Setting Up An Ordinary Share Holding Structure Company

[scduck]

Hi Everyone,

Firstly, may I say that I have just spent a very wet Bank Holiday in Manchester, UK sat at my PC with a glass of Irish Whisky at my side reading many of the comments from your members. Your comments are invaluable and long may they continue. (well, its much better than sat in a traffic jam on the M6) Many thanks to all of you out there.

I am considering retiring to HH in a few years but, for family reasons, cannot make the full plunge just yet. My wife and I have bought an Andalusia house on the Camelot / Avalon estate (before the prices go up even further) which will not be finished until 2007. We intend to spend long holidays there and, hopefully, rent it out during the other months.

We have bought freehold and the land will cost the company 1.190.000 THB. We are travelling over to HH in July to sign the paperwork. Can anyone give me:

1. a breakdown of the fees we are likely to incur to set up the company

2. breakdown of the yearly fees to maintain the company.

Also, I have heard that it is best to set up an ordinary share holding structure company initially with 39 / 61 share holding and then change it later to a preference shareholding structure company (49/51) later. What are the advantages of setting up a preference shareholding company as against an ordinary company?

[PeaceBlondie]

Thanks for posting. I'm going to move this thread to the forum for real estate, house, and house ownership in Thailand.

[Dragonman]

Hi Everyone,

Firstly, may I say that I have just spent a very wet Bank Holiday in Manchester, UK sat at my PC with a glass of Irish Whisky at my side reading many of the comments from your members. Your comments are invaluable and long may they continue. (well, its much better than sat in a traffic jam on the M6) Many thanks to all of you out there.

I am considering retiring to HH in a few years but, for family reasons, cannot make the full plunge just yet. My wife and I have bought an Andalusia house on the Camelot / Avalon estate (before the prices go up even further) which will not be finished until 2007. We intend to spend long holidays there and, hopefully, rent it out during the other months.

We have bought freehold and the land will cost the company 1.190.000 THB. We are travelling over to HH in July to sign the paperwork. Can anyone give me:

1. a breakdown of the fees we are likely to incur to set up the company

2. breakdown of the yearly fees to maintain the company.

Also, I have heard that it is best to set up an ordinary share holding structure company initially with 39 / 61 share holding and then change it later to a preference shareholding structure company (49/51) later. What are the advantages of setting up a preference shareholding company as against an ordinary company?

Every lawyer who actually wants to get involved with Company ownership will advise different ways to circumvent the law with associated fees! Normally you get what you pay for. There is nothing hard and fast, as generally it is all illegal.

[JimmyGreaves]

How can it be illegal if you get all the correct stamps from the correct department to set-up your company? Many Thais hold property via the company route, it is legal, especially if you do not treat the company as a front only for land aquisition and trade like a normal company.

Edited May 1, 2006 by jflundy

[scduck]

How can it be illegal if you get all the correct stamps from the correct department to set-up your company? Many Thais hold property via the company route, it is legal, especially if you do not treat the company as a front only for land aquisition and trade like a normal company.

So, if I intend to rent out the villa (and we go along the premis that everything is legal) then what can I expect to pay in order to set up the company, and what annual fees can I expect to pay to maintain the running of the company....... and what about local taxes (council tax etc) ???

[Ollie]

How can it be illegal if you get all the correct stamps from the correct department to set-up your company? Many Thais hold property via the company route, it is legal, especially if you do not treat the company as a front only for land aquisition and trade like a normal company.

So, if I intend to rent out the villa (and we go along the premis that everything is legal) then what can I expect to pay in order to set up the company, and what annual fees can I expect to pay to maintain the running of the company....... and what about local taxes (council tax etc) ???

Didn't the agent you bought from advise you? The one agent I met in HH who actually mentioned the on-going cost of running a Co. also gave me a breakdown of what I could expect to pay - based on it being a front for land ownership rather than a real trading Co. They are certainly one of those that are marketing this development.

[Sunbelt Asia]

Also, I have heard that it is best to set up an ordinary share holding structure company initially with 39 / 61 share holding and then change it later to a preference shareholding structure company (49/51) later. What are the advantages of setting up a preference shareholding company as against an ordinary company?

Whoever told you this, is just plain wrong. Their is NO advantage of setting up a ordinary share company if the foreigner is a minor shareholder.

