Nominee shareholder in Thai Company

Nominee shareholder in Thai Company are forbidden by law. This is the fact. Is the sadly common “don’t worry my friend, I have big connections” approach used by some “fish market attorney” still working? Let’s see in detail.

What is a nominee shareholder?

In a nominee shareholding structure the Thai shareholder are deemed to hold the shares on behalf of the foreigner, therefore legally the actual owner of the shares is the foreigner. In a nominee shareholding structure the company is not really Thai but considered foreign and as a consequence it is breaking foreign ownership restrictions defined by the 1999 Foreign Business Act (FBA).

The FBA regulates Company structures in case of foreign shareholders. It is widely known that foreign shares are limited to 49%. In some cases this limit can be bypassed legally (READ ARTICLE HERE), but in most of case your new company will be under this cap.

It may happen that rules may be bypassed for a limited time, in the moment of incorporation or in a period of transition. DBD (the Public Register) normally allow such law infringment because a company can have a majority foreign ownership being subject to a Foreign Business License (READ DETAILS HERE).

Problem comes when the company operates permanently under a foreign majority regime or, much worse, when the company is used just to hold land of properties not accessible to foreigners.

What is in practice a Nominee Shareholder?

The intention of the law is to prohibit direct and indirect foreign ownership in Thai companies beyond the legal limits, and to prohibit the use of Thai nationals or legal entities as nominees.

The main questions to determine if foreign ownership limits are violated are:

What’s the source of capital?
Is the legal structure giving reason to believe that Thai nationals are acting as nominee or proxy for a foreign citizen?

Law doesn’t give a fixed definition of “Nominee Shareholder” but indicators are;

management and control of the company (are Thai nationals really managing the company? Do they know what’s going on?)
voting rights in the Board (Is there any privilege share or restriction to Thai management?)
the flow of funds from dividends paid by the company to shareholders (are Thai nationals taking real benefit from company profit?)
how the capital was financed (was money transferred from overseas to Thai shareholders to purchase shares?).

In case of control, the officers will ask to interview shareholders and Managing Durectors of the company to verify if they are really operating. Of course, in case of too many “don’t know”, this shall be a proof of guilty…

What’s the risk in using a nominee shareholders in Thai Company?

Thai Authorities are very attentive to the use of Nominee shareholder in Thai Company, and periodically DSI may investigates Companies and Consultants to restore legality.

This is what happened this month in Bangkok and in Phuket (see article on Phuket case HERE). DSI raided two consultant offices and found tens of Companies using same nominees, people which in many cases are not even traceable or totally ignore they are holding shares.

We are uncovering the “secret” of the “cheap consultant”: a “don’t worry, my friend” solution, all inclusive, for a fistful of thousands THB. Then, Company shall be packed of grandmothers living in Isaan, your Managing Director will be a fisherman in Andaman Island, and Company objectives and registered address will be totally useless for your business.

If you’re simply holding land, you will be sleeping peacefully until DSI will knock at your door. Then, by virtue of Section 94 and 96 of Land Code Act, your land shall be disposed and you will loose everything.

If you’re operating in a licensed sector, you will have to heavily restructure your company spending more time and money that you spend for incorporation. Or, in some cases, shut down the Company, considered “burned” in the system and condemned to be subject to frequent controls.

One more warning: when such kind of raids happen and in case of heavy law infringments, ALL the companies managed by your consultant shall be scanned, putting even yours undere a magnifying lens. Better to avoid that.

The final advice is to chose carefully who and how will incorporate your company. This is an important matter, being the basement of something you will build with your time, efforts and money. The basement must be solid, and building it only based on the best price or the smarter solution may turn out in a nightmare.

If you’re planning to estabilish a Thai Llimited Company contact us by email.