* Private Limited Companies

Seven applicants (“Promoters”) must apply to establish a private limited company and each promoter must hold at least one share. Each share must be at least 25% paid up and the company must register its memorandum of association with the Ministry of Commerce. After the share subscription has been completed, the promoters must hold a statutory meeting to adopt the articles of association, elect the first directors, appoint the auditor etc. Generally, there are no restrictions as to the nationality of the directors, except for companies that are engaged in certain commercial activities. Subscription for shares in private limited company may not be offered publicly and a private limited company cannot issue bond, debentures or other forms of security to the public.

* Public Limited Companies

Fifteen applicants (“promoters”) must apply to incorporate a public company. The promoter must subscribe to at least five percent of the total shares, and the promoters must hold such shares for two years from the company’s incorporation (registration) date, except where approval from the shareholders meeting has been obtained. In addition, at least 50% of the promoters must be residents of Thailand. The shares in a public limited company must be fully paid up. As with private limited companies, the promoters must hold a statutory meeting to elect the directors, appoint an auditor etc. The board of directors must have at least five members, at least half of whom must reside in Thailand. The directors must make full disclosure of their shareholdings in the company and generally have greater responsibility than directors of private limited companies.

The Securities and Exchange Commission (“SEC”), under the authority of the Securities and Exchange Acts, is responsible for approving the offering of securities to the public and for supervising the Stock Exchange of Thailand (“SET”). Only the shares of public limited companies may be offered publicly and traded on the SET. Public companies may also issue bonds, debentures and other forms of security to the public.

Partnerships

A Partnership is a form of business organization in which two or more parties join for a common business purpose and share the profit. Partnerships may be ordinary or limited.

In ordinary partnership, all partners have joint and unlimited liability for the debts and obligations of the partnership. Ordinary partners may contribute money, other property or labour to the partnership. These partnerships maybe registered or unregistered.

Registering an ordinary partnership provides some protection for the partners. First, a partner in a registered partnership may make a claim on behalf of the partnership against third parties, even if the partner is not named in the transaction giving rise to the claim. Second, the liability of partners in a registered partnership ceases two years after they leave the partnership, while they would be continuously liable in an unregistered partnership. Third, creditors must exhaust all assets of the partnership before they can pursue claims against the individual partners. Finally, creditors of an individual partner, in their individual capacity, may only make claims against any profit that the partnership owes to the indebted partner and not against the property of the partnership as a whole.

In a limited partnership, some partners may have only limited liability for obligations and debts of the partnership. Limited partners may only contribute money or other property to the partnership, and they may not contribute labour, participate in management of the partnership, or have their name included in the name of the partnership. If they do so, they will lose their status as limited partners and assume full liability along with any ordinary partners. Limited partnerships must be registered.

Branch Offices

There are no laws or regulations that specifically address the establishment or registration of the presence in Thailand of a foreign-incorporated entity (“branch office”). There is no branch registry. The only fillings registrations or licenses required for a branch office in Thailand are those prescribe under other relevant laws, such as a Foreign Business Act or the Revenue Code. A foreign-incorporated company wishing to conduct the business in its own right in Thailand and licensed under the Foreign Business Act must file it certificate of incorporation, articles of association and an affidavit from one of its officers providing relevant corporate particulars with the Ministry of Commerce. The company must also grant the manager of its activities in Thailand a broad power of attorney and other documents noted above must all be certified by a notary public and authenticated by a Thai embassy or consulate. The Revenue Code requires that branch offices obtain taxpayer ID cards and register as value added tax (“VAT”) traders on the same basis as locally incorporated companies.

Representative Offices

A representative office is an office of a foreign enterprise that does not engage in commercial activities in Thailand. The primary function of a representative office is to provide information and assistance to its foreign head office. A representative office may only provide support services, such as identifying and verifying the quality of local goods, giving advice about goods sold to agents or customers, providing investment information, etc.

There are three specific types of representative offices that require licensing, i.e. finance, security, and credit foncier offices; foreign bank offices; and international business offices. Companies must satisfy certain foreign capitalization requirement and obtain permission from the Bank of Thailand (“BOT”) and the Office of the SEC to establish finance, securities, and credit foncier offices. Bank must obtain permission from the BOT to establish foreign bank representative offices. The latter may not conduct commercial banking business and the BOT may impose further restrictions. Permission must be obtained from the Director-General of the Department of Business Development, the Ministry of Commerce, with approval of the Foreign Business Board to establish an international business representative office. Certificates of incorporation, articles of association and memoranda of association power of attorney and affidavits starting corporate particulars must be notarized, authenticated by a Thai embassy or consulate and submitted to the Ministry. There are also requirements regarding the remittance of funds into Thailand.

