Companies & Limited partnerships in Thailand

SETTING UP A COMPANY:

Partnership and corporate law upgrades

'Why seven shareholders?" is a question businessmen have pestered corporate lawyers with for years, but it is about to become a thing of the past. The Thai government, prodded by the Commerce Ministry, is adopting major amendments to several partnership and corporate law provisions with the aim to simplify or do away with unnecessary statutory procedures under the Civil and Commercial Code. The amendment was published in the Government Gazette on March 3, 2008 and will be effective on July 1, 2008.
Among other things, the mandatory seven minimum shareholders in a limited company shall be reduced to three. The new rule will benefit both new and old companies.
Having only three persons instead of seven sign the Memorandum of Association (MoA) will make the incorporation process easier and faster. A senior Commerce Ministry official claims that a fringe benefit to existing companies will be that nominee shareholders holding minority shares (typically one share each) will have a chance to make an exit. Many companies are getting ready to reduce the number of their shareholders.
Unlike the number seven, which has never been clarified, there is an explanation as to why at least three shareholders must be maintained, i.e. the requirement of majority number of shareholders still exists in certain statutes.
Another welcome change is that the process of incorporation which takes at least nine days under the present law can be done in one day under the new law. The new law provides for one-day registration of both the MoA and the company together if all requirements are met at the statutory meeting and all the papers are in order. This is a step forward that will put Thailand more in line with international practice.
The rules about shareholders' resolutions are simplified. Currently, a special resolution is required for important matters such as change of company name, address from one province to another, capital, objectives, or Articles of Association, which must be adopted and then confirmed by two successive shareholders' meetings. Said double approval takes at least 21 days and is the key reason why in practice it has been ignored and circumvented by backdating meetings.
The new amendment will allow the passing of a special resolution by only one shareholders' meeting by at least three-quarters of the votes of the shareholders in attendance and entitled to vote. It is interesting to note that calling a shareholders' meeting has always required prior notice either by publication twice in a local newspaper or delivery to all shareholders via registered post.
It came as a surprise to the Commerce Ministry that this provision was altered during the draft approval procedures such that it will take "both" newspaper publication and mail delivery to call a shareholders' meeting once the law is enacted. Doing otherwise cannot be agreed under a company's Articles of Association. Many have criticised that this is impractical and inconsistent with other relaxations. The drawback foreseeable at this point is the extra cost that will be incurred.
Another change is that a company can no longer opt to inform its shareholders of dividend declaration by means of publication in a newspaper instead of delivery by mail. The first will be removed under the new amendment, making it mandatory to individually notify shareholders about dividends by mail. It is hoped that this will fix the current loophole and uphold the right of shareholders under the law.
Although reduction of a company's capital and merger of two companies are not common occurrences, the processing and timeframe are improved. Reduction of capital shall require only one-time publication in a local newspaper (instead of seven times) plus 30 days (instead of three months) objection period for creditors. To merge two companies, publication in a newspaper is reduced from seven times to one, and the objection period for creditors is reduced to 60 days instead of six months.
Finally, the new law makes it possible for an existing partnership to be converted to a limited company, subject to certain formalities. A partnership is nowadays not a popular form of business organisation, as liability has increasingly become a concern to business owners, both Thais and foreigners. A great number of medium-to-large partnerships are opting to become a limited company with the aim of going public in the future. Without a legal channel for such transformation, partners would have to transfer the business and assets of a partnership to a new company, hindered by many issues, especially tax implications on the transferring partnership and/or the recipient company.
Bangkok Post March 2008

