TYPES OF BUSINESS ORGANISATIONS

A sole proprietorship is a business owned by one person with unlimited liability. A proprietor’s business and personal assets are subject to attachment and other forms of legal action. Foreigners, unless covered under the United States-Thailand Treaty on Amity and Economic Co-operation, are not permitted to operate  sole proprietorships.
 
 

PARTNERSHIP

Thailand acknowledges three general types of partnerships. The main difference between them is the degree of liability of the partners under each type of organisation. Partnerships are not promoted by the Board of Investment, and thus are rarely used by foreign investors in Thailand. The three types are:

· Unregistered ordinary partnerships, in which all partners are jointly and wholly liable for all obligations of the partnership

· Registered ordinary partnerships. If registered, the partnership becomes a legal entity, separate and distinct from the individual partners

· Limited partnership. Individual partner liability is restricted to the amount of capital contributed to the partnership. Limited partnerships must be registered.
 
 

LIMITED COMPANIES

There are two types of limited companies - private or closely held companies, and public companies. The first are governed by the Civil and Commercial Code, the second by the Public Company Act.
 

PRIVATE LIMITED CAMPANIES

In Thailand, they are similar to those of Western corporations, and are the most popular vehicle used to establish a permanent business in Thailand. Although there is no established minimum level of capitalisation, the private limited company’s capital must be sufficient to accomplish its objectives. All of the shares must be subscribed to, and at least 25 percent of the subscribed shares must be paid up. It should also be noted that private limited companies are required to have capitalisation of two million baht, fully paid up, per each work permit the company desires.

A minimum of seven shareholders is required at all times. A private limited company may be wholly-owned by aliens. However, in those activities reserved for Thai nationals, aliens’ participation is generally allowed up to 49 percent. Meetings of  shareholders and directors must conform to the requirements set forth in the Civil and Commercial Code and/or the Articles of Association of the company.
 

PUBLIC LIMITED CAMPANIES

Such companies registered in Thailand may, subject to the compliance with the prospectus, approval, and other requirements, offer shares, debentures and warrants to the public and may apply to have their  securities listed on the Stock Exchange of Thailand (SET).

A public limited company must:

· Have a minimum of 15 promoters for the formation and registration of the Memorandum of Association

· Have not less than half of the promoters domiciled in Thailand

· Have the promoters’ subscribed shares, which will be paid up in money, equal to not less than 0.05 percent of the registered capital. These prescribed shares cannot be transferred within two years of the date of registration of the company, except with the consent of a general meeting of shareholders

· Have a statutory meeting within two months from the date when the shares have been fully subscribed, as specified in the prospectus, but not more than six months from the date of approval of the memorandum by the registrar

· Have a minimum of five directors, at least half of whom must be domiciled in Thailand

· Ensure that the directors are 20 years of age or older, and they must have clean legal records

· Have subscribers pay the full amount of each share

· Not stipulate any provisions which would prevent sharesholders from becoming directors of the company

· Hold a meeting of the Board of Directors at least once every three months where a directors certificate must be obtained and the minutes must be recorded

· Have an auditor present at all times when the balance  sheet is submitted for   adoption by general meeting of the shareholders
 

A private limited company may be transformed into a public limited company by passing a special resolution of the  shareholders as stipulated by the Civil and Commercial Code.
 
 

Procedures for forming a limited company: In order to set up a limited company in Thailand, the following procedures should be followed:

CORPORATE NAME RESERVATION

The name to be reserved must not be the same or close to that of other companies. Certain  names are not allowed and therefore the name reservation guidelines of the Commercial Registration Department in the Ministry of Commerce should be observed. The approved corporate name reservation is valid for 30 days. The corporate name can be reserved for an additional 30 days upon expiration of the initial period.

FILE A MEMORANDUM OF ASSOCIATION

A memorandum of association to be filed with the Commercial Registration Department 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 seven promoters. The capital information must include the number of shares and the par value. At the formation step, the authorised capital, although partly paid, must all be subscribed by the initial sharesholders. Thai law does not provide for treasury shares.

Although there are not minimum capital requirements, the size of the capital should be respectable enough and adequate for the intended business operation.

The memorandum registration fee is 50 baht per 100,000 baht of registered capital. The minimum fee is 500 baht, the maximum 25,000 baht.

CONVENE A STATUTORY MEETING

Once the share structure has been defined, a statutory meeting is called. A minimum of 25 percent of the par value of each subscribed share must be paid.

