricted under the law.  Provided you are not doing something restricted, you and I are in total agreement - you can have 100% foreign ownership.

The same situation of tolenace goes for companies pursuing BOI - you can form as majority foreign-owned, and then apply for BOI - and nothing blocks you from carrying out routine business operations - using Thai employees - while you prepare your application, or while it is processing.

I'm 50/50 with this.  I have seen operations like you mention, but they were big multi nationals where the application was pretty much guaranteed and where the investment amount was fairly large.  I think if Joe Bloggs went to do this with minimal investment then it may not be the same (although I would agree that it depends on a case-by-case basis).

Although it is not clearly stated in the Foreign Busines Act, I understand that - from a practical standpoint - it is almost impossible for a for a company to purchase land in Thailand if less than 60% of shares are owned by Thais.

This was true until around Nov. of last year, when this was changed to  49% ownership.  Nonetheless, if one wishes to be safe in the future - your 60% Thai ownership would most probably be better/safer

Cheers!

have a nice weekend

Steve Sykes

Managing Director

Indo-Siam Group

Bangkok

[email protected]

www.thaistartup.com

<{POST_SNAPBACK}>

[~G~]

What is true is that - if operating like this in violation of the law - a company is subject to the penalties in the Foreign Busines Act - some of which are fairly severe.  But - there is no routine active enforcement against violators.  They simply will  not allow you to:

1)  Obtain a work permit for a foreigner

2)  Obtain an import license

3)  Purchase land

If you try to do any of these, they do not persecute or prosecute you - they just refuse to accept your application.

I am not sure if this is the same for foreign-majority companies, but in the work permit application, as far as I understand, the activity mentioned in the VAT registration form is the one that gets checked, rather than the activity stated in the Article of Association.

In my case (Thai majority company) my application form for WP was initially rejected due to activity which requires a special license. When this activity was changed in the VAT registration form (and not anywhere else) the WP was granted.

[Indo-Siam]

SM -

I suspect that your "experience" was filtered through some Thai law office or service provider that gave you bad information.

I am telling you - six foreigners - none of which have ever set foot in Thailand - can start company here - as long as they have one Thai shareholder owning at least one share - because one person must file the name reservation, the MOA, and then sign the application for incrporation - and this individual must be one of the seven initial promoters - each one of which must then be one of the initial seven shareholders.

Concerning objectives - all companies must include a special group of six objectives - and then you must include at least seven more off a master list - and they LITERALLY do not care which objectives you select - and you may select ALL of them - again, they do not care- and they do not match this list against shareholder nationalities.

There is NOTHING in the Comercial Registration Office checklist that tells them to prevent foreign majority firms from being created - and they do not try to "peer into the future" and predict what activities your company might someday pursue - or whether you might apply for an ABL, or Amity Treaty, or BOI - or might simply operate in violation of the Foreign Business Act. They have no role in preventing this.

If you don't believe me - come to our office - I will show you the Bor Or Jor 5 form of a foreign majority-owned company with foreigners owning more than 90% of shares - and I will then take you nearby, and show you that company - with about 10 Thais happily working away - for much more than one year - and they have never bothered filing for a ABL -and nobody bothers them. They are software/technology oriented, and I would assess their activitise to fall under the Foreign Business Act (FBA). But - their foreign owners remain overseas, and they have not needed any other permits. Revenue Department gives them no hassles.

So - the Thai system does not prevent formation of majority foreign-owned companies, and it does not hunt down violators of the FBA. It does prevent companies structured and operating in violation from obtaining most types of permits. And - for sure - operating like this makes you subject to the penalties in the FBA - so, I would not operate this way myself.

I am not guessing at all of this. This is my core business - we are continuously processing companies. I'm personally a little bit surprised at how easy it is to operate in violation of the FBA - as long as no foreign employees are involved.

Steve

Indo-Siam

[Sumitr Man]

Steve:

I accept what you are saying.