Regional Offices

Regional offices are intended to provide liaison, training, and managerial support service between foreign incorporated companies and their branch offices or subsidiary throughout Asia. Regional offices may contact, coordinate, direct, and supervise operations and provide consulting, management, training, personnel development, and research and product development services. They may not offer goods for sale, enter into business negotiations with customers in Thailand, or accept purchase orders. Income to support the regional office must come from the head office. Permission must be obtained from the Director General to establish such an office.

Joint Ventures

In general, a joint venture exists when two or more parties work together on a specific project or series of projects or on a long-term and continuous basis. Joint ventures can take many different forms; some in which the parties preserve their own separate legal status and others where they create a new legal entity, separate and distinct from the individual joint venture parties. A joint venture agreement need not be registered with the government, as it is considered to be a private contract.

Most often, incorporated joint venture are arranged between a Thai company and a foreign company. Often, the Thai partner provides local knowledge and skill and the foreign company, in turn, provides equity, technology, know-how, and patent or trademark licenses.

Non-incorporated joint ventures are often set up for specific, limited-time projects. Each party to a non-incorporated joint venture must separately obtain any registrations or licenses that they may need to conduct the business of the venture. These may include commercial registration, VAT registration, factory licenses etc.

An unincorporated joint venture (“UJV”) can be set up on the basis of the parties sharing the profits and losses. The Revenue Department considers such as a UJV as a single entity for tax purposes. Thus, the UJV must file a single tax return supported by a single balance sheet and profit and loss account. If the parties do not want such tax treatment, but wish to remain separate taxpaying enterprises, they must then take, in advance, extreme care to properly structure their proposed contracts and operations in Thailand.

Distributorship

A distributorship is an agreement in which one party agrees to sell its product to another on a regular (sometimes exclusive) basis in a defined geographical area. There is no specific law that censures this type of relationship. The relationship between the supplier and distributor is governed by the contract provisions of the CCC. There is no requirement or process to register such an agreement.

The distributor, acting solely as a buyer and re-seller, is not considered to be the agent, representative, or go-between of the supplying company. Thus, an offshore company using a distributor for the sale of its goods in Thailand is not subject to any Thai tax on the income from its sales to the distributor.

Licenses

A business may license the use of its intellectual property rights, including its name, trademark, copyright, patent, trade secret or technology.

Licensing agreement pertaining to inventions designs, trade or service marks that are patented or registered in Thailand, must be made in writing and registered with the Registrar of the Department of Intellectual Property, the Ministry of Commerce. The registrar can refuse the public or conflict with public policy or morality.

The Registrar may refuse to register a patent license agreement that contains a term or condition that could be deemed to violate anti-monopoly or unfair competition stipulations of a relevant Ministerial Regulation. The Board of Trademarks is empowered to revoke registration of a trademark licensing agreement if the licensors are not realistically able to control the quality of licensed products.

Although it is not necessary to obtain regulatory approval to enter into a licensing agreement with a foreign party, there are tax and exchange control ramifications that need to be considered. Thai income tax is levied on license fees paid to a foreign company or partnership by withholding at source at specified rates. Moreover, if the transfer of technology under a licensing agreement is related to the purchase and importation of tangible goods, the fees may be included in the value of the imported goods for the purpose of assessing customs duties.

Agencies

Agency agreements are governed by the CCC. A principal is bound by the acts of an agent acting within the scope of its actual or apparent authority. The principal is not bound where those acts are outside the scope of the agent’s authority, unless those acts are subsequently ratified by the principal.

Tax is an important consideration in an agency arrangement. Income derived in or from Thailand by an offshore principal as a result of a agency relationship with a person in Thailand is usually subject to corporate tax. The appointment of an agent (or an “employee, representative or go-between”) in Thailand expose the overseas business entity to the risk of being deemed as “conducting business in Thailand,” with a resulting tax burden. However, where the Thai agent does not act solely for the overseas company, but acts as a general agent for various companies, income tax liability may not be incurred. There may also be relief effective under applicable agreements for the avoidance of double taxation.