Foundations of Corporate Law

The legal foundations in Thailand when it comes to corporate law. This for both the local and international markets. This comes down to the laws of Thailand starting with the Civil and Commercial Code or Civil Procedure Code and Criminal Procedure Code. In other words Thailand is rooted in civil law. These are the foundations of corporate law.

There are 4 pillars which it rests on. Firstly there is the legal foundations of the business structures in Thailand starting with the CCC. Secondly there is business registration and corporate registrations. Thirdly there is how do foreign business participate in the economy. Fourthly and finally there is governance. We wrote an entire page on Thai corporate governance. We have explained the 4 pillars below.

 

Foundations of Corporate Law

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Foundations of Thai Corporate Law

Legal Framework

Corporate law in Thailand is based from their laws and rules which includes everything from business registration to shareholder protections. Look at it in the following manner. These all form part of the foundations of corporate law. Also read the piece we wrote on corporate compliance on this website.

 

Civil and Commercial Code (CCC) – The CCC is the first stop for corporate law in Thailand. This law covers partnerships as well as private limited companies. Likewise it also covers most forms of business entitles in Thailand. There are the requirements for contracts as well as the liabilities of partners in a partnership. This is usually the first port of call for Thai business.

Example: With the CCC we know that a private company must have at least 3 partners. The Thai government is talking about lowering this to two partners. So the law will change in time to come as they try to spur the economy. You will note that in Singapore you only need one shareholder.

Public Limited Companies Act B.E. 2535 (1992) – If you run a public company then this becomes all important. This is a company that offers its shares to the public. There are many rules with these laws. The laws cover shareholder meetings as well as the rules of disclosure. There many rules which are covered in this.

Example: If you wish to list of the Thai Stock Exchange then you will need to convert a private company into a public company. The rules for this are set out in the Act.

Foreign Business Act B.E. 2542 (1999) – The Foreign Business Act restricts foreign ownership and participation in certain business sectors. Those sectors which the government deems sensitive to the Thai economy. You can see this with jobs prohibited in Thailand for foreigners. These include such industries such as agriculture, media, and land trading. Bore you enter these sectors it may require a licence or is just complete banned.

Securities and Exchange Act B.E. 2535 (1992) – Entering the capital markets in Thailand is covered by the Securities and Exchange Act. This Act allows for the regulation of the securities market. This Act empowers the Securities and Exchange Commission (SEC) to oversee securities trading . Together, these statutes form the backbone of corporate regulation in Thailand.

 

Source of Law

Corporate law in Thailand arises from several sources:

Statutes: There are formal acts of Parliament. These included but not limited to the Civil and Commercial Code and the Public Limited Companies act as an example of two of them.

Ministerial regulations: These regulations are issued by the Ministry of Commerce or Ministry of Finance or Thai immigration. This will tell you how things have to be done. The procedures as other rules.

Guidance from the Department of Business Development (DBD):

This is the main arm of the Ministry of Commerce. Its issues guidance on compliance and how things are going to get done in Thailand. As the main regulatory body under the Ministry of Commerce, the DBD issues practical guidance, circulars, and online resources to assist companies with compliance.

Example: The DBD maintains an online registration website. This portal allows you to file corporate documents and sets out step by step procedures.

 

Types of Business Entities in Thailand

You can find more as each has a web-page in this website to explain it further. This is a just a brief.

Sole Proprietorship – Much like the name says. This is a business owned and operated by one individual. The person has unlimited liability. This makes it suitable for a very small business.

Example: A local food vendor running a small restaurant in Chang Mai under her own name is a sole proprietor.

Partnership – There are two types of partnerships in the Civil and Commercial Code.

Ordinary partnership: Partners have unlimited liability for the firm’s debts.

Limited partnership: At least one partner has unlimited liability, while others have liability limited to their contributions.

Private Limited Company – The private Limited company is the most common form of corporate structure in Thailand. This is what mainly is in the Small to Medium Enterprises sector. It only needs three shareholder except the government is looking at lowering this to two in the future. Liability is limited to the value of the shares of the company. The Civil and Commercial Code of Thailand governs this structure.

Example: A Thai tech start-up developing an e-commerce app would incorporate as a private
limited company to attract investors while limiting their liability.

 

Public Limited Company – These types of setups are suitable for larger businesses. This mainly for those who may be seeking to raise capital from the public. This type of company requires at least 15 shareholders as well as a board of directors. This type of company is regulated under the Public Limited Companies Act.

Example: PTT Public Company Limited, Thailand’s state-owned oil and gas company, is incorporated under this structure and listed on the SET.

Foreign Business Entities – There are a number of Thai companies who are foreign owned and they may start operations as follows:

Branch office: Can engage in revenue-generating business but subject to licensing.

Representative office: This type of business cannot generate revenue. Most companies use this for market research but not revenue generation.

