Establishing a Limited Company in Thailand - how to guide
The latest in my string of articles for you to take a look at and flame me on:
How To Establish A Limited Company In Thailand
* Note: the following is intend only to provide the reader with an overview of the issues that need to be considered when establishing a limited liability company in Thailand; it is not intended to be a comprehensive guide, nor is it intended to constitute legal advice. In the event that you are contemplating establishing a limited liability company in Thailand, it is strongly recommended that you seek the advice of a reputable lawyer in Thailand.
Recently some friends and I were looking at doing some business in Thailand. Before you rush off thinking this is another farang begging letter, the business in-hand is not the subject of my latest article; however, the more we looked at the conundrum that is called “Doing Business In Thailand” the more I came to realize that establishing a company and doing business in Thailand is by no means an easy feat as a foreigner. There are anomalies to the system here you would not expect to find elsewhere. Moreover, rather unsurprisingly, the system is tailored to favour the Thais.
With this in mind, I felt it may be a good idea if I posted some relevant comments on how to go about establishing a limited company in Thailand.
Establishing a limited liability company in Thailand – Why?
Before you rush off to the Registrar of Partnerships and Companies, Commercial Registration Department, Ministry of Commerce (the “MoC”), you first might want to ask yourself “why” you should even bother establishing a limited company in Thailand?
In fact the answer to this question is more straightforward than you may think. Essentially in Thailand we have three principal types of vehicles by which we can conduct business, namely:
(1) partnerships, which includes unlimited partnerships, ordinary registered partnerships and limited partnerships
(2) limited companies
(3) public limited companies
Essentially, as a foreigner, operating a partnership, with unlimited liability, is not highly recommended. Moreover, although a limited liability partnership may have partners who have limited liability, hence the name, to afford yourself the protection of being a limited liability partner you cannot play any active role in the partnership. As soon as you do play an active role in the partnership, limited liability or otherwise, you become an unlimited liability partner in the partnership, which (together with the fact that at least one partner in the limited liability partnership is required to be unlimited in liability) rather defeats the object of wanting to have limited liability (or, at least, in my view such is the case).
As such, if you want to conduct business in Thailand, on a limited liability basis, you need to do this either using a limited company or public limited company. While not all public limited companies are listed on the Stock Exchange of Thailand or Market for Alternative Investments, the requirements to establish a public limited company are far more strenuous under the Public Limited Companies Act (“PLCA”) than is the case under the Civil and Commercial Code of Thailand (“CCC”), the principal governing legislation for the establishment and operation of a limited company in Thailand. For this reason, in most cases, foreigners wishing to do business in Thailand are advised to opt to establish a limited company (under the provisions of the CCC) in order to do so.
Setting up a limited company in Thailand
If you would like to establish a limited company in Thailand then, in accordance with the CCC and the regulations of the MoC, you can do by following the procedures set out below:
STEP 1: Reservation of the company name
Before you can incorporate your company in Thailand, the MoC requires that you reserve the name of your company. Reservation of the company name can be done in one of two ways:
by submitting a form of “Inspection and Reservation of Juristic Person’s Name” (“Form”), which needs contain no more than 3 proposed names of the company (in order of preference), with the MoC; or
-by filing in the Form via the website of the MoC.
Once you have submitted the Form, the Registrar of the MoC will let you know whether or not he agrees that you can use the name you have chosen (normally this process takes about 3 days). Here, you should note that if:
- you propose a name that is identical to, or similar to, a name already registered, the name you submit will likely be rejected; and
- if you use the word “Thailand” or “Thai” without such being in parenthesis, such as (Thailand/Thai), or you use a Garuda, the name in your application will be rejected.
Once the Registrar of the MoC accepts your application for a name reservation, the reservation will be valid for 30 days, during which time nobody else can try and register the same name as you have reserved. However, you can elect to extend this period for a further period of 30 days, but an extension may not be granted if, in the opinion of the Registrar, you show no immediate intention to proceed with the registration of the company and are only trying to reserve the name so that no one else can (for example, if you tried to register the name “Anne Summers” so that Anne Summers would need to pay you a heft commission if they came to do business in Thailand!).
