Nominee Shareholders And Land Owning Companies

[Alf Witt]

As a hitherto unregistered observer of these forums I have noticed that some topics which generate a lot of heat suddenly die a death without any real answer or resolution of the issue. A lot of steam is generated by some posers* who seem to enjoy airing their "knowledge" of Thailand, its laws and politics but, on closer analysis, their opinions, often expressed as fact, are seriously flawed. Often they have misunderstood the real issues. I also have to say that announcements by Thai Ministries are often made in a way that causes panic because they have failed to express their objectives with clarity and have failed to consider the impact of misinterpretation or "loose" interpretation of their statements. Farangs get confused and panicky when they interface with Thai local officials who themselves are unclear about what their leaders have announced and are who are, as a result, inconsistent in their implementation of and explanation about what the law or regulation really is. The Thai Ministries' 'impact study' in relation to any new announcement always seems to take place 'after the event' when damage to foreign opinion and the Thai economy has already set in (sadly, often as a result of misunderstanding) fuelled by inaccurate or sensationalised media reports and by forums such as this where facts and real knowledge are buried under huge piles of misinformation, bovine excrement, paranoia from xenophobic Thais and venom from disillusioned farangs. For example, what happened to the various discussions about land ownership by Thai companies using nominee shareholders? I would have thought that this was an important issue for many farangs (and for Thailand) but the discussion seems to have run out of steam without any real light having been shed on the issue despite the widespread concern it generated and the consequential economic damage to the real estate market and potentially the tourist industry as foreigners form negative opinions about Thailand and its legal system. (I can already hear the wise guys answering "This is Thailand, we told you just wait and the problem will go away", but issues like these have a habit of resurfacing and causing more damage and panic at a later date, not to mention a lot of disinformation being left for posterity on the World Wide Web.

So my message to Thai Ministries is this - please do an impact study before you make far reaching announcements even if you are just re-stating existing law because many people do not understand the message in the way you intended it to be received. This is true not only of farangs but apparently of your own officials. So for the sake of the image of and ultimately the economy of Thailand please get it right first time round (read - impact study!!!) and when you make the announcement consider the old but wise adage - "Step 1: Tell them what you are going to tell them, Step 2: Tell them, Step 3: Tell them what you have told them". Do it in a way that even idiots can understand because it is always good policy to assume that unless you do so in many cases it will be misunderstood and/or misinterpreted with unpredictable and uncontrollable results (have a look at some British Civil Service public notices - they really know how to get their message across without ambiguity and without appearing to be patronising.) Do it like that for Thailand and thereby avoid any negative PR effects caused by misunderstandings!

As for posters on this forum (N.B. the word *'posers' in the 2nd sentence above was a typo but I left it because it seemed in many cases equally apt) - if you have some relevant 'knowledge' to share, that is a valuable and welcome commodity, but if you are expressing an opinion please do not dress it up as 'knowledge'. That can be unhelpful and in some cases dangerous (especially cumulatively). Also, please take the trouble to try to understand and analyse the real issue before rushing to print so that the forum may generate some light rather that increase the confusion.

I would like to illustrate what I mean by the "nominee shareholder" issue and, even at this late stage, hopefully get some genuinely knowledgeable answers that would assist all users of the forum to be be sure about the impact of the Thai government's announcement: Much of what I saw communicated on this matter, both in the press and in this forum, talked about how foreigners could or could not "own" land in Thailand, and/or how they were circumventing the law to do so. There was much discussion about what was often described as 'bogus' companies, and it was stated with some frequency that using 'nominee shareholders' was 'illegal' in Thailand. The announcement was described as a "new law" when in fact it was a Ministry of Interior instruction about existing law and about that laws application in very specific circumstances, but it was discussed as if it had general application. It was apparent that the majority of journalists and posters had either not read it before commenting on it or had read it and failed to understand it.

Here is my own analysis (N.B. not my unconsidered 'off the wall' opinion) of the reality of that issue in which I have tried to stick to the facts and the law as I understand them to be. I do acknowledge that either my understanding of the facts and / or the law may, of course, be flawed and I would therefore welcome any input or correction from knowledgeable persons (e.g. the lawyers on the forum) - please correct me if I have got something wrong in relation to either fact or law.

1) Except in very exceptional circumstances (not relevant to this issue) Thai law prohibits the ownership of land by aliens (i.e. non-Thai nationals). - I have no difficulty with that simple proposition - its fact!

2) It is also a fact that many lawyers in Thailand have established Thai companies at the request of foreigners (the shareholding issue is considered below) and that frequently land is registered in the name of these companies, which quite clearly means that the company owns the land. - What please is wrong with that, per se? What please, is "bogus" about a properly registered Thai company so established? What is wrong, please, with a Thai company owning land - for that is the fact and the reality? Those farangs (and Thais - including even Ministers) who talk about farangs owning land "through" or "via" a Thai company are at best confused. In Thailand as in any other jurisdiction a company is a separate legal entity from its shareholders and directors and its assets are quite distinct from theirs. It is extremely unlikely that this could be interpreted any other way as it would upset the whole basis on which commerce is conducted both in Thailand and worldwide. So, please, in this discussion can we leave out any references to foreigners "owning" land - they don't - it’s that simple. If land is registered in the name of a Thai company it is the Thai company that owns the land - simple, no argument, final. (Lawyers - real ones - please correct me if I am in any way wrong here).

3) Legally, as I understand it, a foreigner can own a maximum of 49% of the shares in Thai company. It is a fact that many lawyers have set up structures where Thai nationals have held shares (for want of a better word) allegedly as 'nominees' of others (foreigners, no doubt). It has been stated frequently in this forum that using nominee shareholders is illegal. Is that really so? Can someone point to the relevant legal authority - statute or case law either in English in Thai language? As far as I can establish, using nominees (read 'front-men') to establish or run a business of a type from which foreigners are legally excluded is illegal, but I know of no other prohibition in relation to nominee shareholders. One of the businesses (N.B. "businesses" - not the use land for residential or domestic purposes) from which foreigners are excluded is trading in land (i.e. buying and selling land commercially, sub-dividing and reselling the sub-divided plots etc.) and it was this area of illegality at which the Ministry's announcement was directed. So where is the problem in that announcement for a farang director and or shareholder of a Thai registered company which owns land on which he (the farang) resides? There is no problem that I can detect in the Ministry's announcement per se - only if you are conducting land transactions as a business.

4) The real issue with which we should be concerned must be does the "nominee shareholder" prohibition extend beyond these circumstances. Even the Ministerial direction which had people panicking suggests that it does not. It refers (without condemnation) to foreigners establishing such land owning companies to use the land for residential purposes but who later change it to start dealing in the land commercially - it is the change in the way that the company is used (viz. to engage in a prohibited form of business) which was specifically and solely condemned. Again, lawyers please indicate if the nominee prohibition extends beyond these specific circumstances and quote the relevant legal source. My research has indicated that it does not but I cannot read Thai so I rely on secondary sources only, but there has to be a definitive answer "yes" or "no". If "yes" please quote the relevant legal authority.

5) What about the question of how a shareholder (nominee or otherwise) financed his shareholding? Is that really relevant? Not if I am right about 3 above and probably not in any case. We have, I hope, already established that the assets of a company are quite distinct from those of its shareholders and directors. How the shareholder financed his shareholding and how the company financed its acquisition of the land are two quite separate matters. A farang (who may be a director, shareholder, neither of the two, or both) can, as far as I know, legally lend money to the company which is then owed as a debt by the company to him in his capacity as lender (not as shareholder or director). To investigate how a (Thai) shareholder was able to finance the purchase of a company's assets is as loopy as asking a shareholder in Thai International how he managed to buy a fleet of aircraft. Again, as I see it those who confuse these issues (including journalists) are precisely that - confused.

