What you should know about setting up a new Thai company today

I remember many years ago, when clients used to come in to my office to speak with me about making structural changes to their Thai companies, it was all too common to hear that they had no idea how to get in contact with their co-shareholders.

I’d often ask – have you ever met your shareholders? This question was also all too frequently responded to with a resounding, “No. I actually have no idea who they are.” This obviously made it difficult for my team to assist with the requested structural changes to the Thai companies, which are normally changes to directors, shareholders, shareholding classes, capitalisation and the articles of association – to name a few – as these type of corporate actions must ordinarily be approved by a resolution of shareholders at a meeting of shareholders properly noticed according to the relevant company’s articles of association and/or the Civil and Commercial Code of Thailand.

Thus, I ordinarily had to return advice to the clients that we just could not do what they were asking for, which was often not well received!

Most people find it unbelievable that anyone would willingly agree to take on partnership venture in a new business with persons that you have never met before, unless there is some kind of trust arrangement in place with a professional trust company. But this simply is not the case in Thailand, as trust arrangements with shareholder and director nominees (as they are known in some common law jurisdictions) are just not recognised here.

Moreover, the notion of using nominees, where a Thai person holds shares on behalf of foreign beneficiaries, is strictly forbidden by law with particularly harsh penalties including potential criminal penalties on a proven Thai nominee.

There appears now to be a wave of new enforcement on Thai companies, following the reports of foreigners opening Thai companies with illegal nominees that assist them to operate restricted businesses, such as tour company operations. So it seems like a good time to set forth a list of what you should do and what you shouldn’t do, which is intended to help assist anyone considering setting up a new Thai company to operate a legitimate business in Thailand.

Should do

  • Do make sure you know who your co-shareholders, both foreign and Thai. are. If you are considering operating a business in Thailand, make sure you set up the company with shareholders directly vested in the company
  • Do make sure you capitalise the company correctly and that a true transaction record is produced showing payment of the share capital by all shareholders.
  • Do ensure the initial capital of the company is deposited to a company established bank account shortly after the company is set up with a declaration of all share capital being paid up in full.
  • Do issue to all shareholders of the company a valid, director-signed and stamped, share certificate.
  • Do ensure a properly maintained and updated shareholders’ book is kept with the company documents at all times. The shareholder book should reflect the history of shareholders and capitalisation of the company and include information on each shareholder’s notification address and the number of shares each holds. It is also required to be updated when share transfers or new allotments of shares are issued.
  • Do ensure that all shareholders have an opportunity to read and understand the company’s articles of association, and make one available for inspection by shareholders upon written request.
  • Do strongly consider entering into joint venture agreements between all shareholders as this will set forth the corporate governance provisions of the company, and also set out any terms and restrictions relating to share sales and transfers.
  • Do ensure that proper shareholder meetings are noticed and held in accordance with the laws (which is at least one time within the first six months of incorporation, and at least one time per annum following the first meeting) and that formal minutes are kept at all meetings of shareholders.
  • Do ensure the company obtains good accounting advice and representatives.

Shouldn’t do

  • Do not simply select a company capitalisation based on arbitrary values. The capital of the company should be reflective of matters such as the number of work permits to be issued to foreigners and the value of the assets to be acquired at incorporation.
  • Do not set up a new Thai company with shareholders that are not genuine shareholders and venture partners. All shareholders should have a genuine stake in the company. Do not produce pre-signed blank share transfer forms that are intended to somehow transfer shares of a shareholder at some point in the future. These documents are arguably void at best, and completely illegal at worst (in the case of nominees.)
  • Do not set up a foreign-owned company, that is a Thai company with more than 49% of the share capital held by foreign persons or companies, without the proper foreign business licensing.
  • Do not go into business with shareholders you have never met or do not know.

Obviously the above list is not meant to be exhaustive. There are many other considerations when setting up Thai companies, and people should always consider the applicable regulations with relvant advisors. But these points should at least cover the important basics at start-up in order to keep a business above the water in Thailand from the outset.

This article is also on Window on Phuket.