The corporate structure for foreign direct investments in Thailand

Foreign investments in Thai industry or property are typically done through a private limited company (Co., Ltd.). Such a company needs three or more individual or corporate shareholders and one or more individuals as director.

To avoid the limitations under the Foreign Business Act, the Thai Co., Ltd. has to have 51% or more Thai shareholding. A fully foreign owner shareholding can be realized, e.g.,  in case of investment promotion by Thailand’s Board of Investment.

The need for a preference share structure

Under a normal company structure, all shares provide the same rights. In such a case, the foreign investor practically loses half of his investment, if the Thai participants do not pay 51% of the investment by themselves. In Thailand’s industry practice, there is an internal agreement between the shareholders that the foreign shareholder should make all decisions alone and should get all the profits out of the investment alone.

Such arrangement results in a “nominee structure”. It is widely tolerated but under the law clearly illegal and even a criminal act. From our viewpoint, the nominee structure is not at all advisable, although it can be realized cheap and easy. Our law firm highly recommends a preference share structure instead.

Although the law requires that the Thai shareholder hold at least 51% of the capital in the company, this does not restrict to allocate the voting rights in the shareholders meeting and the dividend rights different from the capital structure. Under a so-called preference share structure, the foreign shareholder can hold all dividend rights and approximately 90% of the voting rights. By such preference share structure, the foreign investor dominates the Thai company, although he owns just a minority share.

The preference share structure is in compliance with the foreigner legislation and does not have to fear enforcement of the current legislation. It is therefore preferable and the law firm’s typical structure.

Risk-profile of a one-tier corporate structure

However, such a preference share structure requires that the Thai shareholders act cooperatively in a non-aggressive manner. Since they are direct shareholders, they can ask for full disclosure of any dealings of the company, including any contracts.

In addition, they could argue that the whole structure is a circumvention of the law and that the preference share structure is, therefore, invalid. Under such a scenario the foreign shareholder has to enforce his rights at a Thai court and such an unpleasant and time-consuming procedure is not at all desirable.

Such a confrontation and dispute is not typical, but not very unlikely. In most cases, the foreign shareholder prefers to avoid litigation and all the side-effects which might occur. He gives up on his rights and either pays a compensation/ransom money or rights off the investment as a total loss.

The two-tier structure for a foreign.owned Thai company

To avoid these issues, a specific so-called two-tier-structure has been developed to give the foreign investor even greater comfort. Under this structure, the Thai partner is not involved in the day-to-day-business, has no rights to look into the company‘s papers and contracts and, under a worst-case scenario, can be removed from the overall corporate structure by a management decision of the foreign director from outside of Thailand.

The general outline of the two-tier-structure is shown in the attachment. It requires the set-up of an additional Thai holding company with a small registered capital amount, no work permit, and no additional funds. The holding company is active just one day per year when the general meeting is held. As a result, the accounting and audit costs are moderate. Under the two-tier structure, both Thai companies have a preference share structure.



Under this structure, the foreign investor holds a direct shareholding in the operating crypto company and, in addition, an indirect shareholding through the holding company. Our structure assures, that the foreigner holds more than 75% voting rights in both Thai Co., Ltd. and that his total shareholding does not exceed 49% as required by the law.

Final evaluation

From a general viewpoint, to choose the one-tier preference share structure or the two-tier preference share structure is a matter of risk appetite in ratio to the set-up costs and the maintenance costs. In case of a substantial investment and low trust in the Thai shareholders, it makes perfect sense to do the extra step to secure the Thai investment.

The comments above are highly simplified. An ill-advised implementation will result in more harm than benefit. In addition, the considerations made do not cover real estate investments and other non-typical business situations.

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