nominee shareholders in a Thai company
A limited company in Thailand must have a minimum of 3 shareholder at all times. Thai nationals operating a business under a company often use nominee shareholders to complete the number of 3 shareholders in the limited company. There is no general restriction for Thais that prohibited the use of nominee shareholders in a business. This is different for foreigners. Foreign investors are prohibited from using nominee shareholders in a Thai company under the foreign business act. Also bearer shares are prohibited
Foreigners are not free to operate businesses in Thailand. Foreign natural or juristic entities that want to operate a businesses in Thailand can in some cases, and following a strict procedure, have a foreign business license or permit granted in accordance with the Investment Promotion Act (through the Board of Investment of Thailand), the Foreign Business Act (through the Department of Business Development), a treaty or other laws. Such companies can be 100% foreign owned and will be allowed (as a foreign company) to operate a specific foreign licensed business in Thailand.
Nominee shareholding structures
Nominee shareholding structures in a Thai company (as a juristic person) are commonly used by foreigners to circumvent foreign licensing procedures and general restrictions under foreign business laws in Thailand. A Thai company with foreign participation and control is incorporated as a majority Thai owned company to be classified as Thai and as such not to be restricted by foreign ownership or foreign business laws. The drawback is that the Thai shareholders could be deemed 'nominees' acting on behalf of the foreign investor. The use of Thais as nominee shareholders by foreigners is strictly prohibited under the Foreign Business Act.
Section 36 (foreign business act) 'A Thai national or juristic person that assists a foreigner in avoiding the Foreign Business Act by means of holding shares as a nominee or being a nominal owner of the company, shall (including the foreigner allowing Thai nationals or juristic persons to do so) be liable for a fine of 100,000 to 1,000,000 Baht and/ or imprisonment of up to three years'. source: Alien Business Act
Any suspected use of nominee shareholders by foreigners is a criminal matter and if in a specific case nominees are used by the foreigner is ultimately determined by a court.
quote by: Samui For Sale
The essence of a nominee structure is that a person or company (Thai) holds the shares on behalf of another person or company (foreign). The Thai shareholders only act to facilitate the registration of a Thai company. They appear as the owner of the shares but in fact the foreigner is the owner. The Thai shareholders merely hold the shares for the foreigner. As a matter of fact the company is therefore majority foreign owned (as the foreigner is legally considered the actual owner) and thus the company considered foreign under the land code act and foreign business act and as a foreign company illegally operating a business or owning land in Thailand. quote by Thai Contracts
Definition of a nominee shareholder
Sample definition of nominee
- a) A nominee shareholder, being either a natural person or juristic person, who is registered as the holder of shares in the partly foreign owned company but who does not actually invest in the company, nor has the financial means to pay up his shares, nor has a beneficial interest in the company, nor has any form of control in the company.
- b) Is there an intention to evade the law? Indicators would be:
- - how is management control in the company structured,
- - is there a loan investment supplied or guaranteed by the foreigner (did the Thai shareholder actually invest in the company),
- - unbalanced voting rights attached to shares held by the foreigner giving him absolute control,
- - and the flow of funds from dividends paid by the company to the shareholders.
New anti nominee shareholder rules require the Thai partners or shareholders in a partly foreign owned company formation to comply with the Business Registration Rules and they must submit evidence of financing used to hold shares in the company. Foreigners who want to operate a business through a Thai company should comply with the business registration rules (which are aimed at preventing the use of Thai nominee shareholders). Generally these rules are circumvented and the share structure is changed after the formation and registration of the Thai company. It is recommended that the company is formed with the shareholding structure as it will operate the business under, even if this means a certain scrutiny of the Thai shareholders when forming the company, and not only to include the foreigner in the company after registration of the company.
It is not the government's policy to investigate existing partly foreign owned companies operating restricted businesses, but it is also not fully ignored. Investigations happen on a case-by-case basis. The most likely solution to solve the nominee shareholding issue in partly foreign owned companies is an overhaul of the Foreign Business Act and the foreigner definition (i.e. how a Thai company is deemed a foreign company). This will likely affect existing companies as the directors in the company must rotate and be re-elected yearly. Foreigners would simply be ineligible for re-election as sole managing director and would loose this way control in the company.
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article source: www.thailandlawonline.com