What can happen is that, the remaining shareholders can call a meeting. Since the proxies of the other shareholders are not legally filed anywhere, as to everything filed and officially known about the company these remaining shareholders jointly hold and control majority of the shares. At the meeting they can declare that director (with signatory powers) has gone missing and elect a new slate of directors with signatory powers. Good bye company and house

With the setting up of the preference shares, two classes of stock can be issued, preference and normal shares. Normally the preference shares have one vote per ten shares and the ordinary shares have one vote per one share. The 39% shareholder would hold only ordinary shares and the remaining 61% of the stock would be in preference shares. Therefore the 39% shareholder will have voting control over the company and cannot be replaced. The minor shareholder can be the dictator.

To set up a Thai company usually costs about 15-30,000 baht plus an annual tax and accounting fee of about 13,000-20,000 baht.

Here is what are fees are

http://www.lawyer.th.com/company-registration.asp

You would have in fact more fees involved by doing a ordinary share than converting it to a preference share setup as you would need to increase the register capital( you can't convert preference shares from ordinary shares) You have to buy the preference shares by increasing the register capital in this case.

Please be aware, inactive companies, ones that simply own land but have no financial transactions, are not advocated as they may be considered illegal by the government. If the government feels this is the case, they can confiscate the land under section 150 and 172 of the Civil and commercial code. The Thai government is not looking at companies holding land to determine if they were formed to circumvent the Land Act. However this does not mean they won't in the future. This is why for many it is a risk they are willing to accept by doing it with a Limited Company as they feel this is a office or business premises for the company and not a " house". In fact, Limited companies are the most widely use method for foreigners to hold land in Thailand.

Every person must make their own determination of the risk they are willing to accept if they form a company to just own land and circumvent the Land Act or if they are much better off by just having a legal 30 year lease.

www.lawyer.th.com

[Dragonman]

How can it be illegal if you get all the correct stamps from the correct department to set-up your company? Many Thais hold property via the company route, it is legal, especially if you do not treat the company as a front only for land aquisition and trade like a normal company.

You have got it in the last sentence! "like a normal company" The vast majority I have seen are not normal, and I have not seen so far that the OP is considering a "normal company".

The correct stamps mean nothing! Sunbelt is correct, it is a matter for personal choice and ensuring you have a half decent lawyer.

[Ollie]

This seems like a never ending discussion that goes around in circles!

I guess, for the sake of legitimacy, the question is whether the OP's plans of buying a property for long holidays and for the other periods, to hopefully rent it out, can be defined as a genuine business activity for a limited company?

My view? not a chance, but then again, as also stated, who's looking?

Useful for me to consider, as was sunbelts answer, as I'm weighing up the pro's and con's of the Ltd. Co. route myself.

[scduck]

Thank you Guys, it has been really informative to follow your discussions and sit back and read the debate. It makes us wonder whether we have done the right thing but I am sure we will find out soon.

We have paid the first installment to purchase a villa on Camelot (an extension of Avalon) and have committed to the freehold option.

So how about this, if my family and I stayed at the villa for an extended holiday, should I by rights declare the holiday on the company books and pay the company for my rental period.???? Or, is it a case of turning a blind eye?

And what about council tax and land transfer fees? Is there any room for negotiation or are they set in stone.

pp Hopefully, learning fast and thanks again for all your help everyone.

[Dragonman]

Thank you Guys, it has been really informative to follow your discussions and sit back and read the debate. It makes us wonder whether we have done the right thing but I am sure we will find out soon.

We have paid the first installment to purchase a villa on Camelot (an extension of Avalon) and have committed to the freehold option.

So how about this, if my family and I stayed at the villa for an extended holiday, should I by rights declare the holiday on the company books and pay the company for my rental period.???? Or, is it a case of turning a blind eye?

And what about council tax and land transfer fees? Is there any room for negotiation or are they set in stone.

pp Hopefully, learning fast and thanks again for all your help everyone.

There is no such thing as Council Tax in Thailand. Transfer fees are sometimes paid by the seller, sometimes by the owner, most times 50-50. It is up to what you have agreed in your contract. Your lawyer will file details of rental income during the year. It is really up to him what sort of creative accountancy is used.

[Nadia 2]

As for the Land Code also under the FBA it does not matter if you own 39 or 49% of the shares. You are still deemed to be alien by your foreign capital investment. The law in this matter is quite clear and speaks about capital owned or capital invested (which means total capital and not share capital). See for yourself; http://www.dbd.go.th/eng/law/fba_e1999.phtml

Note section 4 – how a company registered in Thailand in deemed to be alien and the penalties 36.

If you are acting on behalf of the company you need a work permit. This also means simple acts like filing balance sheets, opening a company bank account, etc.. In Bangkok they won't allow you to open a company bank account without a work permit and in fact every (governmental) organization may require to see your work permit before they accept any signed document by you.