6) What characterises a shareholder described as a "nominee" (personally I avoid the word as it generates the confusion I have described above)? Typically he grants another the right to vote on his behalf by proxy (so who is in fact the nominee?). Again, as far as I am aware that practice is perfectly legal in Thailand as in every other jurisdiction in the world. It is the way shareholder meetings are conducted. What please is wrong with a shareholder agreeing to vote the same way as another person and asking him to exercise that vote on his behalf? In any event it is not shareholders who make the company's purchasing decisions (in relation to land or anything else) it is the company's directors upon whom such matters fall and there is nothing (I am aware of) in Thai law that prevents a farang being a director of a Thai company and acting accordingly. A shareholder's voting rights are generally very limited to matters relating to how the company is established and organised and in no sense as to how it is run from day to day and what it purchases or sells. Again I draw the analogy of a shareholder in Thai International - don't expect to have too much say on how the company is run and on what or how many aircraft they buy.....and..........I bet, on the issues where a shareholder does have a say, proxy voting is permitted!! Again, I would suggest that those who describe the Thai shareholders in the companies in question as "nominees" are muddying the waters and creating confusion and misunderstanding in a similar way as when they talk about foreigners "owning" land. These shareholders have agreed to become shareholders and they are recorded as such at the companies registration department on the official documents, so they are true shareholders and that, I would suggest is a fact whatever your perception of it may be or whatever terminology you may choose to use. So has anything illegal happened yet? In these circumstances, if anyone can be described as a nominee it is the person exercising the vote of the Thai shareholder. It is quite another matter for a farang to engage in a business which is prohibited to him and use a Thai to "front" for him. In that case the Thai is indeed a 'nominee' and it is that behaviour which in Thai law is illegal both for the farang and the Thai.

7) What also seems to be in question is the motivation of the shareholders in becoming shareholders in the companies we have described. Normally, a shareholder's motivation would be to participate in any dividend that the company may pay, but many (especially non-public) companies never or infrequently pay dividends. A shareholder's duty or obligation is, if called to do so, to pay up the full value of the shares for which he has subscribed. That is all - nothing more. In the event that the company is dissolved, a shareholder has a right to a share in its remaining assets (if any). (That would be of course, after any debts, including loans, had been paid or repaid in accordance with the lending terms). The company, as we have seen, is the owner of the land and in the event that it is dissolved any proceeds from the disposal of the land less all the company's debts etc. would belong to the shareholders jointly. That could be nothing, or it could be a considerable amount, depending on the value of the land and how the company was managed etc. But even a so called "nominee" shareholder whose name was recorded on the company documents would have such a right if there was a positive balance sheet. That right would be hard to argue with and the word "nominee" would suddenly be absent from the description - so let's get real and stop talking about nominees now. So there is (potentially, at least) a big incentive for a Thai to volunteer himself as a shareholder in a company, financed by a farang, which owns land in Thailand even if he is never paid a dividend. Even if the company leases the land to another, who knows what might happen in 30 years (or less)? The Thais love to gamble - which is what all shareholding is essentially about in reality. So I am still searching for the illegality here. Just because a shareholder may never reap any dividends or other rewards from his shareholding does not make that shareholding or the company "bogus". If that were so half the companies in Thailand would be "bogus". Lawyers, please comment if you see it differently. (Please note: I would like to keep away from any discussion about the merits or wisdom of choosing to establish a company in this way vis a vis financing land in your girlfriend/wife's name etc. That is another topic. I am purely concerned to establish whether those who have gone down this route are at risk from legal repercussions as has been frequently suggested but, as far as I can see, not established.)

8) The other yardstick of the Ministry of Interior proposes to judge is investigation of how the Thai shareholder was able to afford his shareholding (don't please confuse this with the value of any land owned by the company - please see above). This would seem to be a no-brainer. What does it matter legally unless he stole it? What if the farang paid for them on his behalf? Is there anything illegal in that per se? Yes, it may be in the farang's interest to do so and yes the Thai may be content (even happy about that) - that is how business is conducted - I win - you win. Where is the illegality, please? What law states that the money used to buy shares can not be a loan or a gift? In any event a company needs 7 shareholders and its nominal capital is normally B1m of which 51% needs to be subscribed for by Thais. That is B510,000 of which only 20% needs to be paid up when the company is established. That is B110,000 between say 6 Thais or a little over B18,000 per shareholder. I have met bar-girls who can make that sort of money in a week (not all of them, I agree, so please let’s not discuss that one here!). The point is that it is within the financial means of most persons whose names are likely to appear on company documents unless you picked your fellow shareholders up off the street. Its evidential value is close to zero contrary to what the scare stories suggest. And again, my perennial question is, in any case where is the illegality? In fact, even if the money was stolen it would not affect the validity of the registered shareholder as a shareholder, his problems would lie elsewhere. The shareholder is a Thai national, he wants to be a shareholder in the company (for whatever motivation or even for none at all), his name is duly entered on the record and filed with the competent authority, and the required value of the shares has been paid (from whatever source). End of story as far as his legality as a shareholder in the company is concerned.

9) As far as I can see, this arrangement, far from being a circumvention of Thai law, is in fact in strict compliance with it. The anti farang lobby may not like it, but that does not make it illegal. Someone asked why, if such arrangements are illegal, the lawyers who set them up are not worried about being sued for negligence. That should be your biggest clue. Also, it may be politically expedient to appear to bash farangs over land "ownership" and / or to make them feel that they have acted illegally in their "ownership" of land, but that is politics, not law.

Conclusion:

Please stop talking about farangs owning land - they don't, its impossible in 99.99999% of cases.

Please stop talking about "bogus" companies - they are properly established legal entities.

Please stop talking about "nominee" shareholders - they are "shareholders" plain and simple (they may be amenable to allowing a farang to exercise their vote in which case it is the farang who is their nominee).

Please stop worrying about how the Thai shareholder paid for his shares - it is totally irrelevant.

Please do not confuse the ill-considered opinions of Thais (some in official capacities) who are anti farang "owning" land, or probably just anti-farang, and the opinions of the doom-and-gloom disillusioned farangs who predict the end of Thailand and the world.

Please take care: Ministers - how you express your concerns; pundits - the "knowledge" you impart to others; just because something is widely believed to be true does not make it so.

The above is my understanding and analysis and mine alone. I seek corroboration of its accuracy and its conclusion from those who know, perhaps better? But reasoned arguments please not 'off the wall' opinions or something you or your mate overheard in a bar.

[cclub75]

The above is my understanding and analysis and mine alone. I seek corroboration of its accuracy and its conclusion from those who know, perhaps better? But reasoned arguments please not 'off the wall' opinions or something you or your mate overheard in a bar.

3 319 words

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And, worst, you are so pedantic and so... full of shit, I mean, it's unbelievable.

For 0.01 millisecond, I thought that you wrote originally the thai laws... and even that you might be a thai lawyer. But then, right after, reality was back : it was just a nightmare.

[Alf Witt]

The above is my understanding and analysis and mine alone. I seek corroboration of its accuracy and its conclusion from those who know, perhaps better? But reasoned arguments please not 'off the wall' opinions or something you or your mate overheard in a bar.

3 319 words

15 673 characters

And, worst, you are so pedantic and so... full of shit, I mean, it's unbelievable.

For 0.01 millisecond, I thought that you wrote originally the thai laws... and even that you might be a thai lawyer. But then, right after, reality was back : it was just a nightmare.

[Alf Witt]

The above is my understanding and analysis and mine alone. I seek corroboration of its accuracy and its conclusion from those who know, perhaps better? But reasoned arguments please not 'off the wall' opinions or something you or your mate overheard in a bar.

3 319 words

15 673 characters

And, worst, you are so pedantic and so... full of shit, I mean, it's unbelievable.

For 0.01 millisecond, I thought that you wrote originally the thai laws... and even that you might be a thai lawyer. But then, right after, reality was back : it was just a nightmare.

Thank you cclub75 for your valuable and insightful response to this matter. I now realise that understanding legal issues should be regarded as a trivial pursuit. I am indebted to your genius and your contribution alone makes my joining this forum worthwhile.

[johnnyk]

That said, it would be easier to read if you wrote in paragraphs.

I gave up about 10 sentences in.

[udon]

Geezus, give the guy a fair go.

He's obviously got good points to make.

Maybe some of you have a problem with comprehension.

[Tim207]

That said, it would be easier to read if you wrote in paragraphs.

I gave up about 10 sentences in.

Admittedly it was a long read but he made a lot of interesting points. Whether his analysis on this subject can be given any credence, I have no idea. I do know he is right about the fact that some people like to disguise their assumptions as fact and that these people tend to aggressively defend their belief.

I agree with him, I would also like to hear what the lawyers have to say about the issue. Barstool experts will scream all day on a subject but that doesn't make them right. I don't mean to call previous posters in this thread barstool experts. I just don't see how counting words and saying the OP is full of shit qualifies as a useful or informative post.

I admit I skimmed over some but I read most of it. If you gave in after only ten sentences you must not have a very strong interest in the subject or a very short attention span. Before reading that post I had been under the impression that the property owning company route was not viable. His arguments made sense but I also know that common sense does not always rule when governments are involved. Now I don't know and I will wait to hear from an expert.

