Setting Up Thai Co

[HudsonV]

I am just new to this forum and thought I would see if anyone can help with info to make my rights and money safe when setting up a thai co. We bought a villa in Samui in May and part of the purchase price was a Thai co being set up. The lawyer was already set up by the developer and is supposed to be a large respected firm in Bangkok. We received the contracts for the purchase of the villa to sign here in Australia yesterday, after much pushing, but did not receive any paperwork re the thai co being set up. The contract has the thai co name etc that we chose but we didn't even know it had gone through. We then emailed the lawyer and said we didn;t want to sign any contracts of purchase until we see the thai co setup. He emailed a copy translated in english (which he has had for a month) and I cannot see any Clauses that say we have some sort of preferential voting power and have total control of all moneys and future investments etc in the company. It worries me as there are 7 individual thai shareholders, 1 company shareholder, and 2 foreign shareholders (myself and my wife). 10 shareholders in total. It shows we have 49% but how do we ensure our 49% has total control of all decisions and monies. I would hate to sign the purchase contract as director of the company pay for the property and find that the others can sell it without my permission and lose my money. Is there some sort of clause that should be on the company setup papers. Hope someone can help.

[billaaa777]

You have problems. The law has changed, more than likely since you have been here. Read the thread below to get a good idea of the new enforcement of the law. Before I signed any thing or gave them one more cent I would come back to Thailand and see a real good lawyer who specialize in property law.

http://www.thaivisa.com/forum/index.php?showtopic=71212

[billaaa777]

Below is an article that appeared in the Bangkok Post on July 7th.

Targeting property purchases by proxies

Thailand, with its rich culture and beautiful sites, presents a very attractive destination to foreigners from many countries _ for visit, travel, or even retirement purposes. Some of these foreigners wish to own property in Thailand, either as an investment or as personal residence.

Thai laws are quite explicit concerning foreign ownership of property, stating that a foreign individual, foreign entity or a Thai company with more than 49% of its shares held by foreigners cannot own land in Thailand, except for particular investment purposes under certain laws such as the Investment Promotion Act, Industrial Estate Authority of Thailand Act, and property fund regulations.

These exceptions, providing benefits to foreign direct investment in Thailand, were intended mainly to promote the country's economy. To enjoy the benefits of these exceptions, foreign investors must meet multiple requirements set out by the relevant legislation and undergo strict scrutiny from authorities.

To date, foreigners wishing to own land in Thailand have attempted to circumvent Thai laws through a legal arrangement establishing a Thai entity where they own part of the shares and induce Thai nationals to act as nominees holding more than 51% or more of the company's shares without true control. This practice has become common in Thailand, with land officials accepting this type of arrangement and creating no impediments to the transfer of land to such companies.

On May 15 2006, the Interior Ministry issued a policy addressed to all provincial governors regarding the avoidance of law in the acquisition of land by an entity with foreign shareholders. The policy seeks to prevent the purchase of land for the benefit of a foreigner in accordance with Section 74 of the Land Code.

It directs officials to be more vigilant in scrutinising the purchases of land by an entity with a foreign shareholder or director, or where reasonable grounds exist to believe that a Thai is a nominee shareholder on behalf of a foreigner. The policy requires the competent official to carefully scrutinise the supporting evidence submitted for consideration, while paying particular attention to the occupation, duration of work and the monthly income of the Thai shareholder.

If, following the investigation, it is the opinion of the competent official that the registration of transfer represents an avoidance of law or that a Thai is trying to purchase land for the benefit of a foreigner, he should conduct further investigation and submit the case to the Land Department for ministerial advice.

As each competent official has discretion in the implementation of the policy, the method of investigation by land offices could vary from province to province. The Ministry of Interior has yet to relay a clear procedure on how to conduct the investigation or define what officials should consider as ''believably acting for the benefit of a foreigner''.

Without a clear procedure, some land offices have ceased to transfer land to entities with foreign shareholders, partners or directors. Others continue to transfer land, but with the condition that the entity's objectives do not include engaging in real estate business. The different standards could be potentially misleading and confusing to the public.

In a further proactive step, the ministry made clear its concern that some companies were avoiding the Land Code by accepting a land transfer when foreigner shareholders do not hold more than 49% of a company's shares, but foreign shareholders then acquire more shares in the company or increase their capital in the company after the transfer. This results in foreign shareholders holding more than 49% of the company, making the company a foreign entity under the Land Code subject to the requirement to sell the land within one year or a period specified by the Director-General.