Believe me as a director of a fake company it is very difficult to get a work permit and one of the required documents is the company's balance sheets. Remember there is a minimum required income for foreigners 'working' in Thailand and with a minimum balance they will not issue you a work permit…

Then again also note the Land Code. All these landholding companies, as they are in fact illegal and are deemed to be alien, have unlawfully acquired land… There is no way around the law and even though the land has been sold and registered in the Thai company name, you – the company - can be forced to dispose of the land pursuant to section 94 of the Land Code at any time it suits the Land Department to enforce the law......

Section 94 of the Land Code; 'All the land which an alien has acquired unlawfully or without permission shall be disposed of by such alien within the time limit prescribed by the Director-General which shall not be less than one hundred eighty days nor more than one year. If the land is not disposed of within the time prescribed the Director-General shall have the power to dispose of it. The provisions on the forced sale of land in chapter 3 shall apply mutatis mutandis'.

Then also section 96; 'When it appears that any person (including a juristic person) has acquired land as the owner in place of an alien or juristic person under the provisions of Section 97 and 98, the Director-General shall have the authority to dispose of such land and the provisions of Section 94 shall apply mutatis mutandis'. Not only could the limited company be deemed alien, also could the limited company be seen as person 'in the place of the alien'.

You must have a operating company and a business and imagine a conversation between you and an official inspecting your company;

Q - Have you set up the company to circumvent the law on foreign landownership?

A - No, I’ve started a business to rent (or others) from the company..

*Sure, but then you are a foreigner investing in Thailand and the FBA including the anti nominee provisions are applicable!!! http://www.dbd.go.th/eng/law/fba_e1999.phtml

Q - Has the company not purchased land in your place (Section 96 Land Code)? Is it a normal profit making business?

* If you rent from your company..... I doubt it.

Q - As the director (company accounts and official records land office) you have also declared a lower value of the land at the land office to avoid paying taxes....?

A - Huh… everybody does it ….

* Yep, but it is illegal and you have company accounts.

Q - Are you actually elected as I director and re-elected by the shareholders and may I see these documents?

A -Huh...

Q - Who are your shareholders?

A - I don't know they are offered by my lawyer....

* Sure, but this is illegal!!!!

Q - May I see the register of shareholders containing the particulars as contained in Section 1138 of the Civil and Commercial Code?

A - I don't have....

Q - Where is your office?

A - My house……

Q - Where did the capital in your company came from?

A - Me....

* Thus the company is alien!! and you are not alloweed to own or have an interest in land.

Q - May I see your work permit?

A - I don't have.....

* You must have or it is a criminal offence!

Huh...

Q - Did you ever hold the statutory meeting, a general meeting or other meeting?

A - Huh....... No

Q - Have you ever seen your shareholders?

A - Huh.... No

Q - Is the share capital actually paid up by the promoters in the company?

A _ Huh.....

Q - But you’ve signed all these documents saying different during the company set up?

A - Huh... everything was in Thai...... I don’t know what I’ve signed…

*Sure but that does not matter!

Q - Is everything fake in your company?

A - Huh…. Yes…

* There is a good chance the signatures of the nominees on your company documents are forged!

[scduck]

Wow....Nadir 2, thanks for the very powerful warning and thanks for taking the time to spell it out to me. I think I get your point.!! But, I still cannot understand why the Thai Authorities allow Building companies and many, many legal firms advertise and lead foreigners down the illegal path. (...other than to make a lot of money) Surely, they are committing a more serious offence, as they are leading foreigners down the garden path on a weekly basis and actually supply (or forge) all the Thai members of the company. Is there not a law or Code of Conduct which states that it is an offence by these people to entice or solicit foreign investors in this way, bearing in mind that a vast majority of foreigners may not realise that they are breaking the law. It appears to me that......on the one hand the Thais encourage foreign investment and all the monies that pour into the country from retirees etc. yet then say that it is illegal to own land! Why is the documentation not properly checked in the first place by the land office? ...and what excuse do the lawyers give as to the purpose of the Ltd company?

Do you or anyone else have personal knowledge of the Authorities investigating a sleeping company and removing their rights of ownership. Would it not also be fit and proper to also disband the legal company and strip the contractors of their licence as they have also been complicit in breaking the law.

I know a couple who have recently retired in HH and are living in a freehold villa. They have set up a Ltd Co but will be shocked by this news. What advice (serious please) would you give them?

[Dragonman]

Only selling drugs and murder is illegal in Thailand, the rest is a very "grey area".

