By: Dezan Shira & Associates
Editor: Dustin Daugherty, Anais Robin
Thailand is considered a business-friendly regulation country. Indeed, for their 2016 Doing Business Report Thailand was ranked 49 out 189 economies. As such it is an attractive market for foreign companies looking to expand their presence in ASEAN, despite lingering fears about economic underperformance.
Displaying its integration into global supply chains, the country’s three top trade partners are as follows:
- United States
With full employment, Thailand has one of the lowest unemployment levels in the world, at less than one percent according to official statistics. It also acts as a magnet for economic migrants regionally.
In 2014, Thailand had a nominal gross domestic product (GDP) of US $986 billion and will conclude 2015 with 2.8 percent GDP growth. In 2016, Thailand’s economy is expected to grow within the range of 3.3 to 4.3 percent. Thus the country is likely to remain an attractive regional destination for foreign direct investment.
Understanding corporate entities in the country is therefore essential – in order to make effective investment decisions investors must understand the strengths and weaknesses of Thai Private Limited Companies (PLCs), and Representative Offices (ROs). This series of two articles will take a closer look at each, starting with PLCs.
Limited Liability Company
What a limited liability company can/can’t do?
A private limited company is the most common type of business incorporation in Thailand, and its basic characteristics are similar to those of Western LLCs. Indeed, the liability of each shareholder is limited to the unpaid portion of the shares held and the company is managed by a board of director. It is the one of the best ways for a foreign investor to operate a business in Thailand.
A PLC is not limited in its business activities if at least 51 percent of the shares are held by Thai citizens.
On the contrary, when the company is deemed a “foreign” company with more than 50 percent of the share capital owned by foreigners, the business activities can be limited by Thailand’s Negative List.
The Foreign Business Act prohibits foreign companies from engaging in a wide range of business activities unless a Foreign Business License has been granted. This Act in Thailand divides businesses into three categories.
The first category contains businesses absolutely prohibited to foreigners unless there is an exemption contained in a special law or treaty, like the press, radio broadcasting station or radio and television station business.
The second category refers to businesses owned by foreigners that were in existence and operating prior to the enactment of the Foreign Business Act. Foreigners are not permitted to start new businesses listed in this category except if they obtain Ministerial permission. Examples of business lines in this field are those related to national safety or security such as the distribution of fire arms.
The third category contains businesses treated in a manner similar to those in the second category except that the power to grant an Alien Business License to foreigners is conferred at the Director General and committee level. There are businesses in respect of which Thai nationals are not ready to compete with foreigners like production of lime.
How to Set Up a Private Limited Company in Thailand
First, at least three promoters are required to register a Private Limited Company, in addition to one director and an appointed auditor for compliance purposes.
The process for establishment can be separated into three parts:
First, the would-be company must register and reserve its intended company name. The Thai PLC name reservation must follow the guidelines of the Business Development Office in the Ministry of Commerce.
Secondly, the company must file a Memorandum of Association and after convene a Statutory Meeting of shareholders in order to make all the necessary personnel appointments.
Finally, the company must register with the Thai Government and register for value added tax or specific business tax codes.
The setting up of a limited liability company usually takes between two to six weeks depending on the diligence of the promoters and the type of intended business activities.
The process to incorporate a limited liability company is faster since 2008 thanks to the introduction of the Section 1111/1 in the Civil and Commercial Code. Indeed, it allows proprietors to complete the Memorandum of Association and to register the Company on the same day if the subsequent conditions are fulfilled:
(1) All shares that will be registered have been subscribed;
(2) The statutory meeting has been held;
(3) Promoters have handed over the business to the director;
(4) Future shareholders have paid at least 25 percent of the registered capital
The capitalization requirements state that the representative office remit at least baht 100,000.
The government fees for registration of a Memorandum of Association are 0.05 percent of registered capital and for the registration of the company it is 0.5 percent of the registered capital of the company, with a minimum fee of baht 5,000 and a maximum fee of baht 250,000.
Benefits and weaknesses
Generally, the most popular form of business organization among foreign investors is the private limited company because they are very similar to LLCs in the developed world. Therefore, the process will be familiar to businesses worldwide.
Shareholders of a private limited company in Thailand enjoy limited liability up to the amount of the unpaid value of shares invested in the company. That is, a shareholder won’t be liable for more than his investment in the company. Generally, the same principle will be applied for the director’s liability. However they may be found personally liable if there is a legal violation of their duty, and if they act beyond their powers as granted by law or the Memorandum and Articles of Association.
In a Thai Limited Company, everyone has a clear understanding of their legal standing because all the rights and the obligations of all parties are set down in the association documentation. This is in contrast to joint ventures, whereby disputes between foreign investors and their Thai counterparties can be common and difficult to resolve.
If the Thai limited company is majority owned by a foreigner, it will face restrictions on certain business lines as well as additional licensing requirements. A Thai limited company majority owned by a Thai will not encounter such restrictions.
Further Support from Dezan Shira & Associates
With over 23 years of experience helping investors establish a business presence throughout Asia, the experts at Dezan Shira & Associates are well placed to assist with any corporate establishment needs in Thailand. For more information, please get in touch with our specialists at firstname.lastname@example.org.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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