REGISTRATION

Within three months of the date of the Statutory Meeting, the directors must submit applications to establish the company. Company registration fees are 500 baht per 100,000 baht of registered capital. The minimum fee is 5,000 baht; the maximum is 250,000 baht.

TAX REGISTRATION

Business 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. Business operators earning more than 600,000 baht per annum must register for VAT within 30 days of the date they reach 600,000 baht in sales.

Reporting requirement: Firms must keep books and follow accounting procedures specified in the Civil and Commercial Code, the Revenue Code and the Accounts Act. Documents may be prepared in any language, provided that a Thai translation is attached.

IMPOSITION OF TAXES

Companies are required to withhold income tax from the salary of all regular employees.

A value-added tax of seven percent is levied on the value added at each stage of the production process, and is applicable to most firs. The VAT must be paid on a monthly basis.

A specific business tax is levied on firms engaged in several categories of businesses not subject to VAT, based on gross receipts at a variable rate ranging from 0.1 - 3.0 percent.

Corporate income tax is 30 percent of net profits and is due twice  each fiscal year. A mid-year profit forecast entails advance payment of corporate taxes.

ANNUAL ACCOUNTS

A balance sheet must be prepared annually. The performance record is to be certified by the company auditor, approved by shareholders, and filed with the Commercial Registration Department, Ministry of Commerce, within five months of the end of the fiscal year, and with the Revenue Department, Ministry of Finance, within 150 days of the end of the fiscal year.
 

COMPANY REGISRATION

LIMITED PARTNERSHIP/REGISTERED ORDINARY PARTNERSHIP

· Apply for permission to use the partnership name; request for research of records to ensure that the name intended for use does not coincide with any existing trade name.

· Enter relevant details, such as the name of partnership, addresses, ages, nationalities,  investments and signatures of all partners, names of managing partners and their limitation of power (if any). The application form will be affixed with the partnership and handed in by the managing partner. Usually, the managing partner has to sign the application form in the presence of the Partnership & Company Registrar, but he may sign the form in the presence of an ordinary or extraordinary member of the Thai Bar Association. Alternatively, an attorney may be appointed to effect the registration on behalf of the partnership.

· The fee shall be based on the number of partners. For three partners, the fee is 1,000 baht. The fee for each additional partner is 200 baht.

· After registration, a certificate will be issued.

LIMITED COMPANIES

· Apply for permission to use company name; request for search of records to ensure that the name intended for use does not coincide with the name or any existing trade name.

· Make a memorandum of association. Enter in the application for the name of the company, address of the principal office, nature of business, capital to be registered, number of shares, par value, names, addresses, ages, occupation, number of shares subscribed by promoters (each of which is to subscribe at least one share), signatures of  all  promoters. An application for registration of memorandum of association (with a 200-baht stamp duty) shall be submitted by any promoter or his attorney. The fee for registration memorandum of association shall be based on the capital, that is, for each 100,000 baht of capital, the fee shall be 50 baht. The minimum fee shall be 500 baht  and the maximum 25,000 baht.

· After registration of the memorandum of association, company registration may be effected. The promoters must invite the share subscribers to attend a statutory meeting. The directors appointed by the statutory meeting shall collect the money from the share subscribers for the shares the first collection shall be at least 25 percent. The director with the authorised signature shall apply for company registration within 30 days from the date of the statutory meeting. The registration fee shall be based on the capital, that is, for each 100,000 baht of capital, the fee shall be 500 baht.  The minimum fee shall be 5,000 baht and the maximum 250,000 baht.

· Usually, the promoter or authorised director has to sign the application for registration of the memorandum of association and company registration in the presence of the registrar, but they may also sign such applications in the presence of ordinary or extraordinary members of the Thai Bar Association.

PUBLIC COMPANIES

The status of limited public company can be acquired by three different methods:

- Registration of newly established public limited company

· Apply for permission for use of a company name; request for search of records to ensure that the Thai and foreign names intended for use do not coincide with any existing trade names.

· Make a memorandum of association. Enter in the application for registration of the memorandum of association  and the  company names in Thai and in a foreign language. (The Thai name must begin with the word “Company” and end with the words” Limited (Public).” Foreign names must end with the words “Public Company Limited.” The nature of business, capital to be registered, value of shares, numbers of ordinary shares and preferred shares, address of the principal office; names, dates of birth, nationalities and addresses of promoters, number of shares subscribed by each promoter (the values of shares subscribed by all promoters must be at least five percent of the registered capital) and signatures of all promoters. Application for registration of memorandum of association may be made by any promoter or his attorney. The registration fee shall be based on the registered capital. The fee shall be 1,000 baht for every one million baht of registered capital - the fraction of a million baht shall be rounded up to one million baht. The fee shall not exceed 25,000 baht.

