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11 September 2006
NEW RULES RE FINANCIAL RESOURCES OF THAI SHAREHOLDERS IN NEW LIMITED COMPANIES
This paper focuses on a new regulatory practice applicable to registration of new limited companies.
It is part of the larger subject: use of nominee shareholders for company registration, land ownership and listed securities. There are ceilings on foreign shareholdings prescribed in at least ten Thai laws, but definitions of a “nominee” are hard to find. Many agencies refer to the practices of the MoC in interpreting Section 36 of the Foreign Business Operations Act, and looking only to the nationality of the first-tier shareholders (not any second-tier shareholdings, preferred share structure, diluted voting rights, etc.).
CRO issued Order no. 102/2549 dated 20 July 2006, effective 15 August 2006, which establishes new rules for registration of limited companies.1 The Order requires that sources of investment by Thai shareholders in the following two categories of new companies be scrutinized:
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Companies in which shareholdings by foreigners are at least 40% but less than 50% of the shares; and |
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Companies in which foreign shareholdings are less than 40% but a foreigner is a director with power to bind the company. [current interpretation of “less than 40%” includes zero %] |
Each Thai shareholder must submit, as an attachment to the company registration application form, proof as to the source of capital invested in the company, in one of the following forms:
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Copy of bank deposit book or bank statements for the last six months; or |
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Documentation issued by a bank to certify or to show the financial status of the shareholder; or |
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Copy of evidence showing the source of money invested in the shares. |
As of the date of this paper, there has been less than one month’s experience in administration of the Order, and it is not possible to know how the CRO will deal with the range of cases which may be presented. We understand that if documents are not produced or evidence is not reliable, then the CRO will refuse the application to register the company. It is possible that the CRO may prescribe additional rules applicable to existing companies. Any retroactive regulation would pose numerous new issues.
It is not possible to predict the future course of government regulation on this subject. While not directly relevant, one should be aware of ongoing investigations in the Shin Corp pcl acquisition by Temasek, and foreign ownership of land.
The new Order does not apply to the following:
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Companies with 100% Thai shareholders and all Thai directors. |
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Companies with all Thai directors, in which shareholding by foreigners are less than 40%. |
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Companies in which shareholdings by foreigners are 50% or more. |
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Public limited companies. |
| 1 | The Order applies to both limited companies and limited partnerships, but for ease of understanding this paper does not deal with partnerships. |
MoC: Ministry of Commerce
CRO: Partnership and Company
Central Registration Office, Ministry of Commerce.