You’ll no doubt be happy to hear that there is no fee to process the name reservation application, nor any extensions thereto.
STEP 2: Get some friends!
Before you can incorporate/establish/set up a limited company under Thai law, by virtue of Section 1097 of the CCC, you need to have at least 7 so-called promoters (although this number can be higher if you want), who are the persons required to promote the formation of the limited company and who will be the initial shareholders of the company.
Although the persons who are promoting the company do not need to be Thai, nor does the capital requirement need to be significantly Thai, in the event that you have more:
(a) shareholders; or
(b) capital contribution; or
(c) directors;
of your company, then under differing Thai legislation currently in place, your company may be deemed to be an “alien” company and, as such, your business activities may well be restricted (for more on this, see below).
Each of the 7 or more promoters of the company are required to subscribe for, at minimum, 1 share in the company and the par value of the share cannot be less than Baht 5.
STEP 3: Memorandum of Association
The next step on your journey to incorporating a limited company under Thai law is to file the company’s Memorandum of Association (“Memorandum”).
Basically, the company’s Memorandum needs to be completed on an official form and it must contain (at minimum) the following information:
(i) the name of the company and the location of the company’s principal place of business.
(ii) what the objects of the company are (as a foreigner, this is where you may need to word your activities carefully as the activities may be restricted under the relevant laws governing foreign activities and ownership of businesses in Thailand).
(iii) the registered capital*, number of shares and share par value**.
* The registered share capital is calculated by multiplying the number of shares by the par value of each share.
** The minimum par value per share of a limited company is Baht 5.
Note that legally there is no minimum requirement for the registered share capital. That said, if the registered share capital is not sufficient to accomplish the objectives of the company, then the MoC may refuse to accept the registration of the company.
(iv) the names, addresses, occupations, nationalities, ages and signatures of each of the promoters; including certified copies of their identification cards and household registration certificates (in the case of Thai nationals) or passports (aliens).
(v) the number of shares subscribed for by each promoter (which must be at least 1 share).
The fee at this stage of the incorporation process is currently Baht 50 per Baht 100,000 of the registered share capital, which is subject to a minimum fee of Baht 500 and a maximum fee of Baht 25,000.
STEP 4: Statutory Meeting (“Meeting”)
Once all the shares in the company have been subscribed for, the promoters, without delay, have to hold a general meeting of the company – which is more commonly knows as the “Statutory Meeting” – and where the business to be conducted must include
(i) the adoption of the Articles of Association of the Company (“AoAs”) , which can be either extensive or can be a simple statement stating that the company’s management and operations shall be carried out as per the provisions in the CCC.
(ii) fixing the amount (if any) of money to paid to the promoters for the work undertaken by them.
(iii) ratification of the promoters’ contracts and expenses (if any).
(iv) authorisation to issue preference shares (if any – and, as you’ll see, as a foreigner this may be very important later on) and the nature and rights attached thereto.
(v) allocating the number of shares to be allotted as fully or partially paid up and the amount to which they shall be considered as paid up. Note: it is a legal requirement that a least 25% of the share par value must be paid up before the formal registration of the company is accepted.
(vi) appoint directors and determine who are to be the authorised directors. Thai law does not specifically regulate the minimum number of directors a company should have and so it is possible to have 1 director. That said, good practice guidelines ordinarily suggest that the company have a minimum of 2 directors.
(vii) appoint an auditor and the fixing of his remuneration.
STEP 4: Formal Registration of the company
Within 3 months of the Meeting the authorised directors are required to execute the application for, and apply for, registration of the company. The application must contain:
(i) Notice of Invitation to the [Statutory] Meeting,
(ii) minutes of the [Statutory] Meeting,
(iii) list of shareholders
(iv) a copy of the AoAs.
In practice, the registration of the company is made within 1 day of the date of submission of the application and relevant supporting documentation. However, in cases where the AoAs are not the articles applied in the MOC model, it takes approximately 2 to 3 business days for the Registrar to consider the AoAs.