Like you, I have never seen any problem with registering a Thai private limited company where all [100% of] the shareholders are foreigners; provided that:

(1) at least one director (not shareholder) was resident in Thailand; and

(2) the MoA did not contain an objective that was a restricted activity.

If either of these two happens, then registration problems occured.

Now, as to whether or not the officials would come to your office and check that you were not carrying on an activity that was restricted (or an activity that was not listed in your MoA as an objective of the company), I cannot say. However, with the Revenue Department now doing more and more audits on companies (especially those looking to get any sort of rebate), things may be different.

SM

[zaz]

While researching share/company ownership I came across some suggestions that although a particular company has to be majority Thai owned there are ways in which the foreigner can still have majority control over it.

I understand that some shares can have voting rights and others not, but would this situation still constitute majority Thai ownership?

Can you guys perhaps give an example of what types of shares a company can set up in order that the control of the company is still with the foreigner along with majority Thai shareholding. Does it work in practice?

Also, where can I see more about restricted activities etc.?

Many thanks

zaz

[~G~]

On incorporation the foreigner can be appointed as the Managing Director, and the sole signatury authority (with company seal), which practically gives controls over most issues. For those specific issues which require shareholders meetings (such as distribution of dividends) preferred shares can be defined in company's bylaws with unequal ratio of voting rights.

For foreign-owned, most activities are restricted. Manufacturing and Export are allowed. The experts here might give you a better answer.

Edited August 26, 2005 by ~G~

[zaz]

Ok so we can have a mix of ordinary and preference and/or other class A, B etc shares if necessary all of which have their own individual voting/dividend etc entitlements. However, if the foreigner is the only party who has all the capital to inject into the company and the Thai parties have none and benefit from gaining shares then in actual fact they have gained that share in the company for free?

[~G~]

Ok so we can have a mix of ordinary and preference and/or other class A, B etc shares if necessary all of which have their own individual voting/dividend etc entitlements.  However, if the foreigner is the only party who has all the capital to inject into the company and the Thai parties have none and benefit from gaining shares then in actual fact they have gained that share in the company for free?

<{POST_SNAPBACK}>

Theoretically, yes, if you give them something for free then they get it for free (or even in better terms than free).

But, in practice - you don't have to ever issue dividends. In addition, you can make loan agreements with them in which their shares are used as a collateral.

[zaz]

How would the loan agreements work or be divised in that way?

[~G~]

How would the loan agreements work or be divised in that way?

<{POST_SNAPBACK}>

You pay their share of the company's capital for them; they agree to pay you back until a certain date; if they don't pay - you can have their shares.

Of course - in order to make that enforcable, for example if you want to give the shares to someone else in place of an existing shareholder, you must use a competent lawyer to write it properly.

[zaz]

Ah right I see, so the loan is treated separately from the company and is just an agreement between the two parties - plus legally binding documents with clause specifying the pref shares as security?? That makes sense. However, on default of payments if the shares are then seized by me then am I not back to square one as being the majority share owner? I'll then need a Thai owner to take over those seized shares again?

[~G~]

However, on default of payments if the shares are then seized by me then am I not back to square one as being the majority share owner?  I'll then need a Thai owner to take over those seized shares again?

<{POST_SNAPBACK}>

Whether you can keep the shares to yourself or not, after you got all the permits and licenses, is really beyond my knowledge. Your work permit needs to be extended and renewed again and again, so I guess that wouldn't work.

As far as I understand, the loan agreement helps you to prevent problems from any specific shareholder claiming their shares. If properly written, it might also enable you to pass the shares to any other shareholders which may also sign a similar loan agreement. Another advantage is in case you form another Thai company in the future. Then you might be able to make that Thai company a shareholder and control more than 50% of the shares.

Disclaimer - the above is my personal opinion only, would love to have it confirmed or corrected by someone with sufficient knowledge in that field.

[zaz]

Thanks G there's quite a bit to ponder over, much appreciated.