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Setting Up Company Partnerships under Thai Law

Siam Legal International | October 10, 2016 | Business in Thailand, Civil and Commercial Law, Company Law, Company Registration

The Civil and Commercial Code of Thailand provides for the formation of partnerships as is found in the laws of other countries. However, partnerships are normally not formed by foreign investors due to particular difficulties that arise due to the Foreign Business Act of 1999. Generally speaking, the formation of a limited company is more advantageous to foreign investors since majority Thai-owned companies with foreign directors are still considered “Thai nationals” for the purposes of the Foreign Business Act. In contrast, partnerships, even if formed with majority Thai capital investment, are still considered “foreign nationals” if the managing partner is a foreign national. Nevertheless, it is possible for foreign nationals to operate business in Thailand as a partnership in certain cases, such as if they are operating a business that is unrestricted by the Foreign Business Act, or if they have obtained a Foreign Business License or a Foreign Business Certificate under the Thai-U.S. Treaty of Amity. A few of the notable points regarding the operation of a partnership is as follows:

There are three forms of partnerships: an unregistered ordinary partnership, a registered ordinary partnership, and a limited partnership.
As for the unregistered ordinary partnership, it refers to a business partnership arising from a contract and does not constitute a juristic person. The partners are jointly and unlimitedly liable for the obligations of the partnership and are bound to each other by the terms of their partnership agreement. If an ordinary partnership is then registered, it will have the status of being a juristic person. Nevertheless the partners are still personally liable to third parties.

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Shareholder meetings play an important role in the governance of Thai limited companies since the Civil and Commercial Code require that limited companies be managed by the directors under the control of meetings of the shareholders (called “general meetings” in the Code). The primary instrument used by the general meetings to govern the company are shareholder meeting resolutions which are passed by a majority vote of the shareholders attending the meetings. However, an important legal issue that arises in regards to shareholder meeting resolutions concerns the withdrawal of resolutions after they have been passed by a meeting. Section 1195 of the Civil and Commercial Code provide for the withdrawal of company resolutions. According to that section, a resolution must be withdrawn by court order. Furthermore, only a shareholder or director has standing to challenge a resolution and may make such an application to the Court.

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The acquisition of land or a condominium unit in Thailand by a foreign government for official use, such as for use as an embassy or consulate, is not covered by any specific legislation. Therefore, assuming that a foreign government intended to acquire land or other immovable property in Thailand for official use, such an acquisition must be done by reciprocal agreement between nations, although not falling under the terms of Section 86 of the Land Code (as stated in Land Department Announcement No. 0610.4/893 issued on 2 August 1994). Furthermore, the Thai Cabinet has issued a number of resolutions on this matter which can be summarized as follows:

19 February 1958: According to this resolution where a foreign government wishes to purchase land for official use or for the use as a residence for their officials in an area not exceeding 15 rai, regardless of whether it is one plot or several, then the Land Department may proceed to allow the acquisition. If the amount to be purchased is more than the amount specified, then permission may sought from the Cabinet on a case by case basis.
1 April 1997: This resolution addressed the acquisition of land by social countires. Since the acquisition of land in Thailand by foreign governments had to follow the principle of reciprocity and since socialist governments do not allow foreign governments to acquire land in their countries, then accordingly Thailand could not allow socialist countries to purchase land in Thailand, but could only allow them to lease the land. However, due to the interest of maintaining stable relations with foreign countries, the Thai government would have to purchase the land from the private owner first and then enter into the lease agreement with the foreign socialist government.
An interesting issue arose when the Taiwan Economic and Trade Office in Thailand wished to purchase a land and building for official purposes. The Land Department considered the matter and concluded that the acquisition of land in Thailand by foreign government had to be done on the basis of reciprocity. However, since the Thai government had not recognized the sovereignty of Taiwan, the Thai government could not enter into any such reciprocal agreement with the Taiwanese government. Therefore, on 5 February 2000, the Cabinet allowed the Thai Economic and Trade Office to enter into an agreement with the Taiwan Economic and Trade Office regarding reciprocity in the purchase and acquisition of land for both parties.

The acquisition of land by foreigners is a complex legal subject in Thailand. Foreigners seeking to acquire land in Thailand are advised to consult with competent Thai legal counsel before proceeding.

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The requirements and legal procedures involved in buying land in Thailand as a company (particularly with foreign shareholders) is quite complex. Siam Legal has therefore compiled this reference guide to help its corporate clients prepare the necessary documents and evidence required in order to avoid needless mistakes and costly delays when appearing before the Land Official for the transfer of ownership. The guide below can also generally apply to condominium transactions, except that foreign companies are not restricted from owning condominium units outright.

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Shareholder meetings are an important element in the management of Thai limited companies, since the authorized directors of the company must manage the company under the control of the meetings of the shareholders. In order to hold a meeting of the shareholders, a meeting has to be called according to the procedure defined in the Civil and Commercial Code. One of the procedures according to the Code is that a notification must be delivered to the shareholders.

Section 1175 paragraph one requires that an advertisement must be published in a local newspaper at least once before the date of the meeting no less than 7 days in advance and a notification must be sent by post with acknowledgment of receipt to all shareholders whose name appears in the shareholder registry no less than 7 days in advance of the date of meeting. However, for extraordinary meetings of the shareholders, the aforementioned procedure must be performed no less than 14 days in advance of the date of the meeting.

According to Section 1244, a notification shall be deemed to be delivered to a shareholder if it is delivered to him personally. Furthermore, if the notification has been delivered to the address of the shareholder that appears in the shareholder registry, the shareholder shall be deemed to have been duly notified.

According to Thai Supreme Court Decision No. 384/2506: “Section 1175 of the Civil and Commercial Code regarding notifications of a general meeting of the company only requires that a notification of the meeting be sent no less than 7 days. Therefore, where the Defendant, who is a company liquidator, has sent a notification by post no less than 7 days in advance of the meeting and Plaintiff, who is a shareholder, has received it, then it shall be deemed that Defendant delivered the notice correctly according to the law and it is not relevant as to what day Plaintiff actually received it.”

Furthermore, Section 1175 paragraph two requires that the time and location of the meeting be indicated in the notification, as well as the agenda for the meeting. If a special resolution is to be considered, then the substance of the resolution must be included in the notice.

According to Thai Supreme Court Decision No. 2644/2520 “a general meeting wherein a matter is considered outside of the agenda, a resolution passed by the shareholders to pay a debt which the shareholders themselves are the creditor and have a personal interest violates Section 1174 and 1175.”

Thai corporate law is complex. Foreigners who are in charge of managing a Thai limited company are advised to consult with competent Thailand lawyers.

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