[fat boy slim]

Takes a lot of reading, but some very interesting points made. Made me feel alot better about my house being in a Thai Company. The trouble though with reasoned arguments when your up against Thai police or anyone in Thai authority is " you falang, you loose.

Hope your right though. I have emailed it to alot of my friends.

By the way, and this is only a guess here, do you work or have any connection to a real estate business.

[johnnyk]

That said, it would be easier to read if you wrote in paragraphs.

I gave up about 10 sentences in.

I stand corrected.

Having persevered and read through completely, it is a highly articulate, clear and well-reasoned post devoid of rumour, 'bovine excrement' and hysteria.

Actually one of the very best analyses of the whole hoohaw that I have read.

Thank you alf witt, you put in a lot of time and effort to bring some clarity on this issue.

[Gary A]

I also smell a connection to the OP doing some type of real estate dealing. That said, the laws are set up with the intent that a foreigner CANNOT own land here in Thailand. That part he accepts and agrees is the law. What he questions is if the nominee shareholder scheme is violating the law. I contend that you must look at the intent of the law. A Thai company is intended for foreigners to be able to legally do business in Thailand. A Thai company is intended to be conducting some sort of for profit business. The intent does not include a foreigner owning a home. Many years ago I wanted to have a home rather than a condo. The Thai lawyers I talked to at that time told me that although some lawyers set up companies for the explicit purpose of a foreigner owning a home that it was indeed contrary to the intent of the law and that some day people would be prosecuted for owning bogus companies of that type. The lawyers I talked to had NO interest in real estate deals with foreigners because it could not legally be done. I'm VERY happy that I listened to those lawyers and bought a condo rather than a house.

Takes a lot of reading, but some very interesting points made. Made me feel alot better about my house being in a Thai Company. The trouble though with reasoned arguments when your up against Thai police or anyone in Thai authority is " you falang, you loose.

Hope your right though. I have emailed it to alot of my friends.

By the way, and this is only a guess here, do you work or have any connection to a real estate business.

[Nadia 2]

As a hitherto unregistered observer of these forums I have noticed that some topics which generate a lot of heat suddenly die a death without any real answer or resolution of the issue. A lot of steam is generated by some posers* who seem to enjoy airing their "knowledge" of Thailand, its laws and politics but, on closer analysis, their opinions, often expressed as fact, are seriously flawed. Often they have misunderstood the real issues. I also have to say that announcements by Thai Ministries are often made in a way that causes panic because they have failed to express their objectives with clarity and have failed to consider the impact of misinterpretation or "loose" interpretation of their statements. Farangs get confused and panicky when they interface with Thai local officials who themselves are unclear about what their leaders have announced and are who are, as a result, inconsistent in their implementation of and explanation about what the law or regulation really is. The Thai Ministries' 'impact study' in relation to any new announcement always seems to take place 'after the event' when damage to foreign opinion and the Thai economy has already set in (sadly, often as a result of misunderstanding) fuelled by inaccurate or sensationalised media reports and by forums such as this where facts and real knowledge are buried under huge piles of misinformation, bovine excrement, paranoia from xenophobic Thais and venom from disillusioned farangs. For example, what happened to the various discussions about land ownership by Thai companies using nominee shareholders? I would have thought that this was an important issue for many farangs (and for Thailand) but the discussion seems to have run out of steam without any real light having been shed on the issue despite the widespread concern it generated and the consequential economic damage to the real estate market and potentially the tourist industry as foreigners form negative opinions about Thailand and its legal system. (I can already hear the wise guys answering "This is Thailand, we told you just wait and the problem will go away", but issues like these have a habit of resurfacing and causing more damage and panic at a later date, not to mention a lot of disinformation being left for posterity on the World Wide Web.

So my message to Thai Ministries is this - please do an impact study before you make far reaching announcements even if you are just re-stating existing law because many people do not understand the message in the way you intended it to be received. This is true not only of farangs but apparently of your own officials. So for the sake of the image of and ultimately the economy of Thailand please get it right first time round (read - impact study!!!) and when you make the announcement consider the old but wise adage - "Step 1: Tell them what you are going to tell them, Step 2: Tell them, Step 3: Tell them what you have told them". Do it in a way that even idiots can understand because it is always good policy to assume that unless you do so in many cases it will be misunderstood and/or misinterpreted with unpredictable and uncontrollable results (have a look at some British Civil Service public notices - they really know how to get their message across without ambiguity and without appearing to be patronising.) Do it like that for Thailand and thereby avoid any negative PR effects caused by misunderstandings!

As for posters on this forum (N.B. the word *'posers' in the 2nd sentence above was a typo but I left it because it seemed in many cases equally apt) - if you have some relevant 'knowledge' to share, that is a valuable and welcome commodity, but if you are expressing an opinion please do not dress it up as 'knowledge'. That can be unhelpful and in some cases dangerous (especially cumulatively). Also, please take the trouble to try to understand and analyse the real issue before rushing to print so that the forum may generate some light rather that increase the confusion.

I would like to illustrate what I mean by the "nominee shareholder" issue and, even at this late stage, hopefully get some genuinely knowledgeable answers that would assist all users of the forum to be be sure about the impact of the Thai government's announcement: Much of what I saw communicated on this matter, both in the press and in this forum, talked about how foreigners could or could not "own" land in Thailand, and/or how they were circumventing the law to do so. There was much discussion about what was often described as 'bogus' companies, and it was stated with some frequency that using 'nominee shareholders' was 'illegal' in Thailand. The announcement was described as a "new law" when in fact it was a Ministry of Interior instruction about existing law and about that laws application in very specific circumstances, but it was discussed as if it had general application. It was apparent that the majority of journalists and posters had either not read it before commenting on it or had read it and failed to understand it.

Here is my own analysis (N.B. not my unconsidered 'off the wall' opinion) of the reality of that issue in which I have tried to stick to the facts and the law as I understand them to be. I do acknowledge that either my understanding of the facts and / or the law may, of course, be flawed and I would therefore welcome any input or correction from knowledgeable persons (e.g. the lawyers on the forum) - please correct me if I have got something wrong in relation to either fact or law.

1) Except in very exceptional circumstances (not relevant to this issue) Thai law prohibits the ownership of land by aliens (i.e. non-Thai nationals). - I have no difficulty with that simple proposition - its fact!

2) It is also a fact that many lawyers in Thailand have established Thai companies at the request of foreigners (the shareholding issue is considered below) and that frequently land is registered in the name of these companies, which quite clearly means that the company owns the land. - What please is wrong with that, per se? What please, is "bogus" about a properly registered Thai company so established? What is wrong, please, with a Thai company owning land - for that is the fact and the reality? Those farangs (and Thais - including even Ministers) who talk about farangs owning land "through" or "via" a Thai company are at best confused. In Thailand as in any other jurisdiction a company is a separate legal entity from its shareholders and directors and its assets are quite distinct from theirs. It is extremely unlikely that this could be interpreted any other way as it would upset the whole basis on which commerce is conducted both in Thailand and worldwide. So, please, in this discussion can we leave out any references to foreigners "owning" land - they don't - it’s that simple. If land is registered in the name of a Thai company it is the Thai company that owns the land - simple, no argument, final. (Lawyers - real ones - please correct me if I am in any way wrong here).

3) Legally, as I understand it, a foreigner can own a maximum of 49% of the shares in Thai company. It is a fact that many lawyers have set up structures where Thai nationals have held shares (for want of a better word) allegedly as 'nominees' of others (foreigners, no doubt). It has been stated frequently in this forum that using nominee shareholders is illegal. Is that really so? Can someone point to the relevant legal authority - statute or case law either in English in Thai language? As far as I can establish, using nominees (read 'front-men') to establish or run a business of a type from which foreigners are legally excluded is illegal, but I know of no other prohibition in relation to nominee shareholders. One of the businesses (N.B. "businesses" - not the use land for residential or domestic purposes) from which foreigners are excluded is trading in land (i.e. buying and selling land commercially, sub-dividing and reselling the sub-divided plots etc.) and it was this area of illegality at which the Ministry's announcement was directed. So where is the problem in that announcement for a farang director and or shareholder of a Thai registered company which owns land on which he (the farang) resides? There is no problem that I can detect in the Ministry's announcement per se - only if you are conducting land transactions as a business.

4) The real issue with which we should be concerned must be does the "nominee shareholder" prohibition extend beyond these circumstances. Even the Ministerial direction which had people panicking suggests that it does not. It refers (without condemnation) to foreigners establishing such land owning companies to use the land for residential purposes but who later change it to start dealing in the land commercially - it is the change in the way that the company is used (viz. to engage in a prohibited form of business) which was specifically and solely condemned. Again, lawyers please indicate if the nominee prohibition extends beyond these specific circumstances and quote the relevant legal source. My research has indicated that it does not but I cannot read Thai so I rely on secondary sources only, but there has to be a definitive answer "yes" or "no". If "yes" please quote the relevant legal authority.