· After registration of the memorandum of association, registration of public limited company may be effected. All the shares may be subscribed by promoters. The public may also be invited to subscribe shares. Within two months from the date of complete subscription of shares, the promoters are to call for a statutory meeting. The directors appointed a the meeting shall collect full payments from subscribers. Within three months from the date of the statutory meeting, application for public limited company registration shall be made. The registration fee shall be based on the registered capital. The fee shall be 1,000 baht for every one million baht of registered capital - the fraction of a million baht shall be rounded up to one million baht. The fee shall not exceed 250,000 baht.

· The promoter and authorised director shall sign the applications for registration of memorandum of association and registration of the company in the presence of the Limited Public Companies Registrar, attorney at law  or auditor registered with the registrar.

- Turning limited company into public limited  company

A limited company wishing to turn public must hold a shareholder’s meeting to pass a special resolution in favour of turning public. Then, its memorandum of association and articles of association must be amended in line with the Public Company Limited Act of 1992. New directors and an auditor must be appointed. The articles of association of such public company limited must cover the issuance and transfer of shares, shareholders’ meeting, appointment of directors, office term of directors, leaving office before the end of the office term, leaving office at the time of meeting, scope of the power of the directors, accounting, finance, audit, issuance of preferred shares and conversion of preferred shares to ordinary shares. Such articles of association must neither be in conflict with the  memorandum of association or the Public Company Limited Act of 1992. Application for registration of a public company limited must be made by a director within 14 days from the date of meeting resolution to that effect. The registration fee is 10,000 baht.

- Merger of limited company with public limited company

A limited company may be merged with a public limited company. The newly formed company shall have the status of a limited public company. The merger shall comply with the special resolution passed by the limited company pursuant to the Civil and Commercial Code and Public Company Limited Act of 1992. Then, such limited public company must hold a shareholders’ meeting. A quorum is said to be formed when holders of shares with one quarter of voting rights attend such meeting. The fee for registration of the merger is 5,000 baht.
 
 

JOINT VENTURES

A joint venture may be described as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together.
 

INCORPORATED JOINT VENTURES

A Thai private limited company that is owned by two or more companies or groups of shareholders is often referred to as a joint venture (although there is no language governing incorporated joint ventures in Thailand’s legal code). There are no specific restriction on joint ventures, except that companies which are majority foreign-owned are treated as “foreign”. Joint ventures which receive promotional incentives from the Board of Investment (BOI) can be exempted from restrictions that would be imposed on a “foreign” venture.
 

UNICORPORATED JOINT VENTURES

In a contracted project, which cannot be carried out by a single company, it is common for a company to joint with others in the form of a joint venture. Although the joint venture may engage in business, it cannot be registered. The Revenue Department, however, treats a joint venture as a juristic company for purposes of tax liability. The joint venture must, therefore, apply for a taxpayer identification card. Moreover, Value Added Tax registration is required if a joint venture is qualified under the requirements of the Revenue Code.

This Code requires that at least one of the joint venture partners be a juristic entity, and the Revenue Department further stipulates that the joint venture must have two elements:

A joint investment in the joint venture and a sharing of profit or loss under the joint venture agreement; and

The partners have joint liability to third parties dealing with the joint venture. A foreign company which participates in an unincorporated joint venture is required to obtain an Alien Business Permit and create a branch office in Thailand to engage in business as a partner of the joint venture. Such foreign partners do not need to register for their own taxpayer identification card, because merely acting as a partner is not considered “doing business.” However, the joint venture itself must register. The registration process for the permit of the foreign partner and the taxpayer identification card of the joint venture takes about 5-7 weeks to complete. The government fee, collected upon issuance of the business permit to the foreign partner, will be five baht per 1,000 baht of the registered capital of the foreign partner, with 10,000 baht as the maximum fee.
 
