Procedures for Establishing a Company (Con't)
3. Types of Business Organizations
Businesses may be operated in various types from individual as the owner or by investing with other individuals as the group. In order to decide to choose any type of businesses, the entrepreneurs must realize various components of business operations such as nature of businesses, capital, business capability, etc, in order for the success of businesses and maximization of profit and benefits.
Thai and Western concepts of partnership are broadly similar. Thailand provides for three general types of partnerships:
B. Limited Companies
There are two types of limited companies, i.e. private or closely held companies, and public companies. The first is governed by the Civil and Commercial Code, the second by the Public Company Act.
Private Limited Companies in Thailand have basic characteristics similar to those of Western corporations. A private limited company is formed through a process which leads to the registration of a Memorandum of Association (Articles of Incorporation) and Articles of Association (By-laws), as its constitutive documents.
Shareholders enjoy limited liability, i.e., limited to the remaining unpaid amount, if any, of the par values of their shares. 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.
All shares must be subscribed to, and at least 25 percent 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. Treasury shares are prohibited.
A minimum of seven shareholders is required at all times. A private limited company may be wholly owned by aliens. However, in those activities reserved for Thai nationals, aliens’ participation is generally allowed up to a maximum of 49 percent.
The registration fee for a private limited company is 5,500 Baht per million Baht of capital.
Public Limited Companies registered in Thailand may, subject to compliance with the prospectus, approval, and other requirements, offer shares, debentures and warrants to the public and may apply to have their securities listed on the Stock Exchange of Thailand (SET).
A minimum of 15 promoters is required for the formation and registration of the memorandum of association of a public limited company, and the promoters must hold their shares for a minimum of two years before they can be transferred. The Board of Directors of a public limited company must have a minimum of five members, at least half of whom are Thai nationals. Shares must have a face value of at least five Baht each and be fully paid up. Restrictions on share transfers are unlawful except those protecting the rights and benefits of the company allowed by law, and those maintaining a Thai/foreigner shareholder ratio. Debentures may only be issued with the approval of three quarters of the voting shareholders.
The registration fee is 2,000 Baht per million Baht of capital for a public limited company.
C. 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 the joint venture is subject to corporate taxation under the Revenue Code, which classifies it as a single entity.
D. Other Forms of Corporate Presence
Branches of foreign companies. There is no special requirement for foreign companies to register their branches in order to do business in Thailand. However, most business activities fall within the scope of one or more laws or regulations which require special registration, either before or after the commencement of activities. Foreign business establishments must, therefore, follow generally accepted procedures. It is important 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 taxes.
As a condition for approval of an Alien Business License to a branch of a foreign corporation, working capital amounting to a total of five million Baht in foreign exchange must be brought into Thailand within certain intervals over a four-year period.
The branch may be allowed to operate for a period of five years, unless a shorter period is indicated in the application as a result of a contract to be performed in Thailand. Extension of the original duration of the license to operate may be granted, provided the working capital required to be brought into Thailand is met.
A representative office of foreign corporations may also be established to engage in limited “non-trading” activities, such as sourcing of goods or services in Thailand for its head office or inspecting and controlling quality of goods which its head office purchases in Thailand. Other activities can cover disseminating information about new products and services of its head office, and reporting to its head office on local business development and activities.
The working capital contributions as discussed above in respect to branches apply.
E. Regional Offices
A regional office of a multinational corporation may also be established to coordinate and direct the operation of the branches and affiliates of the head office in the region on behalf of the head office.
A regional office has the ability to coordinate and supervise the company's branches and its affiliated companies in the region on behalf of the head office. The regional office may provide these branches and affiliated companies with:
F. Regional Trade and Investment Support Offices
In April, 1996, the Board of Investment announced the establishment of trade and investment support offices would become a new category of activities eligible for investment promotion.
Projects in this category are eligible for BOI non-tax incentives, including:
All types of consulting services, except those engaged in:
Note: Exceptions may be granted by permission from the Department of Commercial Registration or concerned government agencies
If there are any other activities deemed appropriate for investment promotion under the Establishment of Trade and Investment Support Offices, the Office of the Board of Investment will consider them on a case-by-case basis.
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