5) What about the question of how a shareholder (nominee or otherwise) financed his shareholding? Is that really relevant? Not if I am right about 3 above and probably not in any case. We have, I hope, already established that the assets of a company are quite distinct from those of its shareholders and directors. How the shareholder financed his shareholding and how the company financed its acquisition of the land are two quite separate matters. A farang (who may be a director, shareholder, neither of the two, or both) can, as far as I know, legally lend money to the company which is then owed as a debt by the company to him in his capacity as lender (not as shareholder or director). To investigate how a (Thai) shareholder was able to finance the purchase of a company's assets is as loopy as asking a shareholder in Thai International how he managed to buy a fleet of aircraft. Again, as I see it those who confuse these issues (including journalists) are precisely that - confused.

6) What characterises a shareholder described as a "nominee" (personally I avoid the word as it generates the confusion I have described above)? Typically he grants another the right to vote on his behalf by proxy (so who is in fact the nominee?). Again, as far as I am aware that practice is perfectly legal in Thailand as in every other jurisdiction in the world. It is the way shareholder meetings are conducted. What please is wrong with a shareholder agreeing to vote the same way as another person and asking him to exercise that vote on his behalf? In any event it is not shareholders who make the company's purchasing decisions (in relation to land or anything else) it is the company's directors upon whom such matters fall and there is nothing (I am aware of) in Thai law that prevents a farang being a director of a Thai company and acting accordingly. A shareholder's voting rights are generally very limited to matters relating to how the company is established and organised and in no sense as to how it is run from day to day and what it purchases or sells. Again I draw the analogy of a shareholder in Thai International - don't expect to have too much say on how the company is run and on what or how many aircraft they buy.....and..........I bet, on the issues where a shareholder does have a say, proxy voting is permitted!! Again, I would suggest that those who describe the Thai shareholders in the companies in question as "nominees" are muddying the waters and creating confusion and misunderstanding in a similar way as when they talk about foreigners "owning" land. These shareholders have agreed to become shareholders and they are recorded as such at the companies registration department on the official documents, so they are true shareholders and that, I would suggest is a fact whatever your perception of it may be or whatever terminology you may choose to use. So has anything illegal happened yet? In these circumstances, if anyone can be described as a nominee it is the person exercising the vote of the Thai shareholder. It is quite another matter for a farang to engage in a business which is prohibited to him and use a Thai to "front" for him. In that case the Thai is indeed a 'nominee' and it is that behaviour which in Thai law is illegal both for the farang and the Thai.

7) What also seems to be in question is the motivation of the shareholders in becoming shareholders in the companies we have described. Normally, a shareholder's motivation would be to participate in any dividend that the company may pay, but many (especially non-public) companies never or infrequently pay dividends. A shareholder's duty or obligation is, if called to do so, to pay up the full value of the shares for which he has subscribed. That is all - nothing more. In the event that the company is dissolved, a shareholder has a right to a share in its remaining assets (if any). (That would be of course, after any debts, including loans, had been paid or repaid in accordance with the lending terms). The company, as we have seen, is the owner of the land and in the event that it is dissolved any proceeds from the disposal of the land less all the company's debts etc. would belong to the shareholders jointly. That could be nothing, or it could be a considerable amount, depending on the value of the land and how the company was managed etc. But even a so called "nominee" shareholder whose name was recorded on the company documents would have such a right if there was a positive balance sheet. That right would be hard to argue with and the word "nominee" would suddenly be absent from the description - so let's get real and stop talking about nominees now. So there is (potentially, at least) a big incentive for a Thai to volunteer himself as a shareholder in a company, financed by a farang, which owns land in Thailand even if he is never paid a dividend. Even if the company leases the land to another, who knows what might happen in 30 years (or less)? The Thais love to gamble - which is what all shareholding is essentially about in reality. So I am still searching for the illegality here. Just because a shareholder may never reap any dividends or other rewards from his shareholding does not make that shareholding or the company "bogus". If that were so half the companies in Thailand would be "bogus". Lawyers, please comment if you see it differently. (Please note: I would like to keep away from any discussion about the merits or wisdom of choosing to establish a company in this way vis a vis financing land in your girlfriend/wife's name etc. That is another topic. I am purely concerned to establish whether those who have gone down this route are at risk from legal repercussions as has been frequently suggested but, as far as I can see, not established.)

8) The other yardstick of the Ministry of Interior proposes to judge is investigation of how the Thai shareholder was able to afford his shareholding (don't please confuse this with the value of any land owned by the company - please see above). This would seem to be a no-brainer. What does it matter legally unless he stole it? What if the farang paid for them on his behalf? Is there anything illegal in that per se? Yes, it may be in the farang's interest to do so and yes the Thai may be content (even happy about that) - that is how business is conducted - I win - you win. Where is the illegality, please? What law states that the money used to buy shares can not be a loan or a gift? In any event a company needs 7 shareholders and its nominal capital is normally B1m of which 51% needs to be subscribed for by Thais. That is B510,000 of which only 20% needs to be paid up when the company is established. That is B110,000 between say 6 Thais or a little over B18,000 per shareholder. I have met bar-girls who can make that sort of money in a week (not all of them, I agree, so please let’s not discuss that one here!). The point is that it is within the financial means of most persons whose names are likely to appear on company documents unless you picked your fellow shareholders up off the street. Its evidential value is close to zero contrary to what the scare stories suggest. And again, my perennial question is, in any case where is the illegality? In fact, even if the money was stolen it would not affect the validity of the registered shareholder as a shareholder, his problems would lie elsewhere. The shareholder is a Thai national, he wants to be a shareholder in the company (for whatever motivation or even for none at all), his name is duly entered on the record and filed with the competent authority, and the required value of the shares has been paid (from whatever source). End of story as far as his legality as a shareholder in the company is concerned.

9) As far as I can see, this arrangement, far from being a circumvention of Thai law, is in fact in strict compliance with it. The anti farang lobby may not like it, but that does not make it illegal. Someone asked why, if such arrangements are illegal, the lawyers who set them up are not worried about being sued for negligence. That should be your biggest clue. Also, it may be politically expedient to appear to bash farangs over land "ownership" and / or to make them feel that they have acted illegally in their "ownership" of land, but that is politics, not law.

Conclusion:

Please stop talking about farangs owning land - they don't, its impossible in 99.99999% of cases.

Please stop talking about "bogus" companies - they are properly established legal entities.

Please stop talking about "nominee" shareholders - they are "shareholders" plain and simple (they may be amenable to allowing a farang to exercise their vote in which case it is the farang who is their nominee).

Please stop worrying about how the Thai shareholder paid for his shares - it is totally irrelevant.

Please do not confuse the ill-considered opinions of Thais (some in official capacities) who are anti farang "owning" land, or probably just anti-farang, and the opinions of the doom-and-gloom disillusioned farangs who predict the end of Thailand and the world.

Please take care: Ministers - how you express your concerns; pundits - the "knowledge" you impart to others; just because something is widely believed to be true does not make it so.

The above is my understanding and analysis and mine alone. I seek corroboration of its accuracy and its conclusion from those who know, perhaps better? But reasoned arguments please not 'off the wall' opinions or something you or your mate overheard in a bar.

Read www,samuiforsale contains all the answers.

[Alf Witt]

Hi GaryA and FatBoySlim.

I have no connection with the real estate business. I can see how you allow unsubstantiated guesswork to lead you astray. It is the facts in issue and the relevant law that is of importance here not my profession, although, without disclosing that, I do have a lifelong experience of analysing information.

I can easily accept that there are two elements to evaluating information - one is "what is being said?" and the other is "who is saying it?" Unfortunately it is in the nature of these forums that most of the time we only have the former.

But my proposition is essentially very simple: to those who say that the Thai company route is illegal please point to the law. My research has led me to the conclusion that it is not illegal, but I am not a Thai lawyer, so to that extent I have reservations and therefore as I have said, seek corroboration. If no one comes up with some verifiable information to demonstrate that it is illegal (which is the objective of this thread) then my belief will be strengthened. So to all of those posters who have been asserting that it is illegal - just find me one who has the original source that substantiates it - not too much to ask, huh? Remember weapons of mass destruction anyone? Generally if you cannot find something that you think exists it probably doesn't. The Thais are not trying to hide the law here, even if many of their officials and even ministers think (or more probably, wish) it was something other than it is, so it shouldn't be a difficult task for all the wise ones here.

