Integrity Legal

Posts Tagged ‘Thailand Nominee Shareholders’

12th November 2014

For many the idea of setting up a business in Thailand is desirable if for no other reason than the thought of waking up and going to work every morning in one of the most idyllic countries in the world. In the past, many foreign owned businesses in Thailand were structured in such a way that they avoided some of the more stringent provisions of the Thai Foreign Business Act. In most cases Thai nominee shareholders were used to own the majority of a Thai company thereby ensuring that the company was considered “Thai” for purposes of the Act. However, this practice became illegal pursuant to section 36 of the currently enforced version of the Foreign Business Act as quoted below:

“A Thai national or a juristic person, not being a foreigner under this Act, who assists in or aids and abets or participates in the operation of a foreigner’s business specified in the Lists annexed hereto where such foreigner is not permitted to operate that business or who operates the business jointly with a foreigner in the manner holding it out as the former’s sole business or who acts as a foreigner’s nominee in holding shares in a partnership or a limited company or any juristic person with a view to enabling the foreigner to operate the business in circumvention or violation of the provisions of this Act, or a foreigner who allows such act to be committed by a Thai national or a juristic person that is not a foreigner under this Act, shall be liable to imprisonment for a term not exceeding three years or to a fine of one hundred thousand Baht to one million Baht or to both, and the Court shall order the cessation of the assistance or the aiding and abetting or order the cessation of the joint operation of the business or order the cessation of shareholding or partnership, as the case maybe. In the case of violation of the order of the Court, the violator shall be liable to a fine at the daily rate of ten thousand Baht to fifty thousand Baht throughout the period of the violation.”

Notwithstanding the fact that the use of Thai nominees is illegal, the practice persists. This fact was recently noted in a Bangkok Post article on the topic. However, in some cases discerning whether a company is utilizing nominees or simply structuring itself in such a way so as to provide security to foreign shareholders can be difficult. Therefore, when structuring a company in Thailand it is often prudent to seek the advice of competent legal advisers to in order to ensure that one’s business practices comport with relevant laws and regulations.

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17th October 2009

The law of trusts has been a component of the common law system for many years. Under the common law system the idea of title was bifurcated into legal title and equitable title. Under this system, one could hold legal title to real estate or property while equitable title was held by another. This made it possible to circumvent legal mechanisms such as probate or avoid certain types of taxation. Many Expats who originate in common law countries mistakenly believe that this concept can be applied in Thailand. Unfortunately, Thai law does not codify the idea of trust law and as a result business and property structures should probably not be based upon such concepts.

In England many years ago, two courts came about to deal with civil and criminal issues. At first there were the courts of law where cases could be heard. However, there were many instances where the courts of law could not effectively deal with some matters. Therefore, a Court of the King’s Conscience was established and certain cases were resolved in this “court of equity.” Trust law evolved from this bifurcation of equity and law. One could hold equitable title in the court of equity, but not hold legal title in the court of law. Often, the result was to the advantage of the holder of equitable title because it allowed him to enjoy the benefits of the property without the burdens of legal ownership (most notably taxation). In countries where the common law system became the law of the land, these principles of equitable and legal title were passed on. As a result, in many common law countries today, the idea of nominee shareholders is a commonly accepted method of maintaining control of a business or property interest. Also, controlling a trust that owns land is a common method of lawfully avoiding taxes.

In countries that did not adhere to common law principles, the notion of equitable and legal title is somewhat foreign and often not recogized as a legitimate method of property ownership. In Thailand, which utilizes a civil code legal system, trusts and equity are not regarded as mutually exclusive methods of property ownership. Although similar concepts such as usufructs, superficies, and escrows exist, for the most part Thailand does not recognize many equitable concepts. A case in point is the Thai view of nominee shareholders. Nominees are strictly forbidden under statutes passed by the Thai parliament (while the definition of nominee is left somewhat vague). Further, nominees are viewed with extra hostility where they are being utilized for the purpose of maintaining control of a Thai company to own land.

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