Story : Kirstie Flood with John Howard   
Photogaphy : Nakarin Banjerdjin
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A remarkable recent development in Thai law seems to have quietly slipped beneath the radar. The gazetting of an amendment to the Thai corporate law was announced on March 3rd 2008 and the new law will be effective July 1st 2008. The revised law makes a number of changes to the existing Thai company law and in so doing it updates Thai corporate law bringing it into the 21st century.

Significant Changes
The most significant of the five changes is the reduction in number of Thai shareholders required to form a Thai company. John Howard, Managing Director of Tilleke and Gibbins, Phuket explains, “Presently Thai law requires seven shareholders to form a Thai company and, given that to operate many businesses the company must have majority Thai shareholders as well as majority equity held by Thais, that can typically lead to five Thai shareholders to two foreign shareholders or in some cases four Thai shareholders to three foreign shareholders. The new law adjusts this to provide for a minimum of three shareholders to form a Thai company.”

The significance of this to the property industry cannot be underestimated, “Firstly the new law has provisions whereby existing Thai companies with seven shareholders can change to the new regime so that effectively four shareholders can exit the company and the company will still be a legal incorporated entity.” It is estimated that there are presently many thousands of companies where the principle rationale for the company has been to hold land in partnership with Thai investors. Clearly it’s difficult to find the requisite number of Thai investors when you need seven shareholders. However  the revised arrangement with  minimum three shareholders,  could mean a situation where you have one foreigner and two Thais.

“This is significant because as we have stated in numerous Tropical Living articles,the presence of nominee shareholders is illegal, breaching both the criminal and civil law. Unavoidably when you need seven shareholders there are a couple of shareholders  simply to make up the numbers. This situation should no longer apply after July 1st. So for a qualifying Thai majority company one foreigner can hold a minority and two Thai nationals can hold the majority.

“As long as those two Thai shareholders are genuine shareholders, meaning they’ve subscribed to the share capital of the company and are involved in the business of the company, it should be straightforward, as of July 1st, to incorporate a complying Thai company.”

Further Improvements
The new law also provides a number of other upgrades. One of them is that presently it can take at least nine days and more usually twenty one days to incorporate a Thai company. John explains the new process, “The new law provides for one day registration of both the memorandum of association and the company together if all the requirements are met at the statutory meeting and the papers are in order. On this rational it is possible to form a company in a matter of days providing the documentation is in order.”

Another enhancement is that currently a special resolution is required for important matters of the company such as changing the name or the address, objectives, or the capital of the company. Presently this double approval is required which takes at least twenty one days. The new amendments allows the passing of a special resolution by only one shareholders meeting, by at least three quarters of the votes of the shareholders in attendance and entitled to vote.

The fourth enhancement of the new law is that it facilitates the procedures required to reduce a companies’ capital and or to merge two companies. While these two events are not common occurrences in themselves, sometimes it is required. Now reduction of capital or a merger only requires a one time insertion in the newspaper.

Limited Liability
Finally the new law makes it possible to convert from an existing partnership to a limited liability company subject to certain formalities. According to John, “Many investors in Thailand might not be aware that a partnership can apply for a work permit as indeed can a company. Astute investors, in years gone by when they were not able to find  genuine Thai shareholders as investors,  have formed a partnership with one or more genuine shareholders and the partnership could in turn have made an application for a work permit. However partnership is an ungainly way to conduct business because of the issue of liability. Now the partnership can be converted into a limited liability company, with a reduction in the number of procedural requirements.”

In summary the five modifications:

Effective up to June 30th

The minimum number of shareholders required to form a Thai company is seven.

Registration of the memorandum of association and registration of the company will take between nine to twenty one days.

A special resolution is required for important matters of the company such as changing the name, address, objectives or the capital of the company. Presently double approval is required which takes at least twenty one days.

Reduction of capital or merger of companies requires seven insertions in a newspaper.

N/A
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Effective from July 1st 2008

The minimum number of shareholders required to form a Thai company is three.

One day registration of both the memorandum of association and the company can be done together, subject to all the documentation being in order.

The passing of a special resolution will only require one shareholders meeting by at least three quarters of the votes of the shareholders in attendance and entitled to vote; change from the previous double approval.

Reduction of capital or a merger both  require only a one time insertion in the newspaper.

New ability to convert from an exiting partnership to a limited company subject to certain formalities
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John Howard is the Managing Director of Tilleke and Gibbins,
Phuket branch. For more information e-mail: john.howard@tillekeandgibbins.com