I am surprised that someone from the USA should suggest that it the "intent" of the law that matters. Sorry, but it is the wording of the law that creates its certainty, otherwise you put power in the hands of officials and authority to make it up and change it on the hoof. You must stop at a green traffic light - oh sorry, I intended to say red so prosecute everyone. A simplistic example but it illustrates the point. That is why legal draughtsmen spend months drafting laws which are amended and re-amended before they are passed by parliament and for Royal assent.

[Alf Witt]

Thank you Nadia 2. That is very useful. I will take some time to consider it.

[Gary A]

I am firmly of the opinion that Thai law is written so that it can be interpreted to fit the situation. I can't read Thai so I can't say what the law says. I can only watch what happens in different situations and the only thing really consistent is that nothing is consistent. If you rock the boat here in the Kingdom you are the one most likely to fall out.

[Mobi]

As with any open forum there is always going to be an element of "off the wall", unreasoned, "heard it in a bar" etc etc posts. If you can't accept and understand that, then I suggest that it is you who should be going somewhere else to discuss these matters.

I think there is an extreme arrogance in your attack on previous threads and on previous posts on this, and related subjects. There have been a great number of well considered posts from a number of well researched, and often highly qualified people, who do have a lot of experience in these areas of Thai law. You seem to think that by sheer volume of words you can lay claim to the only one amongst us who has any legitimacy in this discussion - arrogance indeed.

The reason that the threads ultimately go nowhere is very simple. This is Thailand, and as yet there has been no absolute clarification or resolution by the Thai authorities of the issues involved and nobody knows for sure what is acceptable, and what will ultimately happen. Indeed, even the authorities in different parts of the country are putting different interpretations of the law / guidelines, and have indeed changed their interpretations since the problems first emerged a few months back.

So how do you expect any thread to come to a firm conclusion may I ask?

In the meantime I will take my advice from a properly qualified firm of Thai lawyers who have in depth experience in these areas, and not from some self appointed farang who thinks he can understand Thai law.

[steveromagnino]

Alf

I cannot be bothered doing a massive cut and paste, so I'll quickly summarise how I see it.

1. You are indeed correct is saying foreigners in almost all cases cannot own land. That however has not stopped many legal devices aimed at getting around this law. In particular, as the TRT machine has fallen down, it has become increasingly clear that massive pieces of land are now in foreign ownership (the property developers) and many of the TRT politicians are the ones that had a hand in creating this situation; the civil service were previously unable to do much about it, but now that they can, they are responding and admittedly they haven't communicated it perfectly, but commenting about that here on a webboard for non Thais is a complete waste of time. If you are serious about doing something about it, write a letter in Thai to someone appropriate.

The issue of foreigners owning land is the issue; much like talking about prostitution or drug use, just because they are illegal doesn't mean they aren't occuring. And if you go down to Phuket and walk around, you will find a hel_l of a lot of projects that appear to have no Thai ownership at all. If you go onto various property sites, you'll have property developers telling foreigners how to structure a system to 'own a property' to 'lease a property for 90 years' and so on. That's why people are talking about foreign ownership, because, simply, there are foreigners here who own things.

2. A company is 'bogus' when it does no trade and is set up solely to lose money and is a vehicle to own property. If a company is legitimate, it is generally recognised to be an entity engaging in some business activity for the purpose of generating shareholder value, engaging in some business activity, with shareholders who have contributed equity to hold shares. By Thai law, generally a company must be majority owned by Thais 51% except for treaty of Amity and BOI exceptions where 100% foreign ownership is allowed.

If a property company exists solely for the purpose of owning a house, with no foreseeable way to generate income, and has majority shareholders who do not appear to have not contributed equity and have no voting rights, then the case can be made that the company is bogus in that it does not appear to be engaging in any business activity requiring the major asset. If the shareholders do not appear to be actively participating in the company and have not appeared to have invested equity and they do not appear to receive any benefits from capital gain or income, they are considered to be simply there to act in the interest of another shareholder; if you want to know more about what a nominee is there are plenty of 'how to' finance websites around the world to explain what they are. Use of nominees has been extensively used to bypass the spirit of the law, and in the case of property when you combine the two together, for the foreign owner it means that they can own land in perpetuity via their company; two wrongs in effect.

They are not shareholders 'plain and simple' when they have not invested equity, when they do not have voting rights and when they do not appear to have any ability to exercise their own decisions. It is important to determine how someone paid for their shares in order to assess the legitimacy of the share distribution, and subsequent voting rights structure. Typically a common stock holder has the right to vote on major issues, a claim on a share of the assets, right to transfer ownership of shares, right to dividend, opportunity to inspect accounts and right to sue the company - if the shareholder only holds pref stock, then the mix is a little different; but in the event there is a shareholder holding stock in a company with no chance to make money or get a return, and it is clear that they didn't invest the money themselves, then that is fairly clear evidence that the company shareholding structure is a sham, and if it is a sham used to breach 49% ownership directly, then under current law it is illegal.

Now if the company actually does trade, then it is a whole different story. But in most cases, the foreigner is simply trying to get around a law, and for that they should be punished under current laws. If the govt wants to let foreigners own land, let them change the law.

The Foreign Business Act 1999 defines a foreign business as 1/2 or more of its capital owned by foreigners even if encorporated in Thailand, or half or more of the value of capital invested being invested by foreigners even if more than half the capital is held by Tai nationals.

When we combine this with Sec 86 of Thai Land Law which prohibits foreign ownership by an individual or entity we can see why the current nominee structure is causing problems.

A shareholder who is a nominee shareholder that has borrowed money with the shares offered as security is expressly illegal in the Foreign business act 1999; I can get hold of the THai acts for you to read (they are written in THai), my own Thai law reading skills suck. Being a nominee shareholder and use of a FBA I think, and possibly also the Land Act.

THIS is where the nominee issue kicks in; the foreigner has contributed more than half the value of the capital invested, then it is a foreign business by definition under the act and cannot own land. In the case of a nominee shareholder, it is the foreigner that is providing all the capital, and maintains ownership voting control over the stock in return.

The same act specifies that companies which own land in the same act must by 51% owned by Thais unless they have specific promotional exemption (usually BOI).

Your post is making a case for why foreigners should be allowed to own land. There are reasons why this may or may not be a good idea, and why it should be restricted. If you want to debate that, then fine. but if you want to discuss the law as it currently stands, I suggest you study some basic company law, and get a copy of the Foreign business Act to understand specifics for Thailand.

You might also want to learn about some concepts regarding how law develops specifically regarding ambiguity, precedents and interpretation. There is some interesting stuff there :-)

I never studied property law, I preferred IP law and commercial law; however law can be very very fun to study, I suggest you learn a bit about property law as the concepts are much the same in most countries. Combine that with some company law, and you'll 'get' what is going on here.

Edited October 20, 2006 by steveromagnino

[dsfbrit]

Its a very good post - well thought out and well argued - sadly I suspect it is flawed.

I set up a company and acquired land using this method.

I would say though, although I would never consider an expert in law, the following quoting a personal example from the UK is worth considering.

In the UK I set up and worked in a Ltd company for many years

This was so so I could work as a contractor/programmer/consultant call it what you will - in the computer industry.

Typically I used to work for a company (ie: Lloyds TSB, Abbey National...) for 6 months or so.

My company had just me as an employee - it also could claim tax breaks, travel, training costs etc...

My company HAD to exist as the agencies and companies like TSB would only deal with this kind of set up - to avoid me receiving the rights of a employee (sick pay, holidays...) if my contract was extended too long.

For example after 2 years in one company you may/could try to claim 'permy' status.

The company was legal, it was accpeted practice by all including the Inland Revenue.

However, after some tax changes by Mr Gordon Brown -bless him - called IR35 ( I still have nightmares over this phrase!), it was decided to remove all the all tax advantages from companies/ people like me.

After I and others funded court cases for the Computer Industry Body(PCG) to take the Inland Revenue to court to overturn this legislation (we lost) - a term 'disguised employee' was defined by the Inland Revenue.

It was pointed out that if the company ONLY existed to 'employ' one person - ie me - then I was in fact an employee of TSB (say) in all but name.

In eventual court cases, companies like mine were 'tested' to see if they were a 'real' company or

just there to avoid the 'disguised employee' scenario.

