FORMS OF BUSINESS UNDER THE CIVIL CODE OF THAILAND
The Civil Code of Thailand is the main law establishing the forms of business allowed in Thailand:
- Ordinary Partnership : The ordinary partnership requires at least 2 partners where all partners is fully liable for all debts of the business.
- Limited Partnership : Requiring at least 2 partners just like the ordinary partnership, some of the partners of the limited partnership is limitedly liable for the debts of the business depending on how much of the shares he is holding.
- Limited Company : The Civil Code of Thailand requires at least 3 initial founders/shareholders to form and register a limited company (commonly referred as “Co., Ltd.”) with Department of Business Development (DBD). It is the only popular type of business formation when you have up to 3 partners and want to have a separate legal entity form an owner and you want to limit your liability according to your portion of the shares you are holding.
There is no mention about a solo owned business in the Civil Code of Thailand. A solo owned business is not recognized as a legal entity, but it runs everything under and on behalf of the name of person who solely owns such business. You don’t need to register a solo owned business, however, DBD has issued some regulations which a solo owner must follow for the purpose of personal income tax tracking.
In this article, we will focus only on the limited company as it has been the main formation for both Thai and foreign business. The company registration process is a load of paperwork but quite simple. However, it is complicated when it comes to a foreign shareholder and that is when another law gets involved.
Apart from the Civil Code, a company having a foreigner holding more than 50% of the shares shall be deemed as a “foreign company” and must comply with Foreign Business Act. This means, under FBA, there are some types of business that is completely prohibited (‘prohibited business’) for a foreign company, while some types of business are allowed upon certain conditions (‘restricted business’) and such restricted business must apply for ‘foreign business license’ (FBL) with DBD before they can start their business legally.
This is to say; the business types which are out of the scope of the FBA, can be freely and wholly owned by foreigners. You will be surprised to know that manufacturing business for example, is not listed under FBA, which mean you can be a 100% foreign owned company for your manufacturing business in Thailand without applying for FBL. And yes FBL process is not an easy path to do.
But if you are not a manufacturer and you want to know whether you should set up your foreign company and apply for FBL or maybe you should look to have more than 50% of Thai partners in order to register it as a Thai company and making things easy, let’s take a look in the below summary comparing Thai vs Foreign owned company:
COMPANY SETUP WITH THAI PARTNERS MORE THAN 51% OF THE SHARES
This way, the company will be deemed as a Thai company and of course can operate any types of business (weather it is in the scope of the FBA not). There is no restriction on business types and FBL is not required. However, yet, for certain specific business, a specific license may be required such as; hotel, school, building, drugs and cosmetics, etc. Those business are a controlled business and subject to its specific law which applies to both Thai and foreign companies. But not everyone would like to have Thai partners, so let’s see another option below.
COMPANY SETUP WITH FOREIGN PARTNERS MORE THAN 51% OF THE SHARES
This way, the company will be deemed as a foreign company and the business type will play an important part in this case. If the business type is in scope of FBA, it will require to apply for FBL. Please find the list of restricted business which requires FBL here.
Laws related to this topic: Civil Cod of Thailand, Foreign Business Act B.E. 2542 (1999)