Forms of Doing Business

In Thailand, it is generally advantageous to a foreign investor to have Thai participation in his venture, although foreign investment is restricted only in certain key industries.

A person, Thai or alien, may engage in business in the form of a single proprietorship, limited company, partnership, a joint venture, a branch of a foreign corporation, or a representative/regional office.

Partnerships
Three types of partnerships in Thailand differ principally in the liability attached to
each.

An unregistered ordinary partnership has partners who are all jointly liable, without any limitation on the partnership’s total obligations. This type of partnership is not a legal entity and is subject to taxation as if it were
an individual.

A registered ordinary partnership is a juridical entity having a separate and distinct
personality from each of the partners by virtue of its registration with the commercial Registrar. A registered ordinary partnership is treated as a corporate entity for income tax purposes.

A limited partnership is one in which there are one or more partners whose individual liabilities are limited to their respective contributions, and one or more partners jointly liable without any limitation on all the obligations of the partnership. A limited partnership is taxed as a corporate entity.

Private Limited Companies
A Thai private limited company is similar to what is commonly referred to as a
corporation. The company may be wholly owned by aliens. However, in those
business activities reserved for Thai nationals, aliens’ participation is generally
allowed up to 49%.

The liability of the shareholders is limited to the par value of the authorized capital. 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.

Although there is no established minimum level of capitalization, 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% 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.

Thai corporate law has some features, which may be unfamiliar to a foreign
businessman. Among these is the prohibition on treasury shares, and a rule that a private limited company’s shareholders must never be fewer than seven at all times. In addition, nonvoting stock, whether common or preferred, is not permitted; the original authorized capital stock must be subscribed in full.

Public Limited Companies
The procedure for setting up a limited public company is similar to that for a private limited company. The provisions of the Limited Public Company Act of 1992 allow a private company to be converted into a public company. The major difference between a public and a private company is that a private company is prohibited from offering shares to the public. Certain other differences are shown in the table below.

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 a joint venture is subject to
corporate taxation under the Revenue Code, which classifies it as a single entity.

Branch of a Foreign Corporation
A Company incorporated under foreign laws may establish a branch office to do
business in Thailand. Branch offices are required to maintain only those accounts relating to the activities of the branch in Thailand. It is important, however, 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 tax. As a condition for approval of an Alien Business License for a branch of a foreign corporation, minimum capital amounting to three (3) million Baht must be brought into Thailand. This amount may be changed by subsequent Ministerial Regulations.
A branch office may exist for an indefinite period up to its date of dissolution.

Representative Office of a Foreign Corporation
A foreign entity may establish a representative office in Thailand to engage in
limited non-revenue-earning activities. These activities are restricted to:
• Searching for local sources of goods or services for its head office, inspecting and controlling the quality and quantity of goods procured by its head office.
• Providing advice in various fields relating to products directly sold by its head office to local distributors or consumers.
• Disseminating information about new products and services of its head office.
• Reporting to its head office on local business developments and activities.

The minimum capital contributions in respect to branches are also applicable to
representative offices.
  

Regional Office of a Multinational Corporation
A multinational corporation may establish a regional office in Thailand to engage in
limited non-revenue-earning activities. These activities are restricted to:

• contacting, coordinating, and supervising the activities of affiliated businesses in the region, and
• providing services to affiliated branches or subsidiaries such as: advisory and management services; training and personnel development; financial management; marketing control and sales promotion; and product research and development.