I wont bore you with all the details of these court cases - mostly won by the Inland Revenue(not all curiously), but I am certain that if I end up in court in Thailand, they will apply similar REASONABLE tests to my 'company' over here.

They will consider if

- Has it ever traded - NO

- Was it set up for ANY other purpose than buying land - NO

Lets face it - It therefore is a 'disguised' farang land ownership company only.

I made a mistake when I set up this company in Thailand - I checked out many issues relating to the land ownership / company thing - I did not however realise that the company structure itself was the weak link.

So as good as your argument is - I sadly and respectfully suggest, that if I have to go to court - I will lose.

My advice to anyone reading this forum and thinking of setting up a company to own land - there is no confusion - DO NOT DO IT!

good luck to all you 'land owners' like me who are still weighing up all the options and hoping the problem will just go away!!!

And good luck to those poor devils who bought condos through the company route as well!!!

Edited October 20, 2006 by dsfbrit

[Mobi]

Posts 16 and 17 are very good, guys.

At the risk of repeating myself, for those who know me, I was already quite concerned about the nominee issue and the so called "bogus" company issue long before it became a hot topic, and had mentally resolved to extricate myself from that legal framwework one day. The crack down accelerated my thinking, and I have now divested myeself of company and nominee sharehoders. I ultimately transferred the land and property to my wife and have a lifetime usufruct in return. Not an absolute guarantee that I will have uninterrupted enjoyment of my property until I die - but as good as I'm going to get without waiting for further clairifaction or a change in the law.

That was my decision - and I'll live by it. It may not suit others, and I respect their decision to wait and see, and wish them the best of luck.

[Dragonman]

Posts 16 & 17 say mostly everything. Clause 3, Section 3 of the Ministerial Regulation establishing the Commercial Registration Dept allows the Registrar to prescribe rules by law. He has done so ( Reg. No. 102 B.E.2549). Hence the new rules.

[Alf Witt]

Alf

I cannot be bothered doing a massive cut and paste, so I'll quickly summarise how I see it.

1. You are indeed correct is saying foreigners in almost all cases cannot own land. That however has not stopped many legal devices aimed at getting around this law. In particular, as the TRT machine has fallen down, it has become increasingly clear that massive pieces of land are now in foreign ownership (the property developers) and many of the TRT politicians are the ones that had a hand in creating this situation; the civil service were previously unable to do much about it, but now that they can, they are responding and admittedly they haven't communicated it perfectly, but commenting about that here on a webboard for non Thais is a complete waste of time. If you are serious about doing something about it, write a letter in Thai to someone appropriate.

The issue of foreigners owning land is the issue; much like talking about prostitution or drug use, just because they are illegal doesn't mean they aren't occuring. And if you go down to Phuket and walk around, you will find a hel_l of a lot of projects that appear to have no Thai ownership at all. If you go onto various property sites, you'll have property developers telling foreigners how to structure a system to 'own a property' to 'lease a property for 90 years' and so on. That's why people are talking about foreign ownership, because, simply, there are foreigners here who own things.

2. A company is 'bogus' when it does no trade and is set up solely to lose money and is a vehicle to own property. If a company is legitimate, it is generally recognised to be an entity engaging in some business activity for the purpose of generating shareholder value, engaging in some business activity, with shareholders who have contributed equity to hold shares. By Thai law, generally a company must be majority owned by Thais 51% except for treaty of Amity and BOI exceptions where 100% foreign ownership is allowed.

If a property company exists solely for the purpose of owning a house, with no foreseeable way to generate income, and has majority shareholders who do not appear to have not contributed equity and have no voting rights, then the case can be made that the company is bogus in that it does not appear to be engaging in any business activity requiring the major asset. If the shareholders do not appear to be actively participating in the company and have not appeared to have invested equity and they do not appear to receive any benefits from capital gain or income, they are considered to be simply there to act in the interest of another shareholder; if you want to know more about what a nominee is there are plenty of 'how to' finance websites around the world to explain what they are. Use of nominees has been extensively used to bypass the spirit of the law, and in the case of property when you combine the two together, for the foreign owner it means that they can own land in perpetuity via their company; two wrongs in effect.

They are not shareholders 'plain and simple' when they have not invested equity, when they do not have voting rights and when they do not appear to have any ability to exercise their own decisions. It is important to determine how someone paid for their shares in order to assess the legitimacy of the share distribution, and subsequent voting rights structure. Typically a common stock holder has the right to vote on major issues, a claim on a share of the assets, right to transfer ownership of shares, right to dividend, opportunity to inspect accounts and right to sue the company - if the shareholder only holds pref stock, then the mix is a little different; but in the event there is a shareholder holding stock in a company with no chance to make money or get a return, and it is clear that they didn't invest the money themselves, then that is fairly clear evidence that the company shareholding structure is a sham, and if it is a sham used to breach 49% ownership directly, then under current law it is illegal.

Now if the company actually does trade, then it is a whole different story. But in most cases, the foreigner is simply trying to get around a law, and for that they should be punished under current laws. If the govt wants to let foreigners own land, let them change the law.

The Foreign Business Act 1999 defines a foreign business as 1/2 or more of its capital owned by foreigners even if encorporated in Thailand, or half or more of the value of capital invested being invested by foreigners even if more than half the capital is held by Tai nationals.

When we combine this with Sec 86 of Thai Land Law which prohibits foreign ownership by an individual or entity we can see why the current nominee structure is causing problems.

A shareholder who is a nominee shareholder that has borrowed money with the shares offered as security is expressly illegal in the Foreign business act 1999; I can get hold of the THai acts for you to read (they are written in THai), my own Thai law reading skills suck. Being a nominee shareholder and use of a FBA I think, and possibly also the Land Act.

THIS is where the nominee issue kicks in; the foreigner has contributed more than half the value of the capital invested, then it is a foreign business by definition under the act and cannot own land. In the case of a nominee shareholder, it is the foreigner that is providing all the capital, and maintains ownership voting control over the stock in return.

The same act specifies that companies which own land in the same act must by 51% owned by Thais unless they have specific promotional exemption (usually BOI).

Your post is making a case for why foreigners should be allowed to own land. There are reasons why this may or may not be a good idea, and why it should be restricted. If you want to debate that, then fine. but if you want to discuss the law as it currently stands, I suggest you study some basic company law, and get a copy of the Foreign business Act to understand specifics for Thailand.

You might also want to learn about some concepts regarding how law develops specifically regarding ambiguity, precedents and interpretation. There is some interesting stuff there :-)

I never studied property law, I preferred IP law and commercial law; however law can be very very fun to study, I suggest you learn a bit about property law as the concepts are much the same in most countries. Combine that with some company law, and you'll 'get' what is going on here.

A useful post with good clear arguments, thanks.

However, I have great difficulty in accepting any suggestion that in these circusmstances the foreigner owns the land.

The land is registered in the name of the company. The foreigner is not (unless he is misguided) trying to claim "ownership" of the land. Yes, as you say, there are foreigners who own "things" but not land. Foreign land ownership is simply not possible except in rare cases outwith the ambit of this discussion.

I take your point that if it is not set up properly that the company could be deemed to be a "foreign" company and would be prohibited from land ownership but that still does not mean that the foreigner owns the land the company still owns the land albeit illegally and the land could as a result be forfeited.

What you are suggesting is that if a foreigner has control of a Thai company that owns land then he, the foreigner, owns the land. I think that is not so or the whole concept of the limited liability company would be meaningless. Control does not equal ownership - did you ever rent a car or use one under a lease agreement? That often repeated suggestion about farang "ownership" is damaging to all the farangs who find themselves in this position especially so because of its inaccuracy.

If a company is deemed to be "foreign" by virtue of its capitalisation then it cannot own land, legally. I can see that, but the foreigner still does not own the land - he never will unless the law is changed its impossible under Thai law as I see it. If the farang fully accepts that and he has no intention to try to "own" the land but he would like to enjoy the use of it. Where is that illegal, please?

So obviously you have to avoid the company being considered "foreign" and the key to that as you point out is capitalisation. Therefore half or more of its capital must be owned by Thais. So, the farang fully accepts that the Thai shareholders own 51% of the capital in the company. If a farang lends the money to the Thai and holds his shares as security in these circumstances, as you point out, it is illegal. Accepted. But if the Thai shares are paid up and the farang has no claim on the money that was used to purchase them that does not apply. Correct?

If, however, a farang lends money to the company (N.B. not the shareholder) then it does not fall foul of the above prohibition. The money is not the company's 'capital' because it is a liability of the company (the debt has to be repaid). So as long as the farang does not breach the 49%-51% capital rule the company remains a Thai company with the right to own land.