[Nadia 2]

Only selling drugs and murder is illegal in Thailand, the rest is a very "grey area".

That is not a good basis to invest large amounts in Thailand.... And it is not grey but clearly illegal.

One of the basic rules when buying property in a foreign country is get yourself a good lawyer. Most of the property legal firms (you really must not see them as a law firm as you may expect back home) can be directly linked to agents and developers....

The agent/ developer will probably advice you to a 'reliable' (for them) property law firm where again the same bs story about property ownership is told to you. Even in some cases one side of the office is a real estate agent and the other side the reliable 'law firm'.... Sure!!

If you need advice you should consult a reputable law firm in Bangkok without interest in the property market. A decent law firm will never advice you to set up a company to own land in Thailand, and if you want to go ahead they will ask you to sign a disclaimer that you are informed that it is illegal!!

Cheers

N.

[sfokevin]

Of the tens of thousands of foreigner that own land in Thailand through a Company structure. Can anyone direct me to a documented case where the government deemed the company illegal and seized the property?

At the very least the company is made invalid and the foreigner is required to sell the land – I have never even seen a documented case of this either…

[Gary A]

Setting up a company to own land is illegal and everyone knows it. That said there are thousands of foreigners who have done it and some continue to do it. It all depends what your risk tolerance is. With the government in turmoil and the King getting up in years I wouldn't be able to sleep at night knowing it could all easily disappear. I still advise my friends not to spend more than they can afford to lose. Buy a nice upscale condo and sleep well.

[Dragonman]

Only selling drugs and murder is illegal in Thailand, the rest is a very "grey area".

That is not a good basis to invest large amounts in Thailand.... And it is not grey but clearly illegal.

One of the basic rules when buying property in a foreign country is get yourself a good lawyer. Most of the property legal firms (you really must not see them as a law firm as you may expect back home) can be directly linked to agents and developers....

The agent/ developer will probably advice you to a 'reliable' (for them) property law firm where again the same bs story about property ownership is told to you. Even in some cases one side of the office is a real estate agent and the other side the reliable 'law firm'.... Sure!!

If you need advice you should consult a reputable law firm in Bangkok without interest in the property market. A decent law firm will never advice you to set up a company to own land in Thailand, and if you want to go ahead they will ask you to sign a disclaimer that you are informed that it is illegal!!

Cheers

N.

I agree with you! I was just trying to lighten the subject, as I am not sure whether the rate of farang suicides has increased due to your detailed information.

[manao1]

What if you did set up a company for the purpose of doing buisness. You do know all your Thai share holders you do have a work permit. You are paying taxes each month. Then you buy some land in the compnay name put your house and office on it. Is that considered legal? Then say in ten years of working hard at your company, paying taxes etc. you want to stop working. Can you still keep the land in the company name and live there ?

[niggle]

I guess the truth is that no one knows how it will pan out.

I am in the process of buying now. i spoke to the estate agent today and he is visiting the land office tomorrow to find out what effect this will have.

He seems to think it will not be a big problem as long as all dealings are with reputable large firms so heres hoping he is right

[bquick]

Shame on all the officials involved in tricking the foreigners out of their lifes hard work. Shame on them . but they don't feel any shame but if they did they wouldn't rip off the foreigners like that of their lifes work.

[NordicMan]

We need to keep in mind that there will usually be a difference between the INTENTION of the law and the actual law text. It is difficult to formulate a text that will exactly cover the intention.

We all know the INTENTION of the law is that foreigners cannot own land in Thailand. There is no doubt about that. Clever people have found ways to circumvent the actual legal text, but that doesn't change the intention.

However, as we know the INTENTION of the law, and we know that the currrent practice of buying land through companies is a nothing more than an exploit of a loophole, it should come as a surprise to noone that the loophole will not be tolerated forever.

Judging from other people's posts, this isn't even a semi-legal loophole. It is plain illegal, just that it takes quite some time and resources to investigate a company in detail and the authorities have not previously bothered much about it.

-NM

[rishi]

... We all know the INTENTION of the law is that foreigners cannot own land in Thailand ...

Exactly! And its not only a question of laws - its also a question of what lies very near the heart of most Thais (or any nationality in the world, respectively) Thai soil for Thais only... A very good thing to keep in mind ...

Even if a company is 99.9% owned by Thai shareholders, who actually did put in their own hard-earned and provable money and the foreigner actually did only put in a petty 2,000 baht for his 0.1% of the shares - that foreigner would "have papers" on owning 0.1% of the land the company owns ... That circumstance will forever be at risk to eventual change or enforcement of laws.

Edited May 31, 2006 by rishi