Rules for work permit holders. New companies wishing to have work permits need to show their share capital in the Bank? FOR EVERY FOREIGNER wishing to join an existing Thai company you must now show 2m baht in the bank when they go to register. For each additional foreigner you need to show 2m baht per each. Company rules came into being regarding share capital when forming a new company. Its a lot easier to buy a second hand company now then have a new company as the Thai director must have access to the Company Bank account; all the shareholders will be interviewed on work roles so you cannot have nominees and the Thai shareholders must have bank accounts. Your premises will be inspected as well. One work permit 2m baht and you need WP3 form from the labour Office to apply for a work permit and increases of 2m baht per work permit after that. A 1m baht company does exist again for foreigners regardless if married to Thais or not but you cannot use to have work permit and you will not get a non immigrant B visa as you need WP3 or Tor Tor 3 form if you go to Penang etc. THIS MEANS YOU MUST HAVE A COMPANY SET UP ALREADY.

You are not allowed to form a Company just to hold a house or property under. The law states that you must carry on a business and in March 2006 the authorities set about investigating companies and their employees. A Company must file yearly audit; have 7 shareholders and the Thai workers. This old law was enforced on May 25th 2006 and now Companies who have properties must prove where the money came from & all new house sales under Companies will be looked at. With housing developments foreigners have benefited themselves on property sales so this practice is now under investigation and especially in high level property sales in Samui, Pattaya, Phuket. Many foreigners & small property owners are affected by this now but like anything if you do things right in Thailand you will be OK but always ask second opinions!!!! It may save you in the long run.

In a company you need 7 partners & foreigners can only hold 49% shares but you can according to the investment control 100% via B.O.I. (Board of Investment) or if American have an Amity company. Foreigners as from 2001 can make up 6 out of 7 shareholders but Thais still hold 51% of the shares. What one does not know until they decide to form a company is that certain businesses are closed to foreigners. These businesses are categorized into 2 different areas with 3rd open. So when you form a company make sure it doesn't come under the following or write to us.

The Alien Business Law (N.E.C. Announcement 281). Business activities falling in categories A & B are generally closed to foreigners. Under category C you must obtain a permit prior to commencing business. Businesses outside these categories are exempt. The Ministry of Commerce will also help applications of non trading offices.
Category A: 1.Agriculture: rice farming; salt farming. Commercial Business: Internal trade in local agriculture products, Land trade. Service business: Accounting, farming animals, architecture, advertising, brokerage, auctioning, Barber, hair dressing & beautician. Building industry.
Category B. 1. Agriculture Business: orchids, cultivation, animal husbandry including silk worm raising, timbering, fishing. 2. Industrial & Handicraft: Rice milling, Flour making, sugar, alcohol & non alcohol drinks, Ice cream, Pharmaceutical manufacturing, cold storage, timber, gold, silver and inlaid stone, wood carving, lacquer-ware, match making, cement etc, Dynamiting rocks, Manufacturing garments & shoes, Printing, newspaper publishing, silk weaving or silk printing, manufacture of finished products in silk.3. Commercial: all retailing not in category C. Ore trading not in Category C, selling food an drinks, trading of antiques & fine arts.4 Service Industry: Tour agency, Hotels except Hotel management, photography, laundering, dress making and service jobs.5. Land, water & ie. transport.
Category C. You are allowed to do the following. Exporting, all wholesale trades not in A & B. retiling machinery, equipment & tools, selling food, beverages that promote tourism. Industrial & handicraft Business: manufacturing animal feeds, vegetable oil extraction, textile manufacturing, dyeing, fabric printing, glass ware manufacturing, making plates and bowls, stationary & printing paper, rock salt mining, mining.
Service: anything not in A or B.

Costs 25,000 baht plus you need to have 7 shareholders in place; Bangkok is usually more up to 54,000baht . Prices may not include Govt fees & ID tax code for you or VAT reg. If you use our services we outline in English each step you are paying for & no hidden costs are included. We welcome any questions or queries you have.

IF INTERESTED WE DO HAVE AUDITED COMPANIES FOREIGNERS WISH TO SELL. POA.