Who says the Thai shareholder has no chance to make money from his shareholding? I have already pointed out that he has. Anyway, what is the big obstacle to paying a dvidend occasionally? Would that make you happy that the shareholding was not a "sham" as you put it?

And who says that the company is "set up" to make a loss? A very large assumtion. It seems to me sensible that the company leases out the land and then provides maintenance, gardening, security services etc. and ideally has a couple of Thai employees to do that. (They may also be shareholders and help to create the income from which dividends can be paid).

I accept that for someone new to the real estate market in Thailand to go down this route now may not be the best choice, but there are many, many persons out there who are already in this situation. It does not help their cause to use words like "foreign ownership of land" when there are, as I see it, at least very reasonble ways to look at it otherwise. That is what I am trying to achieve here. Look at the law and the facts. Where are these persons weak? Where are they strong? Its not all doom and gloom. Stay "jai yen" and avoid the verbal pitfals of talking about ownership of land by farangs etc. Accept that we don't but play the strengths of our argument. If push comes to shove I suspect that the Thai lawyers who established these companies are going to start arguing it this way as well, otherwise they are even more liable criminally and civilly and professionally than the farang if the doom merchants are right or have their way.

To achieve this again I say if you know of law which contradicts what I say let's hear about it so we can put it under the microscope.

I don't think we are too far away from each other in understanding, Steveromagnino. There may be some worst case scenarios out there but it doesn't necessary apply to all and it does not mean that all should be perceived in that light. Nor does it mean that it is too late to make sensible changes!!! The same view can look different if you shift your viewpoint.

[Alf Witt]

Posts 16 & 17 say mostly everything. Clause 3, Section 3 of the Ministerial Regulation establishing the Commercial Registration Dept allows the Registrar to prescribe rules by law. He has done so ( Reg. No. 102 B.E.2549). Hence the new rules.

Do you have a link to the text, please?

[udon]

Nadia 2

Congrats for being the first fool to quote the whole of the OP's post...

Unbelievable stupidity. Followed by a one line link!

If you don't know how to do a partial quote........ do nothing.

[Khun Jean]

Long posts and a lot of arguments.

Still it is very simple.

Foreigners can not own land.

Foreigners that want to live in Thailand also DON"T WANT a company with all the administration that will be necessary. It gives headaches and it will allways be in your mind that one day this 'structure' will not hold.

For example. A 40-50 year old foreigner married to a Thai wants to live in Thailand. They go the company route because they understand that it has to be a real company. They do that, make profit, etc. 20 years later this company (foreigner is now 60-70) is not what it was before. It is not making profit, then 20 years of working instead of relaxing is taking its toll. Decision is made to sell the land to the wife, but that is harder than imagined. All those shareholders suddenly are needed, or you need to appoint another director, etc... Then the company has to be disolved or sold. Another 2 years of headache. And that when you are in your 60-70's. Not really a great situation. And you end up with the Thai spouse owning the land anyway and the foreigner leasing it. (You probably could have started this way)

The alternative:

Rent.

You look around for a nice place, sign a rental contract (1-30 years) and ready.

You see the above few lines! That is all you need to know about the law in Thailand. Compare that to the hundreds (or thousands) of articles and posts and more pages, and pages of how to circumvent the law, interpretations and misinterpretations, laywers, accountants, confilict of interests, shareholders, etc.., etc.. (think Yul Brunner).

With renting your time is spend enjoying the country and the lifestyle, and with your money still in the bank. And when you feel the need to move, that is easy too.

[steveromagnino]

I have great difficulty in accepting any suggestion that in these circusmstances the foreigner owns the land.

The land is registered in the name of the company. The foreigner is not (unless he is misguided) trying to claim "ownership" of the land. Yes, as you say, there are foreigners who own "things" but not land. Foreign land ownership is simply not possible except in rare cases outwith the ambit of this discussion.

I take your point that if it is not set up properly that the company could be deemed to be a "foreign" company and would be prohibited from land ownership but that still does not mean that the foreigner owns the land the company still owns the land albeit illegally and the land could as a result be forfeited.

What you are suggesting is that if a foreigner has control of a Thai company that owns land then he, the foreigner, owns the land. I think that is not so or the whole concept of the limited liability company would be meaningless. Control does not equal ownership - did you ever rent a car or use one under a lease agreement? That often repeated suggestion about farang "ownership" is damaging to all the farangs who find themselves in this position especially so because of its inaccuracy.

If a company is deemed to be "foreign" by virtue of its capitalisation then it cannot own land, legally. I can see that, but the foreigner still does not own the land - he never will unless the law is changed its impossible under Thai law as I see it. If the farang fully accepts that and he has no intention to try to "own" the land but he would like to enjoy the use of it. Where is that illegal, please?

So obviously you have to avoid the company being considered "foreign" and the key to that as you point out is capitalisation. Therefore half or more of its capital must be owned by Thais. So, the farang fully accepts that the Thai shareholders own 51% of the capital in the company. If a farang lends the money to the Thai and holds his shares as security in these circumstances, as you point out, it is illegal. Accepted. But if the Thai shares are paid up and the farang has no claim on the money that was used to purchase them that does not apply. Correct?

Who says the Thai shareholder has no chance to make money from his shareholding? I have already pointed out that he has. Anyway, what is the big obstacle to paying a dvidend occasionally? Would that make you happy that the shareholding was not a "sham" as you put it?

And who says that the company is "set up" to make a loss? A very large assumtion. It seems to me sensible that the company leases out the land and then provides maintenance, gardening, security services etc. and ideally has a couple of Thai employees to do that. (They may also be shareholders and help to create the income from which dividends can be paid).

If push comes to shove I suspect that the Thai lawyers who established these companies are going to start arguing it this way as well, otherwise they are even more liable criminally and civilly and professionally than the farang if the doom merchants are right or have their way.

To achieve this again I say if you know of law which contradicts what I say let's hear about it so we can put it under the microscope.

I don't think we are too far away from each other in understanding, Steveromagnino. There may be some worst case scenarios out there but it doesn't necessary apply to all and it does not mean that all should be perceived in that light. Nor does it mean that it is too late to make sensible changes!!! The same view can look different if you shift your viewpoint.

They key points are that since a foreign company is not allowed to own land, then if someone sets a foreign company to do so, they are breaking the main intent of land law for foreign business. Since it is almost exclusively foreigners that would bother to do this, and since in the majority of cases under investigation the reason for investigation is twofold (1. that the shareholders don't actually exist/have voting rights/have any proof they contributed actual equity 2. that the company doesn't appear to engage in a profit making venture with any long term plan that extends beyond owning the property) it is likely that two things can be deduced under existing law; that the company is a 'sham',that the company should be wound up and that the directors of the company should be held responsible for using nominee shareholding which breaks the law as specified. In most countries, the revenue department would be entitled to question a company that appears to have no ability longterm to generate profit and in USA that is why Amway people get hauled up to pay tax on their sustained loses. I am sure owning 500 cars to engage in a business of selling noodles from a road side stall would elicit similar questions as to why a person engaged in the business of say, 'consulting to one person for offshore' requires a $4m USD villa in Phuket.

The reason why people say 'foreigners owning land' is because it is almost exclusively non-Thais using a company ownership structure to circumvent their inability to own land. There are other options available; to gift it then have a lease structure, to have a 'real company that requires land to do business', and so on. Do a check on the net, and there are countless references to ways for 'foreigners to own land'. Some of them are even legal and legitimate, and almost all of those options will involve either some sort of contract with a fixed duration and possibilities of extension or a legitimate business with a foreign minority shareholding that requires land ownership in the course of acheiving the objectives of the company. They will also likely require that the person who owns the company is probably not living in the company premises if the premises are themselves the source of income. The law is fairly clear that foreigners cannot own land. I only assume what I know, and I know the bulk of the companies I am aware of set up to own property do not engage in business, and if they do it is very very difficult to show that the premises are required for any business other than renting the property out, in which case the owner can only live there for short periods per year (and I suspect this structure would pass the test as long as the owner was there less than a month or so a year and there was a shareholding structure of 51% THai ownership; that the company has a legitimate bona fide business, a likelihood to turn a profit and pay dividends and so on).

If a company has a legitimate reason to own the land, they will have no problem getting the title, and the current check on where the Thai shareholders got their equity stake from and that they exist is aimed at keeping 'honest people honest'. There are plenty of companies out there not doing this, and they are the ones causing problems for everyone else (similar to the overstay/visa issue).