 

JOINT VENTURE PARTNERS
 

GENERAL GUIDELINES

Joint ventures between Thai and foreign companies are increasingly common in manufacturing, marketing/distribution and services. As in other countries, joint venture partners are usually companies or individuals operating in the same or related manufacturing activities or markets, with similar business objectives and growth strategies. General guidelines for Thai joint venture partner selection by foreign partners are:

· Interest in a joint venture relationship with a foreign partner

· Compatible corporate vision/strategies

· Compatible management styles

· Financial strength and stability

· Compatible size

· Effective two-way communications

· Complementary products, markets and services
 

JOINT VENTURE WITH FAMILY-OWNED GROUPS

Most Thai companies started up as family-run enterprises, and several of Thailand’s largest business groups are still family-controlled. Thus, family members are logical prospects as joint venture partners.
 

JOINT VENTURE WITH THE CROWN PROPERTY BUREAU

The Crown Property Bureau, a Thai government agency that manages Royal properties, takes equity positions in public and private companies as a passive investor. Association with the Crown Property Bureau confers legitimacy and prestige on a joint venture.
 

JOINT VENTURE WITH A COMMERCIAL BANK

Commercial banks are permitted under Thai law to invest up to 10 percent of their assets in companies. Most banks have investment arms, which can commit such investments. Banks are desirable JV partners because of their prestige, connections and capital resources.
 

JOINT VENTURE AGREEMENTS

Joint venture collaboration is usually governed by legal agreements, which follow standard legal forms, used in other countries, e.g., Memoranda of Understanding, Confidentiality Agreements, Joint Venture Partner Agreements, etc. In addition to standard legal provisions in JV agreements, negotiating points, which usually require special attention, are:

· Ownership split

· Management control

· Specifics of contributions by each JV partner

· Protection of intellectual property rights

· Technology transfer and methods of transfer

· Dispute resolution

· Termination provisions
 

IDENTIFICATION OF JOINT VENTURE PARTNERS

Foreign firms can identify attractive collaborative partners from a number of sources, including:

· The Board of Investment

· Law firms

· Auditing and accounting firms

· Consulting firms

· Commercial banks

· Merchant banks

· Securities firms

· Federation of Thai Industries (FTI)

· Thai Chamber of Commerce (TCC)

· Foreign Chambers of commerce

· Thai/foreign business councils

· Commercial offices of foreign embassies
 

BOI JOINT VENTURE CRITERIA

For investment projects in agriculture, animal husbandry, fisheries, mineral exploration and mining, or service sectors, Thai nationals must hold no less than 51 percent of the registered capital. However, for projects with investment of over one billion baht, foreigners may initially hold the majority or all of the shares, but Thai nationals must acquire at least 51 percent of the shares within five years of operation.

For manufacturing activities, majority or total foreign ownership of projects is permitted, and there is no foreign export requirement for any project. Existing projects that were subjected to export requirements as a result of previous joint venture criteria may request the removal  of the export requirement from their investment promotion certificate.

Projects in Zones 1 and 2

For new projects, applications must be submitted to the Board of Investment no later than June 30, 2000.

For existing projects that have not yet started operations, majority or total foreign ownership is permitted if the consent of the existing Thai shareholders is obtained. Applications must be submitted to the Board of investment no later than June 30, 2000.
For existing projects that have already begun operations, majority or total foreign ownership is permitted if the consent of the existing Thai shareholders is obtained.
Since the Seventh Development Plan period (1992-96), the foreign ownership requirement for projects in the following areas have been established by the responsible Ministries, and the BOI will not consider the foreign ownership issue:

OTHER TYPES OF COLLABORATIVE VENTURES
 

AGENCY/DISTRIBUTION AGREEMENTS

Thailand does not impose any restrictions or conditions on agency/distribution agreements between foreigners and Thai citizens. Such agreements may be made and terminated freely at the discretion of the parties involved.
 

LICENSING AGREEMENTS

Licensing permits an enterprise rights to use technology for a financial consideration. The licenser is obligated to provide the means by which the technology can be effectively transferred, such as blueprints, manuals and training. Although licensing agreements must be registered, there are effectively no restrictions on them.
 

MANUFACTURING AGREEMENTS

These describe the terms and conditions under which foreign companies sub-contract manufacturing activities to companies in Thailand. They may also give Thai companies the right to distribute products in certain territories.
 
 

OTHER TYPES OF CORPORATE PRESENCE

There are three types of offices that may be set up by a foreign or multinational company in Thailand representative, regional or branch.
 

