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Business Organization In Thailand

Posted by iBlog on August 21, 2007

Basic Business Organization

By Ekkapon Yuangnark

There are many kinds of business organization for person who would like to do business in Thailand. However, the basic and most favorable are as followings:

1. Sole Proprietorship :

The Sole Proprietorship is an unincorporated business owned by one person. All the proprietor’s assets, both business and personal, are subject to attachment or other legal action which may be brought with respect to the business.

2. Partnership :

According to Thai law, there are three different types of partnership. They are (1) unregistered ordinary partnership, (2) registered ordinary partnership, and (3) limited partnership. A joint venture or consortium is deemed as kind of unregistered ordinary partnership but may be treated differently under the Revenue Code.

(A) Unregistered Ordinary Partnership

An unregistered ordinary partnership is one in which all partners are, without limit, jointly liable for all the obligations and debts of the partnership. The partnership cannot be regarded as a juristic entity separate from each partner, who must make a contribution in the form of money, properties or services.

(B) Registered Ordinary Partnership

If an ordinary partnership is registered, it becomes a separate juristic entity from each partner, who thereby gains the following advantages:

(1) The assets of the partnership have to be examined before creditors can claim debt payment from the partners. This is unlike an unregistered ordinary partnership, in which each partner is directly liable for debts incurred by the partnership.
(2) The liability of a partner for debts incurred is limited to two years from the date he ceased to be a member.

(A) Limited Partnership

(1) A limited partnership consists of two types of partner:
(a) one whose liability is limited to the specific amount which he has contributed to the partnership, and
(b) one whose has unlimited liability for all debts incurred by the partnership.
(2) A limited partnership must be registered and is regarded as a separate entity.
(3) It should only be managed by a partner who has unlimited liability.
(4) If the business of the partnership is managed by a partner whose liability is limited, that partner will become unlimitedly liable for all debts incurred by the partnership.
(5) Partners with limited liability are entitled to carry on business of the same nature as that of the partnership and are free to transfer their shares without prior consent of the other partners.
(6) Creditors of the partnership are not entitled to sue partners with limited liability unless the partnership is dissolved. Even then, creditor can claim only the following amounts:
(i) part of the undelivered contribution,
(ii) part of the contribution which has been withdrawn,
(iii) divined or interest received in bad faith or contrary to the law.
(7) New partners cannot be introduced into the partnership without the consent of all other partners. A new partner is liable for any of the partnership’s debts from time of his becoming a partner. Similarly, an ex-partner is liable for debts incurred by the partnership up to the termination of his right as a partner.

An ordinary partnership is dissolved if :

(i) Terms of contract of partnership provide for it.
(ii) A definite period of time descried in the terms of partnership has expired.
(iii) The partnership was formed for a single undertaking, which has been completed.
(iv) Any of the partners gives due notice to the others
(v) Upon death, bankruptcy or incapacity of a partner.
In (iv) and (v) above, the partnership can continue to exist if the remaining partners buy the shares of the withdrawing partner.

An agreement on how the profits and losses of the partnership are to be divided should be made between the partners of the partnership. In the event that no such agreement has been made, each partner’s share in the profits and losses will be calculated in accordance with the proportion of his contribution.

The partner should also make an agreement concerning the manner in which the business of the partnership should be managed. In the absence of such an agreement, the business of the partnership may be managed by each of the partners, who are jointly responsible for the acts of any other partner in the ordinary course of business. Relations between the managing partners and the other partners are governed by the laws of agency.

Unless consent is given by other partners, each partner is prohibited from carrying on any competitive business of the same nature as that of the partnership. If this does occur, the other partners are entitled to claim back any profits made, and/or compensation for any injury suffered by the partnership in consequence.

If the partnership is dissolved, liquidation shall take place unless ;

(a) some other method of property adjustment has been agreed upon by the partners,
(b) The partnership is adjudicated bankrupt.

Liquidation of a partnership must be done in accordance with the following procedure:

(i) Repayment of debts to third party.
(ii) Reimbursement of advances made and expenses incurred to the partners in managing the business of the partnership.
(iii) Return of each partner contribution.
(iv) Division of any remaining balance between the partners, as profit.