Now for the bad news, once the Registrar has granted his approval to register the company an official fee for the formal registration of the company is required to be paid. Currently this fee is Baht 500 per Baht 100,000 of the registered share capital. However, the fee is subject to a minimum fee of Baht 5,000 and a maximum fee of Baht 250,000. with a further Baht 50 fee for the issuance of the “Certification Document”.
Timing
In most cases the process of going from Step 1 to Step 4 will take1 month from the date of submitting all application and relevant documentation with the MOC.
Finally!!
Once approval of the company’s registration has been granted, the company is then legally considered to be an entity separate from its shareholders.
Restricting the activites of foreigners – the FBA
Although there are other snippets of Thai legislation that restrict the business activities that foreigners, including foreign companies (even if such are registered in Thailand) can undertake in Thailand, most notably the Land Code, by far the most wide-ranging piece of legislation is this regard is the Foreign Business Act 1999 (“FBA”).
In short, the FBA restricts the business activites of foreigners in Thailand in 3 categories, as per the lists annexed to the FBA, as follows:
List 1
Is a total prohibition on foreign participation for “special reasons” and includes such business activites as newpaper publishing, radio and television broadcasting, animal faming, fishing within Thai waters, etc.
List 2
Is a prohibition on foreigners partaking in a business which would affect the “national security or arts, culture, tradition, local handicrafts, natural resources and environment”, except where a licence has been obtained from the Thai Cabinet (and, even here, ordinarily the company is required to have 40% Thai shareholdership).
List 3
Is a prohibition on foreigners partaking in a business in an area where it is deemed that Thais are “not yet prepared to compete” with foreigners, except where a licence has been obtained from the Director-General of the MoC and approval has been obtained from the Foreign Business Committee.
What is a foreigner?
Under the deifinition of the FBA, a foreigner is:
(i) a natural person who is not a Thai national;
(ii) a juristic person (basically company or partnership) not registered in Thailand;
(iii) a juristic person registered in Thailand of which at least 50% or more of the share capital (or at least 50% of the capital invested in the company) is held by the persons in (i) and (ii) above, or if a limited partnership or registered ordinary partnership, whose managing partner or manager is not a Thai national; or
(iv) a juristic person registered in Thailand of which 50% or more of the share capital (or at least 50% or more of the share capital invest in it) is held by any entity in (i), (ii) or (iii) above.
Exemptions
It should be noted that exemptions to the restritcitions imposed under the FBA can be given in the following circumstances:
(1) by the Board of Investment (“BoI”) or Industrial Estate Authority of Thailand (“IEAT”)
(2) by virtue of a treaty, such as the (soon to be gone) Thai-US Treaty of Amity and Economic Relations
(3) Government approval as a “temporary measure”.
Penalities
Note, any foreigner undertaking a business which is contravention of restrictions imposed by the FBA could be liable to imprisonment for up to 3 years and/or a fine of between Baht 100,000 and Baht 1,000,000. Moreover, directors of the company, which may include foreign shareholders, can be faced with similar penalities. Finally, in the event that a Thai is found to be acting as a “nominee” of a foreigner in order to avoid the provisions of the FBA, they too can be subject to similar penalities.
Conclusion
To sum up, as with most things doing business in Thailand is nothing if not fun. Although the procedures to establishing a limited liability company in Thailand are not excessive, it is always best to retain the services of a lawyer and in this matter you should not be looking to pay no more than between Baht 30,000 and Baht 70,000 (depending on the level of service you want!).
All that needs to be said now is best of luck!
© Copyright ownership of this article belongs to William Jarvis. You are free to copy this article at liberty and you are also free to quote from this article in full. In either case you are asked, as a matter of courtesy, to make reference to the author as being just that. To this end, while not being particularly fussy, the author views the act of ‘passing off’ as being a particularly repugnant act done by those too stupid to work things out for themselves. Please respect my views on that – it’s not asking a lot!
If you have any questions relating to this article, please feel free to PM me or email me. I cannot promise that I’ll be able to answer your questions, but I’ll do my best.
