It’s not that Thailand wants to make it impossible for foreign businesses to succeed. Respect and consideration for the local Thai people is key, and the Thai government is seeking to build strong, successful businesses to accelerate a growing business economy.
Want to tear your hair out? Don’t get frustrated
Dealing with the bureaucracy, the red tape— the ever changing rules and regulations—you’ll learn what frustration means. Avoid the following three common mistakes to save yourself time and money:
"Thailand is seeking to build strong, successful businesses to accelerate a fast growing economy."
Mistake 1: Make sure you hold controlling interest in the company.
Obviously, most foreigners already know that they cannot hold any more than 49% shares within a Thai company, but most do not know that there are ways for them to have full control of the company with the minority shares. The magic words are "Preference Shares." Essentially, a small percentage of preference shares can hold the majority of all the common shares combined. Setting this up should occur during the incorporation stage of the company. It’s not that it is difficult to set up after incorporation, but it will take time and can be a costly endeavor.
Mistake 2: Don't grab anyone that is Thai and set them up as a shareholder.
In Thailand you are required to have a minimum of three shareholders and if you are a foreign shareholder, you’re required to have at least two Thai shareholders to round the company out. Many foreigners don’t have "real" Thai business partners to become shareholders, so they will often grab any "Somchai" that they know and put them in the company as a shareholder.
Obviously, adding a random partner in the company mix is risky and unwise because that new partner now legally holds majority ownership of your company!
As mentioned, Preference Shares still maintain your control of the company, however it goes without saying if your partner holds any shares in your company, ensure that they are someone you trust and are involved in the business to get signatures, sign contracts and have an interest in the success of the business.
Mistake 3: Understand that the process takes time and requires a lot of "hoop-jumping".
Rome wasn’t built in a day, and neither is a Thai company set up. Well, if the company partners are all Thai shareholders and directors, then it can be set up in a day, but add a single foreigner into the mix then that’s when things get complex.
Let’s look back at mistake Number 2: Many foreigners starting a business in Thailand may not have Thai shareholders that are willing, or able to put money into the business as capital. Thailand law stipulates that any company with foreign shareholders requires that all shareholders, foreign and Thai alike, must provide bank statements confirming they have funds covering the amount of shares held.
Many Thai shareholders don’t always have that type of money laying around, meaning you’ll likely need to set up the company with all Thai shareholders and directors. Only after the company is set up can you change the shareholders agreement to foreign owned of up to 49%.
"Without a legal work permit, foreigners are unable to sign contracts or legal documents on behalf of the company."
Another common problem is changing the company director from a Thai national to a foreigner. If you can legally work in Thailand, this is not a problem, but many foreign entrepreneurs don’t hold a Thai work permit. This can become an issue because without a legal work permit, a foreigner is unable to sign contracts or legal documents on behalf of the company.
Therefore, to make everything proper you should get a work permit before becoming the company’s director, and that usually takes around three months or so.
Don’t become discouraged when setting up your business in Thailand, but do keep in mind the common mistakes above and have a lot of patience and all should be well. Good luck on your new venture!