Land offices have conducted investigations by cross-checking companies holding land in their jurisdiction with the relevant authorities of the Commerce Ministry to verify the shareholding structure of each company. If the search shows that the shareholding of foreigners amounts to more than 49%, the authority will force that company to sell the acquired land.

The property sector in Thailand, especially projects targeting foreign customers, has been somewhat affected by this policy. At the very least, the transfer of land to a company with foreign shareholders is not as simple or certain as before.

Nonetheless, at its core, this policy presents nothing new. This policy merely reasserts, adjusts and attempts to bring current practice in line with the already existing law relating to the transfer of property to companies with foreign shareholders.

Written by Dussadee Rattanopas, an attorney in the Commercial Department, Tilleke & Gibbins International Ltd. Please send comments or suggestions to Marilyn Tinnakul at marilyn

[HudsonV]

Thank for reply

I am quite confident of the way the company is set up and we are going to be renting the villa out so the company will be declaring an income and paying tax. We also will not be conducting any real estate business , developements etc so we are not doing any illegal transactions. The only problem I can see, is how to make sure that the money collected as rent in the company name ,plus if I ever sell the villa ( which I would sell with the company also) is not able to be controlled or taken off me by the other shareholders. From what I have seen our shares are supposed to have preferential voting rights and control all decisions made for the company. I'm wondering if any one has a company that has clauses in their setup that says anything like this.

[thaigene2]

Well you are taking a very big risk then.

Many of us have lived here for years and we've been debating the limitations of ownership and the dodgy Company purchase loop-holes for years. The Government has finally cracked down on this loop-hole as the well-written article above points out. As a result many of us still don't own property - not even condos - since a 49% rule for foreign-ownership exists in that sector.

You've already answered a couple of your own questions. You proceed at your own peril. As many others have said in other postings - never, ever, invest more in Thailand than you are ready to walk away from. Sad but inescapable reality here I'm afraid.

[rishi]

I am quite confident of the way the company is set up and we are going to be renting the villa out so the company will be declaring an income and paying tax. We also will not be conducting any real estate business...

Haven't got much insight in these matters - only got some experience on how paperworks are considered by officials in this country ... You better do consider how to explain to some clerk that your company is not doing any real estate business, while he sits with papers showing that the company owns a villa and takes profit from renting it out ...

[number6]

Thank for reply

I am quite confident of the way the company is set up and we are going to be renting the villa out so the company will be declaring an income and paying tax. We also will not be conducting any real estate business , developements etc so we are not doing any illegal transactions. The only problem I can see, is how to make sure that the money collected as rent in the company name ,plus if I ever sell the villa ( which I would sell with the company also) is not able to be controlled or taken off me by the other shareholders. From what I have seen our shares are supposed to have preferential voting rights and control all decisions made for the company. I'm wondering if any one has a company that has clauses in their setup that says anything like this.

dont be confident be worried - ??? have u amy experiance of east - sorry dony do ot - if you have only put in a bit i mean deposit etc walk away - listne to those whove been here- i won 2 houses (my thai wife doesw i camt legally) and 3 condos

Listen to those here like me they know and sorry you say your confident in your lawer here - thaugh - ok ignire us aall and thorw your money away

[Charma]

The key issue here is whether the Thai shareholders are nominees - i.e. stooges who are not real investors. Now on the face of it, everyone may assume that they are, but this will be a legal purchase if you can show that they are not stooges. You need to clarify who the Thai shareholders are through your lawyer and/or developer, but remember that they are interested in you buying, not pulling out. Maybe an independant lawyer would be better. This is not new law and tens of thousands have purchased property this way. At the moment I have not heard of one case that has had this "investigation" (maybe other members may have), but there have been some transfers delayed at some offices. It is early days though and this issue has yet to "shake out". You are right to expect to see in your company registration documents, the breakdown of shares and which ones are preference shares. This should be listed (in your english translation copy) on "The copy of yhe list of shareholders" page. It is a grid like page showing the number shares held by each shareholder and whether preference or ordinary. Again get some legal advice about the best way to proceed. Good luck.

[Sunbelt Asia]

Is there some sort of clause that should be on the company setup papers. Hope someone can help.

It will be in the minutes of the meeting and By-laws.

The odds are VERY low that you will be able to get this land registered in the companies name, the way it sounds it is set up. Do not give the closing amt until you or an independent lawyer is at the Land Dept. and it will be registered in the companies name. Their is a chance of being registered but these need to be Thai shareholders and not nominees and they will need to pass mustard with the Thai government.

www.lawyer.th.com