When forming a company you needed ex Thai shareholders (now changed to 6 foreigners & one Thai OR ANY COMBINATION ). Those early companies used lawyers who in turn used their staff as nominees or Thais off the streets. Once paid off then that's the end of those nominees, or you thought. However one must remember that if you make a yearly profit you must pay dividends to all the share holders. But, where are they: "the inevitable, my lawyer will take care of it"?? A lawyer is not an accountant so make sure you differentiate between having both when you start a Company. If you are not paying VAT, Social Welfare tax & no yearly audits you will be fined. If you own a property and use a company you must carry on a business & run into profit mode after 3 years.

One can transform a Thai company into a foreign firm. For some of these companies it is to risky to maintain the Thai status as the intention violates the Alien Business Law. It is now difficult for small and medium foreign companies with capital registration of less than Thai Baht 100 million to get a wholesale license, service license and/or retail of machinery-equipment license as the application has to be approved by a 21 persons committee comprising of high-ranking authorities from various ministries etc. This committee will protect small and medium Thai Business.

COMPANY NAME: Cannot be a country or city name & must end with the words: Company Limited (Co. Ltd); Corporation Limited (Corp.Ltd); or Limited (Ltd). [ CHECK SETUP COSTS ]

LIMITED PARTNERSHIPS:

LIMITED PARTNERSHIPS: must also show 2m baht in the bank remembering that every foreigner who applies must have work permit [ work permits ] A limited partnership is Ok for say a husband and wife team or when one has a small business like a Bookshop or restaurant. For foreigners this may be ideal but the problem is it does not cover your liability as well as a company. A partnership can be one foreigner & one or more Thai but the Thai is the director. Cost to form is approx 14,000 baht. Once formed you still need a [ work permit.] and the fees become similar to a Company including taxes etc. If you are thinking long term and diversifying in your business it is best to have a Company as you can then take the Company with you and use in your next business. The problem you may have having a limited partnership is the liability factor--- if your partner borrows you may have to settle the debt so in fact there are limitations using a partnership as against a Company. It does not protect you. Thailand recognizes three types of business organizations:
Partnerships
Thai and western partnership are basically the same. Thailand provides for 3 types of partnerships:

1.) Unregistered ordinary partnerships, all partners are
jointly and wholly liable for all obligations of the partnership;

2.) Registered ordinary partnerships. The partnership
becomes a legal entity, separate and distinct from the individual
partners;

3.) Limited partnerships. Individual partner liability is restricted to
the amount of capital contributed to the partnership. Limited
partnerships must be registered.

Ordinary Partnership
Two or more people who form a partnership to operate a business. Both partners have unlimited liability. An ordinary partnership may be registered - in which case their business is considered a separate legal entity - or unregistered. The advantages to registering an ordinary partnership is that the assets must be examined before creditors can claim debt payment from the partnership and the liability of any partner is limited to two years from the date ceased being a partner. Needless-to-say, all the terms of any partnership should be put in writing prior to setting up the business.

Limited Partnership
One or more partner's liability is limited to the amount of investment in the company and the other partner's liability is unlimited. A limited partnership is registered and becomes an independent legal entity. A limited partnership can be managed by an unlimited liability partner. If a limited liability partner manages the organization, liability becomes unlimited. The prime advantage of a limited partnership is that creditors cannot sue individual partners (although they can sue the company as a whole) unless the partnership is dissolved.New partners may only be entered into the partnership with consent of all partners.

Public Limited Companies registered in Thailand may, subject to compliance with the prospectus, approval, and other requirements, offer shares, debentures and warrants to the public can apply to have their securities listed on the Stock Exchange of Thailand (SET).

Must have a minimum of 15 promoters for the formation and registration of the memorandum of association of a public limited company, and the promoters must hold their shares for a minimum of two years before they can transfer. The Board of Directors of a public limited company must have a minimum of five members, at half being Thai nationals. Shares must have a face value of at least five baht each and be fully paid up. Restrictions on share transfers are unlawful except those protecting the rights and benefits of the company allowed by law, and those maintaining a Thai/foreigner shareholder ratio. Debentures may only be issued with the approval of three quarters of the voting shareholders.The registration fee is 2,000 baht per million baht of capital for a public limited company.

