What are the principal forms of business organisation in Thailand?

The principal forms of business organisations available to both Thai and foreign entities (natural and juristic (or legal) entities) are as follows. In the case of foreign entities, the provisions of the Foreign Business Act B.E. 2542 (1999) (FBA) will apply and the practical consequences of the FBA will be explored more fully in due course.

• Sole proprietorship
  
• Unregistered ordinary partnership
  
• Registered ordinary partnership
  
• Limited partnership
• Representative office
  
• Regional office
  
• Branch office of foreign company
  
• Private limited company
  
• Public limited company
  
• Joint venture

The rules relating to the formation of a private limited company are contained in the Civil and Commercial Code (CCC), which provides that such companies maintain a minimum of 3 shareholders at all times.

The first step in the formation is the reservation of the name of the company with the Department of Business Development (DBD). If the desired name is available, a memorandum of association is filed containing the following information:

• The name and the location of the company
  
• The objectives of the company
  The amount of capital divided into shares and the par value of the shares
  
• The names, addresses and occupations of the promoters of the company (who will subsequently become the shareholders) and the number of shares subscribed by each promoter

Following approval of the memorandum of association and on the basis all shares have been fully subscribed, the promotors of the company are required to call a statutory meeting of the share subscribers to confirm the following:

• The company’s articles of association (also known as by-laws)
  
• The formal conclusion of any contracts entered into or expenses incurred by the promoters in the formation of the company
• Any renumeration due to the promoters
• The number of any preferred shares to be issued and the extent of the preferential rights
• The appointment of the director(s) and auditor(s) and the establishment of the powers of the director(s)

Following the statutory meeting, the promoters hand over the business to the director(s) who are obliged to have the promoters (or subscribers) pay at least 25% of the value of the shares. The company is then registered and incorporated as a legal (or juristic) entity.

Whilst it is common for joint ventures to be incorporated into a limited company, owned by two or more companies, it is not legally required and such companies are treated like any other limited company.

An unincorporated joint venture (formed by contract) has no formal legal personality in Thai law and, although it may engage in business, it cannot be registered. It will however be treated by the Revenue Department as a company for tax purposes and be required to apply for a tax identification card and subject to VAT registration if required under relevant provisions of the Revenue Code.

The most significant practical considerations for foreign investors conducting business in Thailand are the provisions of the Foreign Business Act B.E. 2542 (1999) (FBA).

The FBA prohibits foreign entities from engaging in a significant range of business activities in Thailand. The list of activities is exhaustive and, in practical terms, means that foreign entities are excluded from conducting business in Thailand in any meaningful way unless they obtain a foreign business licence. Obtaining a foreign business licence in practice is extremely difficult and time-consuming, assuming the applicant even qualifies.

An entity is a foreign entity if any of the following apply:

• The entity is a non-Thai natural person
  
• The entity is a legal (or juristic) person not incorporated in Thailand
  
• The entity is a legal (or juristic) person incorporated in Thailand with 50% or more of its shares held by the above persons or 50% or more of its total registered capital invested by the above persons
  
• The entity is a limited partnership or a registered ordinary partnership in which the managing partner or the manager is not a Thai natural person

There are several exceptions to the FBA, but they may be impractical or otherwise not relevant to small or medium enterprises. They are as follows:

• Board of Investment promotion under provisions of the
• Investment Promotion Act B.E. 2520 (1977)
  Incentives and privileges granted under provisions of the Industrial Estate Authority of Thailand Act B.E. 2522 (1979)
  
• Treaties and free trade agreements
  

If the majority of shares in a company, i.e., 51% or more, are held by a Thai entity (a natural Thai person or a Thai juristic person), the company is considered, as a matter of Thai law, a Thai entity and not subject to the provisions of the FBA restricting business activities. Foreign investors can therefore conduct business with a minority shareholding in a limited company. If the company wishes to own land in Thailand, a majority of the shareholders must also be Thai entities, but the company is likely to be subject to additional scrutiny by the land office in the event it has any foreign shareholding.

It should be noted that any Thai shareholders in a company cannot be mere nominees, i.e., simply holding the shares on behalf of a foreign entity with only nominal ownership. This would be considered an attempt to circumvent the provisions of the FBA (or any other relevant legal provisions regarding foreign activity) and is contrary to Thai law.

Conducting business in Thailand can be difficult and challenging for foreign investors and the corporate space can be complex, particularly with regard to provisions of the FBA and its exceptions.

We have many years of experience navigating this space and offering clear commercial advice to our clients as well as secure and practical solutions that fully comply with Thai law.Please contact the LAFS corporate practice on +66 2104 9100 or info@lafs-legal.com if you need assistance with any of the following:

• The advantages and disadvantages of any particular business structure
  
• The formation, structure and establishment of private limited companies
  
• The maintenance of business structures, including ongoing filing requirements, tax and accounting issues
  
• Exceptions to the FBA, including Board of Investment (BOI) promotion, treaties and free trade agreements
  
• Advice on mergers with or acquisitions of Thai companies
  
• The draft of shareholders’ agreements
  
• The draft of joint venture agreements and the establishment of incorporated joint ventures