Setting up a company in Thailand usually takes several weeks and the specific rules and procedures vary with the type of business structure that one chooses. The common business structures are: partnership, private limited company, public limited company, joint venture and representative office.
The concept of partnership is similar to the corresponding Western one. Partnerships are categorized into three types: unregistered ordinary partnerships, registered ordinary partnerships and limited partnerships. Limited companies are most common forms of business structures. Civil and Commercial Code governs private limited companies while the Public Company Act governs public limited companies. Joint venture is defined as a group of persons entering into an agreement for the purpose of carrying out business activities. Joint venture has not yet been recognized as a legal entity under the Civil and Commercial Code. Representative office is suited only for non-profit activities.
In order to set up a business under one of the structures enlisted above, one is required to fulfill the following:
- The corporate name must be reserved. There are several criteria that a new company name has to meet. The name should be sufficiently different from other existing companies’ names and should meet the guidelines outlined by the Business Development Office in the Ministry of Commerce.
- A Memorandum of Association must be filed with the Business Development Office. The memorandum must contain a reserved name of the company, location, business plan, names of the seven promoters and capital information which defines share structure.
- A statutory meeting must be called during which the articles of incorporation and bylaws are approved, the Board of Directors is elected and an auditor appointed. A minimum of 25 percent of the par value of each subscribed share must be paid.
- Within three months of the date of the Statutory Meeting, the directors must submit the application 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.
- Businesses 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.
- 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.
In addition to the guidelines provided above, foreigners are subject to an additional set of rules in order to set up a foreign owned company in Thailand. Setting up an LLC or Publicly Traded Company in Thailand is not an easy task for foreigners whenever they hold more than half of the company’s shares. In this case, it is essential that foreign investor obtains a Foreign Business License which is usually a lengthy and complicated process.
According to the Thailand Foreign Business Act B.E. 2542 (FBA), there are 3 types of business activities for the foreign companies (i.e. companies in which majority of shares are held by non-Thai nationals) which are subject to the rules and procedures outlined below.
Type 1 business activities are not permitted to foreigners, under any circumstances unless there is an exemption in a special law or treaty. These activities are: newspaper publication, radio broadcasting and TV station, land trading, trading and auctioning of Thai antiques or Thai historical objects.
Type 2 business activities are permitted to foreigners under certain circumstances. In order to get permission, business needs to obtain Foreign Business License from the Commercial Registration Department. The license is usually granted by the Cabinet or Foreign Business Committee. Under type 2 businesses are: production, selling, repairing of firearms, gun powder and explosives; production, selling, repairing of ships, aircrafts or military vehicles; domestic land, waterway or air transportation, including domestic airline business; trading of antiques or handicrafts; production of Thai musical instruments; production of gold ware, silverware, nielloware, bronze ware or lacquerware; manufacturing of sugar; mining, including stone blasting or crushing; wood fabrication for furniture and utensil production.
Type 3 business activities are not yet permitted to foreigners. In order to get permission for such activities one needs to get approval of the Director-General of the Commercial Registration Department. The activities include production of plywood, veneer board, chipboard or hardboard; production of lime; engineering service business; architecture service business; legal and accounting service business; tour agency; selling food or beverages.
Hence, if company’s majority of shareholders are foreign aliens then they have to comply with the rules outlined above i.e. first of all; they have to obtain Foreign Business License conditional on their business activity falling under type 2 or 3 activities.
However, there are some exemptions to the above rules. The Thailand-United States Treaty of Amity is one of such exemption. Under this treaty, if the majority of shareholders are U.S. citizens then the company doesn’t need to obtain a Foreign Business License. Also, the Thailand’ Board of Investment (BOI) has the authority to allow foreigners to operate their businesses in Thailand without obtaining the license. Thus, if a company is promoted by BOI then it can be foreign majority held and not subject to the restrictions above.
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