I understand your point regarding a company as a separate entity; however when the company engages in something expressly forbidden, and when the company shareholding structure clearly indicates that the company is not set up to engage in real business, then the directors should be held accountable for their company's actions. There are criminal penalties for using nominee structures, which will fall onto a director/shareholder.

You can call the people responsible for setting up the company whatever you want, and if they want to take advice from a lawyer, and it gets them into trouble, they can take action against the advisor in so far as the contract between the company and their advisor (the lawyer in this case) specifies. I think you are perhaps under the mistaken belief that it is only Thai lawyers doing all the advising. In many cases there are international law firms doing advising, and no doubt they know very well how to protect themselves if their advice should prove incorrect; after all this whole issue is coming from a 'clarification' of the law. Mind you, Anderson got taken down with their shonky auditing advice; however did many of the other countless consultants e.g. McKinsey, who were advising Enron as well?

All you need to know is in the Foreign Business Act, the Land Law and the guidelines outlined above; if you are doing a legit guesthouse or villa rental business and not living there with a correct shareholding structure, then your minority 49% foreign owned company won't have any problems. :-)

As you correctly point out, after all, foreigners cannot (for the most part) own land. :-)

[dsfbrit]

I am impressed with the quality of feedback on this thread.

So much so, that I am going to ‘go for broke’ as the Americans would say and ask for your feedback on my whole situation.

True, as I have stated in others posts - I set up the company in Pattaya to buy our house.

However, being just 49 (52 now) years old I could not see me doing nothing the rest of my life, so figured one day I may use the company to actually DO something.

It was one of the benefits I saw with the company route that came as a ‘freebie’ option as it were. I could use it in the future to set up a proper business – if the mood took me (3 years ago I never really thought I would want to work again, funny how 3 years without any pressure can change that view a bit).

Because of my background - I have worked in the computer industry all my life – I thought perhaps an Internet café – but there seemed so many of those.

I also enjoy learning and whilst at my Thai lessons considered setting up a language school. I have a University degree in Computing and Maths and so I figured I could take the TEFL exams and would be qualified enough then to also teach there as well.

However, I thought that would leave my wife out of it – she is not really into the office life nor academia.

My wife however does love Karaoke – and wanted to set up a Karaoke ‘garden’ for Thais – not Farangs, but as sweet as my wife is – her management skills are nil – and it would mean I would end up running the business side to all intent and purposes.

I gave up the booze 3 years ago and the thought of having to listen to the noise drunken Karaoke singers make, whilst I am sober seemed just too much!

So before I shut the company down and tranfer the land etc… which seems the preferred option - if I were to run a business here, via the company I currently have that is not trading - would the company be made ‘legal’ and the land ownership then no longer be an issue?

Or is the current company structure just too flawed?

This would not be just a ‘smart arse’ move to make the company legal and keep the land – that would be just too ridiculous – However I am a great believer in fate – and if I could run a business and make the company ‘legal’ it may kill the proverbial 2 birds with one stone.

I wonder?

Your comments would be appreciated.

Edited October 20, 2006 by dsfbrit

[tornado40]

I was looking to buy a house for my TGF family in Korat - with the difficulty and the risk I will wait until farang can do without risk. So Thai builders miss out and the family does not have such a good life. Why cannot things be made easier for farang to make Thai people life better - because that is all I want to do!

[Dragonman]

Posts 16 & 17 say mostly everything. Clause 3, Section 3 of the Ministerial Regulation establishing the Commercial Registration Dept allows the Registrar to prescribe rules by law. He has done so ( Reg. No. 102 B.E.2549). Hence the new rules.

Do you have a link to the text, please?

Sorry, if you require specific Statutes these may be acquired from bookshops, or you may pay a lawyer to obtain. I purely point people in the right direction to take it up with their lawyer. My take on the Forum is to do this "pro bono". When specific requests are made for justification of literature this is of a commercial nature. I am retired, but there are many lawyers out here trying to make a living from their 4 years in Uni. ( also many, sad to say, didn't learn much in their 4 years. )

[Alf Witt]

I still remail to be convinced that the anti nominee provisions apply to someone who is not involved commercially in the "land business" which is a business prohibited to farangs under the Foreign Business Act and which the Ministerial Direction referred to in my first post was aimed at.

The following is the advice of a respected law firm given last year as to the existing law. I know that Ministerial directions were issued earlier this year but it has been made clear that hey contained no new law. If someone knows differently or if the substantive law has changed I'd like to hear about it as it is very material to understanding whether the 49/51 company structure is legal or not. I remain to be convinced by those who assert that it is not but who have not establiehed that.

Quote:

"It must first be pointed out that the anti-nominee provisions referred to are found in the Foreign Business Act, 1999 (“FBA”) and not in any of the land legislation, the principal one being the Land Code, 1954 (“Code”)."

"The anti-nominee provisions in the FBA prohibits unlicensed foreigners or a Thai person(s) acting on behalf of unlicensed foreigners, from owning and/or operating businesses that are restricted under the FBA".

So, if this is so there is nothing in the Land Code that prohibits the use of nominees and the FBA prohibition relates to restricted businesses viz. dealing in land as a commercial venture.

PROVE me wrong somebody!

[Khun Jean]

PROVE me wrong somebody!

I think you are 100% right.

And you can prove it to yourself by forming a company and buy some land.

Don't forget to report back how it went.

[Alf Witt]

PROVE me wrong somebody!

I think you are 100% right.

And you can prove it to yourself by forming a company and buy some land.

Don't forget to report back how it went.

OK, let me share a bit more research with those who are interested:

Here is the relevant wording extracted from the Foreign Business Act which I have found. The quotes in parenthesis are the precise wording of the Act. The remaining text is my comment.

"His Majesty King Bhumibol Adulyadej has been pleasantly pleased to proclaim that it was expedient to improve the law governing the business operation of foreigners."

Note: The Act is about the "business operation" of foreigners. Not about land.

WHAT THE ACT IS ABOUT: Viz. businesses in which a foreigner may not participate:

THE RELEVANT ONE BEING -

"LIST ONE

The businesses not permitted for foreigners to operate due to special reasons:

(9) Land trading."

THE ANTI NOMINEE LAW:

"Section 36. Any Thai national or juristic person that is not a foreigner under this Act, aiding or abetting or taking part in the business operation of the foreigners whose business falls under the Lists attached hereto and the foreigners are not permitted to operate the business or taking part in the business operation of the foreigner by showing that he or it is the sole owner of the business or holding shares on behalf of the foreigners in any partnership or limited company or juristic person in order for the foreigners to operate the business in avoidance of or violation to the provisions of this Act, including the foreigners allowing Thai nationals or juristic persons that are not foreigners under this Act to do so, shall be punished with an imprisonment of not exceeding three years or a fine from 100,000 Baht to 1,000,000 Baht or both, and the Court shall order a stoppage of the aiding or abetting or order a stoppage of the joint business operation or order a stoppage of share holding or a cessation of the partnership as the case may be. Violators of the Court's order shall be subject to a punishment with a fine of 10,000 Baht to 50,000 Baht per day throughout the period of violation."

So it is perfectly clear to me that this Act and the "nominee" question (note that the word nominee is not used) is all about foreigners TRADING in land as a business and it is illegal for a Thai to front for him or hold shares for him to enable him to TRADE in that way.

Even the definition of a Foreigner is limited to this particular Act.

DEFINITION OF A FOREIGNER:

"Section 4. In this Act:

"Foreigner" means

(1) Natural person not of Thai nationality.

(2) Juristic person not registered in Thailand.

(3) Juristic person registered in Thailand having the following characteristics.

(a) Having half or more of the juristic person's capital shares held by persons under (1) or (2) or a juristic person having the persons under (1) or (2) investing with a value of half or more of the total capital of the juristic parson.

( Limited partnership or registered ordinary partnership having the person under (1) as the managing partner or manager.

(4) Juristic person registered in Thailand having half or more of its capital shares held by the person under (1), (2) or (3), or a juristic person having the persons under (1), (2) or (3) investing with the value of half or more of its total capital."

WHAT IS MEANT BY CAPITAL:

""Capital" means the registered capital of a limited company or paid-up capital of a public limited company or the money invested in a partnership or juristic person by its partners or its members."

So it does not include loans, even if provided by a foreigner.

Now I am not saying that there is not similar legislation in force regarding companies which merely own land as distinct from trade in land, I am just saying that so far I have not found it and no one on this forum has pointed it out to me. I am satisfied having read this Act from beginning to end that it does not address that issue.

I'm sorry about the long posts, but if we are to stand a chance of understanding this matter accurately they are necessary.