23 Dec Establishing a Business Entity in ThailandDownload PDF
The Dej-Udom & Associates submitted chapter on Thailand for the International Lawyers Network Corporate Group’s publication, Establishing a Business Entity – Fall 14. An excerpt is below. To read it in full, please download the document.
Establishing a Business Entity in Thailand
Thailand has a civil or codified law system. The main legal codification governing commercial aspects in Thailand is prescribed under the Civil and Commercial Code (“CCC”) and other related Acts which are issued from time to time to govern specific circumstances.
The part of the CCC which refers to companies, called “Company Law” in other jurisdictions, is under Title XXII, “Partnerships and Companies” (Book III of the CCC). The CCC governs the establishment, management, shareholder and partner rights, and liquidation of partnerships and private limited companies. Public Companies are governed by the Public Limited Companies Act B.E. 2535 and the Securities and Exchange Act of the same year and its related Regulations and Announcements. Breaches of the CCC’s provisions concerning “Partnerships and Companies” may be subject to penalties under the “Act on Offence concerning Registered Partnerships, Limited Partnerships, Limited Companies, Associations and Foundation” B.E. 2499.
The following are the business entity types available in Thailand’s jurisdiction; however, a foreigner’s ability to engage in them is regulated by the Foreign Business Act (“FBA”).
- Sole Proprietorship – Under the law, a person acting as a sole proprietor can engage in almost any lawful type of business with the exception of those businesses which have been otherwise regulated by the government. Taxation of a sole proprietorship business is calculated on a progressive personal tax rate.
- Unregistered Ordinary Partnership – An Unregistered Ordinary Partnership is when two or more persons join together to conduct business without formally registering their operation. Unregistered ordinary partnerships are taxed as natural persons, but each partner must also separately file their own personal tax return.
- Registered Ordinary Partnership – To form a Registered Ordinary Partnership, all particulars, including the partnership contract, capital contribution, management, and objectives, must be submitted to the Ministry of Commerce. Partner profits are subject to taxation, so profits are subject to two levels of taxation.
- Limited Partnership – In a limited partner-ship, the managing partners are jointly held personally liable for the partnership’s debts and any non-managing partners are only liable for the amount of any undelivered or withdrawn capital contribution. Partner profits are subject to taxation, so profits are subject to two levels of taxation.
- Private Limited Company – Basically a corporation, a Private Limited Company must have a minimum of three persons join together to start a business with the capital divided into shares of equal par value. A Private Limited Company is taxed as a juristic entity.
- Public Limited Company – A Public Limited Company is formed in order to offer shares to the general public and must have a minimum of 15 persons join together. A Public Limited Company is a juristic entity and taxed as one. Individual shareholders must pay tax on their earnings, and foreign corporate shareholders pay tax on all dividends.
- Joint Venture – In Thailand, a Joint Venture is not a legal entity under the Civil and Commercial Code. If two parties do enter into an agreement to work together as a Joint Venture, it is valid as long as it conforms to Thai laws. A Joint Venture’s income is subject to corporate tax as a single entity.
- Branch Office – A Branch Office can only do business on behalf of a company based outside Thailand and must obtain a business license according to the FBA. However, a Branch Office can only engage in specific business activities granted under the FBA. A company must bring in a minimum capital of at least 3 million Baht; however, this is the minimum threshold and the actual amount is calculated at 25% of the average per year of three years’ estimated expenditures. For tax payment, a Branch Office is treated as a juristic person.
- Representative Office – A Representative Office can only do business on behalf of a company based outside Thailand and must obtain a business license according to the FBA. A Representative Office cannot engage in any revenue earning activities in Thailand and pays no taxes. A company must bring in a minimum capital of at least 3 million Baht; however, this is the minimum threshold and the actual amount is calculated at 25% of the average per year of three years’ estimated expenditures.
A Private Limited Company (“PLC”) is the most common type of business entity incorporation in Thailand and its basic characteristics are similar to those of Western corporations. A private limited company is formed by way of registration of its constitutive documents (Memorandum and Articles of Association) as well as other related applications with the Partnerships and Companies Registration Office, Department of Business Development, Ministry of Commerce. The ultra vires doctrine is still applicable in Thai law, so a company must specify in detail its objectives in its Memorandum of Association.