Creative Thai business practices, legal knowledge for foreignersIf you want to own a company or operate a business in Thailand, it is smart business to first read-up on the legal requirements and Thai business laws.
Laws governing formation and incorporation of types of Thai business entity can be found in the Civil and Commercial Code of Thailand, title 12 'partnerships and companies'. Limited companies in Thailand have basic characteristics similar to those of Western corporations. A private limited company is formed through a process which leads to the registration of a Memorandum of Association (Articles of Incorporation) and Articles of Association (By-laws), as its constitutive documents. A Thai Limited Company can be set up relatively quickly if the paperwork is in order. The company incorporation process, from the reservation of a business name till the certificate of incorporation of the company, can under the new company formation rules be completed in a few days (formation sheet).
Index Limited Companies (Civil and Commercial Code)
Note: foreigners operating a business in Thailand must comply with the Foreign Business Act and obtain a work permit from the Department of Labour
The first step is the reservation of a company name. This is done online with the Department of Business Registration. Usually 3 names are given, ranked by preference, and approval of the name will usually take up till 3 days. Certain names associated with the royal family, names of ministries and other governmental units, names with Thailand, names close to that of other companies, names against public moral, names that are misleading, are not allowed. The approved corporate name is valid for 30 days.
The Memorandum of Association of the company has to be filed with the Commercial Registration Department (Registrar of companies) and must include the name of the company that has been successfully reserved, the province where the company will be located, its business objectives, the capital to be registered, and the names of the three promoters. At least three individuals must sign the Memorandum of Association. The promoters can be foreigners and Thai nationals however, each promoter must be a shareholder of the company. The use of Thai nominee promoters/ shareholders by foreigners is prohibited under the Foreigner Business Act (and Land Code Act).
The Memorandum of Association of a Thai limited company contains the following
There minimum capital requirements for a limited company in Thaland is 1 million baht. In general, the registered amount of the capital should be respectable enough and adequate for the intended business operation. If a foreigner requires a work permit the company concerned must have a registered capital of not less than Baht 2 million, fully paid-up for each 1 work permit., 4 million share capital for 2 and 6 million for 3 work permits (note registered share capital and company income tax rate).
Once the share structure has been defined, a statutory meeting is called during which the Articles of Incorporation and Articles of Association (by-laws) of the company are approved, the Board of Directors is elected and an auditor appointed.
The Articles of Association are the regulations of the company concerning its internal affairs such as weighted voting rights and matters requiring approval and protecting the foreign minority rights within the company through the issue of preference shares. In a later stage preferential rights may be attached to newly issued shares, in other words you have to buy the preference shares by increasing the register capital.
All shareholders must have a share certificate issued in their name by the limited company in Thailand and the company must have an updated registration book of shareholder kept at its registered (head) office of the company. Bearer shares are not allowed under Thai company laws - a share certificate is not the property of whoever happens to be in possession of the share, but who is registered and recorded as the owner with the Business Regsitration Department as the shareholder (also see last paragraph Foreign Business Act section 4).
The company's fixed share capital cannot be altered except by an alternation of the memorandum of association in one of the methods authorized by the Civil and Commercial Code. Types of shares, ordinary or preference cannot be altered read more...
Within three months of the date of the Statutory Meeting the director(s) must submit the application with the Registry to establish the company.
A newly established company liable for income tax must obtain a tax I.D. card and number for the company from the Revenue Department within 60 days of incorporation or the start of operations. If it is expected that its gross income will exceed 1.8 million baht per anum it must register for VAT (Value Added Tax) within 30 days of the date they reach 1,8 million baht in sales.
A newly established company must keep books and follow accounting procedures specified in the Civil and Commercial Code, the Revenue Code and the Accounting Act. Documents may be prepared in any language, provided that a Thai translation is attached. All accounting entries should be written in ink, typewritten, or printed. A newly-established company or partnership should close accounts within 12 months from the date of its registration.
The general corporate tax rate in Thailand is 30% for companies with a paid up share capital of more than 5 Million Thai Baht. The government has reduced corporate tax rates to promote specific business sectors and small and medium enterprises. The tax rate for companies with a paid up share capital not more than 5 Million Thai Baht at the end of its tax year shall be taxed at rate of 15% over the first one million Thai Baht profit, 25% over the profit between one million and three million and 30% for profits over three million Thai Baht.
A company is managed by at least one director under the control of the General Meeting of shareholders. The director(s) is responsible for among others:
In every year (as required by law section 1152 Civil and Commercial Code) one third or the number nearest to one-third of the directors must retire from office. There are currently no general restrictions on the nationality of directors who control a Thai limited company in Thailand (certain business licenses require a majority of Thai directors, e.g. TAT license). Future law and regulations (FBA amendments) could make the foreign retiring director ineligible for re-election.
Directors may be criminally liable for false statements in any official documents which they have signed on behalf of the company or failure to act, such as failure to file a required report or balance sheet will be dealt with by imposition of criminal liability. In some extreme cases, a director of the company will be required to appear in court, either in person or by legal counsel. Failure to appear when summoned will result in the issuance of an arrest warrant for the director.
Practical advice from real lawyers on most common legal issues for expats in Thailand. Samuiforsale provides general Thai legal information and law resources in English over the Internet. The information in Samuiforsale should be used as general Thai legal information but should not be treated as a substitute for specific legal advice concerning individual situations.