Thailand Nominee Shareholders

We're afraid so, but it is nevertheless a widespread practice among foreigners going into business in Thailand who form Thai majority companies.

Q: What is a nominee shareholder?

A nominee shareholder is a shareholder in name only; in actuality, nominee shareholders lack a real financial stake or interest in the company.  The practice of nominee shareholders is illegal.  The prohibition is found in the Foreign Business Act, the Land Act and other laws.  It is a criminal offense.  In 2006, a Circular Letter from the Department of Land and a new regulation from the Department of Commercial Registration have brought foreign companies with Thai nominee shareholders under an increased amount of scrutiny.  

Q: Why register a Thai majority company?

Many foreigners choose to form a Thai majority company, that is a company where more than 50% of the shareholders are Thai, so that they are able to operate a business in a category that is restricted to foreigners. The registration of a Thai majority company generally requires less registered capital and less paperwork than the registration of a foreign company.  Until recently, these companies were also under less scrutiny than foreign companies.  A Thai majority company can also buy land.

Q: How can a foreigner control a 51% Thai Majority Company?

In a Thai majority company, Thai shareholders control more than 50% of the shares.  In the recent past, the ratio of shares held by Thais and foreigners was typically 51 to 49.  After the passage of Commercial Regulation No. 107, a 61:39 Thai to foreign shareholders ratio is considered more prudent. At any rate, a dual class of shares where the foreign minority shares have greater voting rights can ensure that foreigners control a Thai majority company.

Q: Won't the equity in a Thai majority company be owned by the Thai shareholders?

The equity will be owned by the Thai shareholders; however, most of the income of a limited company is normally disbursed through expenses, such as salaries, rent, etc. Equity and profit usually are only dispersed if dividends are declared (which is not necessarily required by law) or upon dissolution of the company. Frequently, when companies dissolve, there is no equity to disburse.

Q: Are deeds of transfer from the Thai shareholders to the foreign owners legal?

The use of "nominee" shareholders is expressly forbidden by the Foreign Business Act of 1999. This is a criminal offense. Prior to the introduction of the revised act of 1999 it was common to have loan-pledge agreements to Thai shareholders.  This entails the Thai shareholders borrowing funds from the foreigner and “pledging” the shares back as security. However, the Act of 1999 made this practice illegal. In 2006, two new regulations were issued further clamping down on the use of Thai nominees. While enforcement has been spotty, the practice is risky particularly if you have engaged the use of professional nominees whose name appears on multiple company registrations.

Thailand Company FAQs:

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