Types of Business Organizations
Thailand recognizes three types of business organizations: Partnerships, Limited Companies and Joint Ventures.
Thai and Western concepts of partnership are broadly similar. Thailand provides for three general types of partnerships:
- 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 partnerships. Individual partner liability is restricted to the amount of capital contributed to the partnership. Limited partnerships must be registered.
B. Limited Companies
There are two types of limited companies, i.e. private or closely held companies, and public companies. The first is governed by the Civil and Commercial Code, the second by the Public Company Act.
Private 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.
Shareholders enjoy limited liability, i.e., limited to the remaining unpaid amount, if any, of the par values of their shares. The liability of the directors, however, may be unlimited if so provided in the company's memorandum of association or the articles of incorporation. The limited company is managed by a board of directors according to the company's charter and by-laws.
All shares must be subscribed to, and at least 25 percent of the subscribed shares must be paid up. Both common and preferred shares of stock may be issued, but all shares must have voting rights. Thai law prohibits the issuance of shares with no par value. It also stipulates that only shares with par value of five baht or above may be issued. Treasury shares are prohibited.
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, aliensÝ participation is generally allowed up to a maximum of 49 percent.
The registration fee for a private limited company is 5,500 baht per million baht of capital.
Public Limited Companies registered in Thailand may, subject to 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 minimum of 15 promoters is required for the formation and registration of the memorandum of association of a public limited company, and the promoters must hold their shares for a minimum of two years before they can be transferred. The Board of Directors of a public limited company must have a minimum of five members, at least half of whom are Thai nationals. Shares must have a face value of at least five baht each and be fully paid up. Restrictions on share transfers are unlawful except those protecting the rights and benefits of the company allowed by law, and those maintaining a Thai/foreigner shareholder ratio. Debentures may only be issued with the approval of three quarters of the voting shareholders.
The registration fee is 2,000 baht per million baht of capital for a public limited company.
C. Joint Venture
A joint venture may be described in accordance with general practice as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together. It has not yet been recognized as a legal entity under the Civil and Commercial Code. However, income from the joint venture is subject to corporate taxation under the Revenue Code, which classifies it as a single entity.
D. Other Forms of Corporate Presence
Branches of foreign companies. 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 establishments must, therefore, follow generally accepted 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 four-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 brought into Thailand is met.
A representative office of foreign corporations may also be established to engage in limited ýnon-tradingţ activities, such as sourcing of goods or services in Thailand for its head office or inspecting and controlling quality of goods which its head office purchases in Thailand. Other activities can cover disseminating information about new products and services of its head office, and reporting to its head office on local business development and activities.
The working capital contributions as discussed above in respect to branches apply.
E. Regional Offices
A regional office of a multinational corporation may also be established to coordinate and direct the operation of the branches and affiliates of the head office in the region on behalf of the head office.
A regional office has the ability to coordinate 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:
- Advisory and management services
- Financial management services
- Training and personnel development services
- Marketing control and sales promotion plans
- Product development
- Research and development services.
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 statements 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 performing work in the regional office will be granted for up to 5 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:
Regional Office must not:
- Derive any income from its activities. Expenditures incurred by the regional office shall be borne by the head office
- Have the power to accept a purchase order or make a sales offer
- Negotiate or enter into business arrangements with any natural or juristic person within the Kingdom.
A permit to establish a regional office, valid for five years, can be granted after application with the Alien Business Section of the Department of Commercial Registration at the Ministry of Commerce. The fee is five baht per every 1,000 baht of registered capital, not to exceed 5,000 baht.
When a permit to establish a regional office is issued, it may be subject to the following conditions:
- The total debt financing used in the business shall not exceed seven times the portion of the capital owned by shareholders or the owner of the business
- Money used in the regional office shall be remitted from abroad and shall not be less than a total of 5,000,000 baht. During the first year period, at least 2,000,000 baht of the total must be remitted, at least half of which must be remitted within the first six months. Then, no less than 1,000,000 baht should be remitted each succeeding year until the full 5,000,000 baht has been transferred. Documents verifying this transfer must be presented to the Department of Commercial Registration
- At least one person who is responsible for operating the regional office must have their domicile in the Kingdom.
The Director-General of the Department of Commercial Registration is also authorized to impose any conditions on a business permit granted under the rules.
F. Regional Trade and Investment Support Offices
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.
Projects in this category are eligible for BOI non-tax incentives, including:
- Permission to own land for an office
- Permission to bring in foreign nationals to undertake investment feasibility studies
- Permission to bring in as many foreign technicians and experts as required
- Permission to take or remit foreign currency abroad
- No limit on number if shares owned by foreigners.
- The range of activities eligible for promotion are:
- Controlling and advising affiliated companies
- All types of consulting services, except those engaged in:
˝ Buying and selling securities
˝ Foreign currency exchange
˝ Legal affairs
˝ Civil engineering.
Note: Exceptions may be granted by permission from the Department of Commercial Registration or concerned government agencies
- Information services related to sourcing and procurement, but not brokerages or agencies
- Engineering and technical services, except these related to architecture and civil engineering
- Testing and certifying standards of products, production and services standards
- Exporting of all types of products
- Wholesaling of all types of products within the country, excluding local agricultural products, arts & crafts, antiques, and natural resources
- Provision of training on the use of machinery, engines, tools, and equipment
- Installation, maintenance, and repairing of machinery, engines, tools, and equipment
- Calibration of machinery, engines, tools, and equipment
- Computer software design and development.
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.