Trading entities in Thailand
Those individuals or companies who would like to undertake some form of business-related activity in Thailand have a number of options when choosing a legal structure. The first decision to be made is whether to create a trading entity or a non-trading entity. This blog post discusses trading entities. Non-trading entities, and in particular the ‘representative office’, are discussed in a separate post.
A trading or commercial entity is any juristic person or legal entity, which is incorporated for the purpose of generating income in Thailand. It can be incorporated either in the form of a completely owned branch of an overseas-based parent company or as a completely separate business. This then becomes the second decision to be made by the foreign investor, and it may well be decided through reference to three lists provided within the Foreign Business Act (FBA).
If the proposed activity is prohibited under List 1 of the FBA then the foreign investor may only invest by way of a majority Thai-owned legal entity. If the activity falls within List 2 or List 3 then the foreign investor must either apply for a Foreign Business License, or for BOI endorsement, if the intention is to operate as a majority foreign-owned legal entity.
With regards to Thai commercial business organizations, the three main forms are the partnership, the company (public or private), and the Joint Venture.
Foreign investors rarely use partnerships but they are mentioned here for the sake of completeness.
Thai law recognises two types of partnerships, ‘ordinary partnerships’ and ‘limited partnerships’.
An ordinary partnership may or may not register as a juristic person, thus there is a:
- Non-registered Ordinary Partnership – This entity has no status as a juristic person and is treated for tax purposes as an individual. All partners are jointly and wholly liable for all obligations of the partnership, or a
- Registered Ordinary Partnership – This entity is registered with the Commercial Registrar as a juristic person and is taxed as a corporate entity.
There are also two types of limited partnership, consisting of either:
- One or more partners whose individual liability is limited to the amount of capital contributed to the partnership, or
- One or more partners who are jointly and unlimitedly liable for all the obligations of the partnership.
There are two types of limited companies in Thailand. These are the Private Limited Company governed by the Civil and Commercial Code, and the Public Limited Company governed by the Public Company Act.
Private limited companies in Thailand are similar to those in western countries, and are formed through a process that leads to the registration of a Memorandum of Association (MOA) and Articles of Association as its constitution.
The shareholders enjoy limited liability, i.e. limited to the remaining unpaid amount, if any, of the par value of their shares. The liability of the directors, however, may be unlimited if stipulated as such in the company’s MOA. These companies are managed by a board of directors in accordance with the company laws and its Articles of Association. A minimum of three shareholders is required at all times.
All shares must be subscribed to, and at least 25% of the subscribed shares must be paid up. Both common and preferred shares of stock may be issued, but all shares must have voting rights.
Public limited companies are governed by the Public Limited Company Act B.E. 2535 (A.D. 1992), as amended by Public Limited Company Act No. 2 B.E. 2544 (A.D. 2001) and Public Limited Company Act No. 3 B.E. 2551 (A.D. 2008). The rules and regulations concerning the procedure of offering shares to the public is governed by the Securities and Exchange Act B.E. 2535 (A.D. 1992) and the amendments thereto. All companies wishing to list their shares on the Stock Exchange Thailand (SET) must obtain the approval of and file disclosure documents with the Securities and Exchange Commission, and then obtain SET approval to list their shares.
A minimum of 15 promoters is required for the formation and registration of a public limited company, and the promoters must hold their shares for a minimum of two years before they can be transferred, except with the approval of the shareholders at a meeting of shareholders. The board of directors must have a minimum of five members, and meetings must be held at least once every three months. At least half of the directors must be live in Thailand. Directors’ liabilities are substantially increased. Each share of the company shall be equal in value and be fully paid up.
The Joint Venture
Joint ventures are an entity that is commonly used by foreign investors engaging in business in Thailand.
Despite this, the term “Joint Venture” is actually not clearly defined only appearing in the Thai tax code. In a general sense though, the term basically covers any task undertaken by two or more natural or legal entities for the purpose of creating a profit. Thai law treats joint ventures as a contract matter, and with the exception of filing for licenses and/or tax certificates, the parties in the joint venture remain separate legal entities.
Alternatively, many joint ventures involve companies or individuals engaging in business using a separate Thai private limited company, or occasionally a limited partnership.
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