FOREIGN COMPANY BRANCH OFFICE:

There is no special requirement for foreign companies to register their branches in order to do business in Thailand. But, most business business fall within the laws or regulations which require special registration, either before or after the commencement of business. Foreign businesses must follow generally accepted procedures. It's important to clarify beforehand what constitutes income subject to Thai tax because the Revenue Department may consider revenues directly earned by the foreign head office from sources within Thailand as subject to Thai taxes.

As a condition for approval of an Alien Business License to a branch of a foreign corporation, working capital amounting to a total of 5 (five) million baht in foreign exchange must be brought into Thailand within certain intervals over a four-year period. A branch Office may be allowed to operate for five years, unless a shorter period is indicated in the application as a result of a contract in Thailand. Extension of the original duration of the license to operate may be granted, provided the working capital required to be brought into Thailand is met.

A representative office of foreign corporations may engage in limited “non-trading” activities, such as sourcing of goods or services in Thailand for its head office or inspecting and controlling quality of goods which its head office purchases in Thailand. Other activities can cover disseminating information about new products and services of its head office, and reporting to its head office on local business development and activities.

REGIONAL OFFICE:

A regional office of a multinational corporation is Ok to coordinate and direct the operation of the branches and affiliates of the head office in the region on behalf of the head office.

A regional office can coordinate and supervise the company's branches and its affiliated companies in the region on behalf of the head office. The regional office may provide these branches and affiliated companies with:

Advisory and management services

Financial management services

Training and personnel development services

Marketing control and sales promotion plans

Product development

Research and development services.

Companies establishing regional offices are not required to be registered or incorporated as juristic persons in Thailand, and do not have to submit any financial statements to the Department of Commercial Registration. The Department will assist in customs clearance of the personal effects of transferred foreign staff and in their applications for further temporary stay in the Kingdom or change in visa type. Work Permits for aliens performing work are granted for up to 5 persons depending on necessity and volume of work in each particular case, and fees of not more than 1,000 baht per year must be paid for a Work Permit or its renewal.

Regional Office must not:
– Derive any income from its activities. Expenditures incurred by the regional office shall be borne by the head office
– Have the power to accept a purchase order or make a sales offer
– Negotiate or enter into business arrangements with any natural or juristic person within the Kingdom.

A permit to establish a regional office, valid for five years, can be granted after application with the Alien Business Section of the Department of Commercial Registration at the Ministry of Commerce. The fee is five baht per every 1,000 baht of registered capital, not to exceed 5,000 baht.

When a permit to establish a regional office is issued, it may be subject to the following conditions:

The total debt financing used in the business shall not exceed seven times the portion of the capital owned by shareholders or the owner of the business

Money used in the regional office shall be remitted from abroad and shall not be less than a total of 5,000,000 baht. During the first year period, at least 2,000,000 baht of the total must be remitted, at least half of which must be remitted within the first six months. Then, no less than 1,000,000 baht should be remitted each succeeding year until the full 5,000,000 baht has been transferred. Documents verifying this transfer must be presented to the Department of Commercial Registration.

At least one person who is responsible for operating the regional office must have their domicile in the Kingdom.

The Director-General of the Department of Commercial Registration is also authorized to impose any conditions on a business permit granted under the rules.

AMITY TREATY COMPANY:

Only open to USA companies and individuals but you can own 100% of your company. You need a company first and then you apply to the USA Embassy in Bangkok. To see what you must do go to [ Amity treaty ].

We now offer a Thai work permit, Thai company & Thai limited partnership. Ask us for more information. or go to [ LAWYER ]

THAILANDS AUCTION & CLASSIFIEDS:

www.thaitrademe.com

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