3. Limited Company :

Under Thai law, there are two types of limited companies, private company and public company. In this brief shall mention to private company only.

Limited company is a company which is formed with a capital divided into equal shares. The advantage of conducting business in the form of a limited company is that people can participate in large-scale business activities with their liability being limited to the amount unpaid on the shares held by them.

The procedure for forming a limited private company is as follows:

(1) The promoters of the company must file a memorandum of association. The memorandum of association shall contain the following information:
– the full name and intended location of the company,
– the objectives of the company,
– the intended location of the head office of the company,
– a declaration of the shareholder’s limited liability,
– the amount of share capital, and the value of each share,
– the name, address, occupation, and signature of each of the promoters together with the number of shares subscribed to by each.
(2) The official in charge of company registration will review the memorandum of association, especially the company objectives, to determine whether it is (a) against the law, or (b) detrimental to public morals. Once satisfied, registration will be granted.
(3) After registration, the company promoters will try to have all shares subscribed to. A private company is not permit to invite the public to subscribe to the shares.
(4) After all shares have been subscribed to, the promoters of the company must immediately call a general meeting of subscribers. This meeting is the statutory meeting, which should call :
(a) adoption of the company regulations,
(b) rectification of any transactions or expenses made by the company promoters during the formation of the company,
(c) determining and fixing the amount to be paid to promoters,
(d) fixing the number of preference shares, if any,
(e) fixing the number of ordinary and preference shares to be allocated as fully or partly paid up in place of money, and determining the amount at which they shall be considered as paid up, and
(f) appointment of directors and auditors and establishment of their respective power.
(5) After the statutory meeting, the promoters shall hand the business over to the directors.
(6) The directors shall cause the promoters and subscribers to pay up each share in money at an amount of not less than twenty-five prevent of the par value.
(7) When the above mentioned amount has been paid, and within three months of the statutory meeting, the directors must apply for registration of the company.

Regulation of the Company :
Shareholders will normally adopt company registrations. These regulations will be registered. They are deemed as the law governing the company’s business and binding the director, shareholders and outsiders in accordance with the company’s resolutions which require approval of the shareholders.

Management of the Company’s Business :
The company’s business is to be managed by the directors of the company as appointed at the meeting of the shareholders. The first group of directors are appointed at the statutory meeting and thereafter at the ordinary meetings. The directors have to manage the company’s business in accordance with the regulations passed at the first general meeting of shareholders. The regulations will usually specify which director(s) are to conduct transactions with outsiders. However, if other directors have an agency relationship with the company, they may conduct transactions which bind the company to outsiders. In this case, these directors will also be responsible to the company and the shareholders.

Although the directors have the authority to conduct all types of legitimate business on behalf of the company, there are some things for which they must obtain the approval of the shareholders at the shareholder’s meeting. These are :
(1) appointment and removal of directors(s),
(2) appointment of auditor(s),
(3) declaration regarding distribution of dividends,
(4) conducting business involving capital, fully or partly paid up in any form other than money,
(5) dissolution of the company,
(6) amalgamation with other company(ies),
(7) other matters recorded in the regulations of the Company.

4. Joint Venture :

A contractual unincorporated joint venture or consortium is not recognized as a unique legal entity under the Civil and Commercial Code, except, perhaps as a form of partnership, but these forms of organization are recognized under the Revenue Code.

5. Branches of Foreign Company :

There is no special requirement for foreign company to register its branch in order to do business in Thailand. However, most businesses fall within the scope of one or more laws or regulations which require a registration, either before or after commencement of activities and foreign business must follow the generally applicable procedures.

6. Representative Office :

By a regulation of the Prime Minister’s Office, special procedures were establishes for those companies that wish to establish branches in Thailand to engage in limited “non-trading” activities. These procedures are optional but may be beneficial in certain circumstances. If the business activities of a foreign company are limited to the search for Thai products to be exported to other organs of the company or to do quality control work associated with such purchase or to engage in market survey activities, it is recommended to register as representative office. If a company is accepted for this representative office, expedited visas and wok permits for up to two foreigners to work in the branch are available.

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