Setting up a 100% foreign-owned company in Thailand, and why a nominee is not the answer

Many foreign investors, and some business advisers, still believe that a limited company in Thailand must always have Thai shareholders in its structure.

That belief is mistaken, and it often leads to the riskiest option of all: having a Thai national hold shares on behalf of a foreigner, known as a nominee. That is a criminal offence. Section 36 of the Foreign Business Act B.E. 2542 (1999) sets imprisonment of up to three years, a fine of 100,000 to 1,000,000 baht, or both, for the nominee and for the foreigner who agrees to it.

In fact, a foreigner can register a company and hold all 100% of its shares themselves. What really needs examining is the business the company will carry on.

100% ownership from the day of registration

The provisions of the Civil and Commercial Code on partnerships and companies contain nothing that prohibits a foreigner from being a promoter or a shareholder. A foreigner can therefore register a company and hold 100% of its shares themselves.

Registering this way is not complicated, and is actually simpler than finding a Thai partner for a joint venture, because bringing in a shareholder who has no real intention of investing usually brings three problems:

• difficulties in running the company
• disputes over who controls the company
• legal risks that cannot be measured in advance

Registering is lawful; operating depends on the Act's lists

Registering a company and opening for business are separate steps. The first can be done lawfully. The second has to meet the conditions of the Foreign Business Act B.E. 2542 (1999), which sorts restricted businesses into three lists under section 8:

• List One: businesses foreigners are not permitted to carry on.
• List Two: these need the permission of the Minister with the approval of the Cabinet, and section 15 requires Thai shareholders to hold at least 40% of the capital (which may be relaxed, but to no less than 25%) and Thai directors to make up at least two fifths of the board. A business on this list therefore cannot be 100% foreign-owned.
• List Three: these need the permission of the Director-General of the Department of Business Development with the approval of the Foreign Business Committee. This is the list most foreign companies meet.

A business that is on none of the lists does not need permission under section 8.

Section 14 also requires a foreigner starting a business in Thailand to have minimum capital of at least 2 million baht, and at least 3 million baht for each business that needs permission under the lists.

The Foreign Business Licence (FBL)

If the company's business is on List Three, the company must apply for a Foreign Business Licence (FBL) before it starts operating.

A well-prepared application has three parts: a carefully planned corporate structure, complete legal documents, and a business plan that shows the business's potential, its economic benefit, technology transfer or job creation for Thailand. Several of these are criteria the Committee must already consider under section 5.

Once the licence is granted, the company can operate in Thailand lawfully, on the conditions set in the licence, with no reason to rely on a nominee any longer.

Other routes besides a licence

A licence is not the only route. A company promoted by the BOI can use a certificate under section 12 instead, and a business that a treaty to which Thailand is party opens to nationals of the other country can use a certificate under sections 10 and 11. Which route fits better depends on the purpose of the business.

Summary

Foreigners can own 100% of a Thai company. What decides whether the company can open for business is which list of the Foreign Business Act B.E. 2542 (1999) the business falls on, not finding a Thai national to hold shares on its behalf.

Whether you can register depends on the Civil and Commercial Code; whether you can operate depends on the lists in the Foreign Business Act.

If you are about to set up a business in Thailand and want a shareholding structure that complies with the law, the business law team at YACT Association can advise. See foreign business licences, company registration and BOI investment promotion.

This article is general information, not legal advice on any particular case.