BRANCHES

There is no special requirement for foreign companies to register their branches in order to do business in Thailand. However, most business activities fall within the scope of one or more laws or regulations, which require special registration, either before or after the commencement of activities. Foreign business establishment must, therefore, follow generally acceptable procedures. It is important to clarify beforehand what constitutes income subject to Thai tax because the Revenue Department may consider revenues directly earned by the foreign head office from sources within Thailand as subject to Thai taxes.

As a condition for approval of an Alien Business License to a branch of a foreign corporation, working capital amounting to a total of five million baht in foreign exchange must be brought into Thailand within certain intervals over a five-year period.

The branch may be allowed to operate for a period of five years, unless a shorter period is indicated in the application as a result of a contract to be performed in Thailand. Extension of the original duration of the license to operate may be granted, provided the working capital required to be growth into Thailand is met.
 

REPRESENTATIVE OFFICES

The Regulation of the office of the Prime Minister BE2529 (AD 1986) defines a representative office as an office of a foreign company which is located in Thailand and in the business of trading internationally.

Trading representative offices may carry out the following activities:

The definition of a representative office excludes regional offices and other business-related trading activities. A representative office in Thailand is considered aliaison office and may not engage in any profit-seeking or profit-making enterprise. Over the five-year initial life of the permit, at least five million baht must be remitted into Thailand for operational expenses of the representative office, with two million baht in the  first operational year, and a least one million baht in each of the following three years. Remittances can be made only after the permit is granted.

Representative offices do not generate income and therefore pay no tax. If the representative office exceeds the scope of the above activities, it may be regarded as doing business in Thailand and become subject to taxation on all income received in Thailand.

A representative office must obtain an Alien Business Permit under Annex C, Chapter 3(1) of NEC Announcement No. 281 (the Alien Business Law) to start its activities. This Permit, valid for five years, serves as the permission/license to establish a representative office. An application for a permit to establish a representative office, together with supporting documents, as well as applications for work permits and visas, must be filed with  the Commercial Registration Department of the Ministry of Commerce. Normally, work permits will be granted for up to five persons.
 

REGIONAL OFFICES

In order to promote Thailand as the region’s commercial center, in 1992 the Prime Minister’s office passed a regulation facilitating the formation of regional offices of trans-national corporations within the Kingdom. This regulation is designed to create a “One-stop  service” with the Department of Commercial Registration for trans-national corporations.

A regional office has the ability to co-ordinate and supervise the company’s branches and its affiliated companies in the region on behalf of the head office. the regional office may provide these branches and affiliated companies with:

Benefits from establishing a regional office

Companies establishing regional offices are not required to be registered or incorporated as juristic persons in Thailand, and do not have to submit any financial statement to the Department of Commercial Registration. The Department will assist in customs clearance of the personal  effects of transferred foreign staff and in their applications for further temporary stay in the Kingdom or change in visa type. Work Permits for aliens per forming work in the regional office will be granted for up to five persons depending on necessity and volume of  work in each particular case, and fees of not more than 1,000 baht per year must be paid for a Work Permit or its renewal.

Conditions for permission to establish a regional office

A regional office must not:

When a permit to establish a regional office is issued, it may be subject to the following conditions:

REGIONAL TRADE AND INVESTMENT SUPPORT OFFICES

In support of the government’s policy to develop Thailand as a regional centre for trade and investment, in April 1996, the Board of Investment announced the establishment of trade and investment support offices would become a new category of activities eligible for investment promotion.

Activities in this category include, but go far beyond, regional offices. The activities covered are quite broad, ranging from engineering, testing and training services to consulting services, as well as from wholesaling and retailing of machinery to provision of training and installation, maintenance and repairing of machinery, tools, engines, and equipment.

Project in this category are eligible for BOI non-tax incentives, including:

- Foreign currency exchange

- Accounting

- Advertising

- Legal affairs

- Architecture

- Civil engineering

Exceptions may be granted by permission  from the Department of Commercial Registration of concerned government agencies.

If there are any other activities deemed appropriate for investment promotion under the Establishment of Trade and Investment Support Offices, the Office of the Board of Investment will consider them on a case-by-case basis.

Eligibility for regional trade and investment support offices

Applicants must be either companies established under Thai law, or companies planning to establish under Thai law.

Conditions for regional trade and investment support offices

· Operating licenses must have been acquired from all relevant government agencies

· Operating expenses must amount to no less than 10 million  baht  per year, which shall consist of sales and administrative expenses, as set forth in the Revenue Code

· Operating plans must be approved by the Board of Investment

· Majority or total foreign ownership is allowed

· Non-tax privileges, only, will be granted.