The laws in Thailand are pretty nationalistic. Thailand does not allow the buying and selling of economic areas and business categories for foreigners primarily under the Foreign Business Act (1999). Under this FBA act, foreigners are not allowed to engage in most business sections unless an external business operation work permit has been gained from the Director-General of the Department of Commercial Registration after gaining the approval of the Foreign Business Committee of Thailand. Distinct laws control and monitor foreign ownership of land as well as other such activities such as banking, insurance, finance, and shipping in Thailand. Thus a foreigner must comply with this act stated above in order to get a license to start a business in the Land of Smiles. Learn more about the Foreign Business Act.
A company needs to be owned by the majority of Thais in order to run, the maximum partnership being 49 percent by a foreigner. In some cases, 39 percent is an obligation. The Thai shareholders in a company partly or fully owned by the Thais, need to submit evidence of finance used to hold shares, including bank statements and other documents.
Exceptions to this clause are:
- The ownership of an Alien Business License from the Ministry of Commerce, under the Board of Investment. Usually, very large capital or a very large number of Thais employed at the company, or technological transfer as in the field of energy fields are required to get this Foreign Business License.
- American Treaty of Foreign Companies: Any foreigner who wants to set up a company in Thailand cannot own a company solely by himself; except for US citizens, under the treaty of Amity. This treaty was signed on May 29th, 1968. The history of this Treaty hail from the colonial times when Thailand was the only non-colony in the region and the US was an ally, and it further went on to Vietnam War years, when America was a major investor in Thailand.
However, an American Treaty Company is more complicated than a regular company. It costs double compared to any other Thai corporation, but the same scrutiny and governmental regulations as a Thai corporation. Contact us!
But why are US citizens treated specially? Maybe major US Corporations were not too comfortable to share the control of their corporations with the Thais. For example, Coca-Cola or US car makers did not want any unwanted shareholders.
Talks have been held to abolish this Treaty since it expired in 2004 and revise the laws and regulations in regards to foreign businesses. However, there has been much less progress than required.
However, control of a company is not necessarily lost by not having “majority ownership”. There are some measures where a foreigner can completely control the company. Let’s say that you own 39 percent whereas the Thais own 61 percent, you being the sole Managing Director who is the sole signatory authority. A Thai nominee under the FBA is a Thai person or Thai company registered as a shareholder in the company but who holds the shares on behalf of the foreigner. The actual owner of the shares is the foreigner, however, on paper, the Thai shareholder is registered as the owner. In this case, you can set a scrum of shareholders at 65 percent. Thus even if you don’t attend, there is no scrum, so the bylaws cannot be changed nor can the Managing Director’s sole authority and powers be questioned.
The previous government wanted to amend this loophole in the Foreign Business Act. Thus under the amendment, the company will need to get a Foreign License or would need to restructure and limit foreign control in the company. Under the new rule, under Section 36 and 37 of FBA, criminal investigation and evidence submitted to the court will find if Thai nominee shareholders are used.
Another questionable tactic is to hire a law firm which provides you stakeholders/promoters, who neither meets you nor they know you. But it might be illegal as well. Besides, if your company gets rich or acquires property and then you have an unfortunate accident, the Thais will get all the wealth and property. Thus it’s NOT a safe method to acquire full control over the company. You might want to know the stakeholders to run a safer business. It’s best to assign these shares to a diversity of Thais who you think you can trust.
Thirdly, most of the accounting firms and law offices in Samui, Pattaya, and Phuket set up a 100 percent Thai owned company that transfers the shares and company control to the foreigner after the formation and registration of the company. This prevents the investigation at the time of registration. But it doesn’t protect the Foreigner owning the company if a breach with the Foreign Business Act is found. It might lead to several penalties like prosecution and removal of the company from the Registrar of Companies. Read more about US Amity Treaty and registering a company under that.