Regional office: Many companies use Thailand as a regional office. This does not generate revenue but it is used to coordinates their Asia operations. This is the foundations of corporate law.

Example: Microsoft Thailand operates as a branch office, while many Japanese trading companies establish representative offices for market studies before committing to full investment.

 

Company Formation and Registration

Steps to Incorporate a Private Limited Company

Stating or registering a business falls under the CCC. This involves several steps:

  • Reservation of company name: This needs to be done with the DBD.
  • Filing of Memorandum of Association (MOA). You will need to specify the objectives of the company. In other words what are you going to do.
  • Check the registered capital or the business as well as list the shareholder detail.
  • Convene a statutory meeting : You will need to adopt the Articles of Association. You will also need to appoint the directors of the company as well as issue the shares.
  • Registration of incorporation: This get done with the DBD.
  • Tax registration: The company needs to be registered with the Revenue Department (VAT if applicable).

Example: A Thai-foreign joint venture in the tourism sector must follow these steps before applying for necessary sector licenses.

 

Shareholder and Director Requirements

  • At least three shareholders are require to start the business.
  • The company must have at least one director. This person who manages the company
    affairs.
  • Directors don’t need to be Thai nationals, but at least one authorized director must
    reside in Thailand to sign official documents.

 

Share Capital Requirements

  • The minimum registered capital in Thailand for this type of company is THB 1 million. This to employ foreigners (to obtain work permits).
  • There is generally no statutory minimum for purely Thai-owned companies, but at least 25% of registered capital must be paid up at incorporation.
  • For foreign-owned companies, at least 51% of shares must usually be held by Thais unless exemptions apply. (See the Treaty of Amity) on this website.

Example: A foreign-owned restaurant chain wanting to operate in Bangkok must either partner with Thai shareholders holding 51% of the shares or obtain a Foreign Business License.

 

Registration with the DBD and Other Agencies

The DBD oversees company incorporation and annual filings. You company must also
register with:

Revenue Department – for corporate income tax, VAT, and withholding tax.
Social Security Office – for employee social security contributions.

 

Foreign Business Participation

Foreign Business Act B.E. 2542 (1999)

The Foreign Business Act restricts foreign ownership in three schedules of businesses:

  • List 1: Absolutely prohibited (e.g., agriculture, land trading). See prohibited jobs.
  • List 2: Businesses related to national security or culture, requiring Cabinet approval. (ie.
    Armaments or manufacturing Buddha statues etc)
  • List 3: Businesses where Thai nationals are not yet competitive, requiring permission from
    the Director-General of the DBD.

Example: A foreign law firm cannot directly operate in Thailand without partnering with Thai
lawyers, as legal services are restricted under the Act. This is not the same as Hong Kong.

Exceptions to Restrictions

Board of Investment (BOI) Promotion – You can obtain your BOI certificate as a foreign investor. This allows for certain exemptions. This may include the majority ownership rights. Thus if your projects are in priority sectors such as renewable energy or advanced technology.

Example: A Japanese solar energy firm granted BOI promotion can own 100% of its Thai subsidiary.
Treaty of Amity (1966) with the U.S. – There have been much debate considering the WTO rules however American companies can operate in Thailand with majority ownership. This remains in most sectors. Restrictions still however remain in areas like land ownership and communications.

Example: Ford Motor Company enjoys majority ownership in its Thai operations under this
treaty. Foreign Business Licenses – Granted case-by-case by the DBD for businesses that do not fall
under the above exemptions.

Recent Reforms and Debates

There has been ongoing debate about liberalizing the Foreign Business Act. This to attract more business into the country. Some of these proposals include reducing restricted businesses in List 3, especially in digital services. Likewise reducing shareholding from 3 to 2 shareholders. This is the foundations of corporate law.

 

Corporate Governance

Duties and Liabilities of Directors

There is a page on this website on corporate governance in Thailand.It is the directors who owe a fiduciary duty of loyalty and care to the company. The directors must act in good faith, avoid conflicts of interest. Likewise they must ensure compliance with the law. Failure to do so can lead to civil and criminal liability.

Example: In a notable case, directors of a Thai-listed company were fined by the SEC for
insider trading, highlighting the importance of fiduciary duties.

Shareholder Rights and Protections

The shareholders in your company also have rights to:

  • They may attend as well as vote at meetings.
  • The shareholders may receive dividends.
  • They can also access certain company records.
  • The shareholder may petition the court to dissolve the company in cases of
    mismanagement.
  • Lastly the minority shareholders can also initiate derivative suits against directors for
    breaches of duty.

Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs)

AGMs: These are required annually for public companies. This is to approve the financial statements as well as to elect directors and appoint auditors if there needs to be a change.

EGMs: The emergency general meetings are when urgent shareholder approval is needed. These can occur at a tie for mergers or amendments to Articles of Association.

If you are looking at starting a business in Thailand and need a corporate lawyer then speak to us today. This is the foundations of corporate law.