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Buying a Business in Thailand: A How-To Guide for 2024
10/01/2024
Buying a business in Thailand can be a viable option for foreign entrepreneurs looking to establish themselves in the Thai market. In fact, buying a business in Thailand offers several advantages when compared to starting a new business from scratch.
In this blog post, we will walk you through the key steps and considerations involved in buying a business in Thailand.
Key points
- When purchasing an existing company, undertaking proper due diligence is highly recommended.
- Business Purchase Agreements/Share Purchase agreements establish the legally binding purchase of a company.
- Once the business has been purchased, the new owner will need to complete (and register) the share transfer, change the directors and complete any amendments to the company structuring, such as new articles of associations and shareholders’ agreement.
What are the Best Options for Buying a Business in Thailand?
When looking to purchase a business in Thailand, investors have several avenues to acquire an existing business. Two of the most common strategies include buying the business outright and purchasing the business’s assets to transfer to a new company. Both options carry distinct processes, benefits, and considerations.
Buying the Business Outright
Buying a business involves the purchase of both the company’s assets and its liabilities. The investor takes over the entity in its entirety, including its operational framework, existing contracts with suppliers and clients, workforce, and market position.
One significant advantage of this approach is the ability to maintain the business’s relationships with customers, suppliers, and employees.
However, this method also means absorbing the company’s liabilities, which could include undisclosed debts or potential legal disputes. Due diligence is critical in this process to ensure that you are fully aware of all aspects of the business you are acquiring.
Buying the Assets and Transferring Them to a New Company
Alternatively, investors may opt for purchasing only the assets of a business and transferring them to a newly established company. This route is often chosen to avoid the risks associated with the existing business’s liabilities.
By selecting this method, the buyer can avoid inheriting past obligations and legal challenges that might be hidden within the business’s history. They acquire important assets such as property, equipment, key employees and intellectual property, which can then be utilized within a newly incorporated entity.
This option requires careful inventory and valuation of assets and might involve renegotiating contracts and agreements. The buyer must also be prepared to establish new relationships with stakeholders, as the continuity of the business’s operations may be interrupted.
What are the Advantages of Buying a Business in Thailand?
Purchasing an existing company comes with the following advantages:
Inherit existing contracts with suppliers and clients:
Inheriting existing contracts with suppliers and clients allows the new owner to maintain the existing relationships and terms, which can help ensure a smooth transition and continuity of business operations.
Setting up a business:
When you buy a business, you acquire an already established infrastructure, which allows the investor to save time and effort which would normally be spent setting up the company.
Capital Requirements for Hiring Foreigners:
In order to hire a foreigner in Thailand, a Thai Limited company is required to have a registered capital of 2 million THB. If the company has already satisfied this criteria prior to the purchase, the new owners can continue to enjoy this benefit and do not need to pay the 2 million THB again.
Existing Market Presence:
An established business comes with an existing market for its products or services.
Brand Reputation:
Purchasing a business means inheriting its brand reputation and customer loyalty.
Experienced Workforce:
An existing business often comes with a skilled and experienced workforce that you can leverage to drive growth and operational efficiency.
What are the Disadvantages of Buying a Business in Thailand?
Purchasing an established company does have its advantages, but potential investors should be aware of the potential drawbacks associated with purchasing an existing business in Thailand:
Potential Liabilities:
When buying a business the new owner is at risk of being liable for unknown or hidden debts, such as lawsuits, tax obligations, or contractual obligations, that the seller may have incurred before the sale. Another drawback is the possibility of being held liable for the seller’s actions or misconduct before the purchase, even if the buyer had no involvement or knowledge of them.
Lease agreements:
In Thailand, in some cases the lease for the company premises may only be 3 years or less and therefore not registered with the Land Office. This could be problematic because there are no specific protections for commercial leases.
Capital Investment:
Buying a business often requires a significant capital investment, which can be a barrier for some entrepreneurs and investors.
Working Capital:
Investors will need to have several months’ worth of working capital to manage cash flow during the transition period.
What are the Advantages of Purchasing the Assets of a Company?
Purchasing the assets of a company comes with the following advantages:
Avoidance of liabilities:
the buyer can avoid taking on the liabilities of the seller, such as debts, lawsuits, or tax obligations, that may not be disclosed or evident.
Only buy what they need:
the buyer can choose which assets to acquire and which ones to leave behind, depending on their needs and preferences.
What are the Disadvantages of Purchasing the Assets of a Company?
Loss of benefits and contract:
the buyer may lose some of the benefits of acquiring an established business, such as its brand reputation, customer loyalty, market presence, and experienced workforce. They would also lose the existing contracts with any clients.
Tax liabilities:
The buyer may face higher taxes and transaction costs, as each asset may be subject to different tax rates and legal fees.
Renegotiating agreements:
When you only purchase the assets of a company you will need to renegotiate any contracts with suppliers and customers as these would not be transferred with the assets and remain with the previous company.
What is Due Diligence When Buying a Company in Thailand?
Much like when you perform due diligence for purchasing a property, conducting thorough due diligence is essential when buying an existing business. Undertaking due diligence allows you to verify key details and assess the potential risks and opportunities associated with the target company.
When undertaking due diligence, investors should focus on the following areas:
Company Registration Details:
Review the company’s registration details, including its legal status, current shareholder list, and directors.
Liabilities:
Identify whether there are any pending legal actions or significant liabilities involving the company that the new owners would be responsible for. For example, debts, taxes, contractual obligations and legal claims.
Financial Analysis:
Examine the company’s financial balance sheets, bank statements, and tax records to assess its financial health and stability.
Contracts and Obligations:
Evaluate all contracts and agreements signed by the company, including employment contracts, vendor agreements, and lease agreements.
Legal and Regulatory Compliance:
Inquire about any potential legal disputes, pending lawsuits, or outstanding tax liabilities that the company may be facing.
Drafting and Reviewing a Purchase Agreement
Once the due diligence process is complete, the next step is to draft and review the business purchase agreement or share transfer agreement. These are legally binding agreements that outline the terms and conditions of the sale and ensure a smooth transfer of ownership. Here are key elements typically included in such agreements:
Party Identification:
Provide the legal names and contact information of the buyer and seller at the beginning of the agreement.
Business Description:
Include an overview of the company, its operations, and the seller’s legal authority to authorize the sale.
Financial Terms:
Specify the purchase price, any deposits required, and the date and time of the transfer.
Sale Details:
Define the type of sale, including the assets included and excluded from the transaction, such as equipment, property, and intellectual property rights.
Covenants:
Outline the seller’s obligations surrounding the closing, including tax obligations, loan repayments, employee benefits, and non-competition agreements.
Transfers and Obligations:
Clarify the responsibilities of the buyer and seller, including the buyer’s role, employee training, and customer obligations.
Closing Process:
Detail the logistics of the closing process, including the date, time, and location, as well as the transfer of title and payment arrangements.
Warranties:
Include warranties that ensure compliance with applicable laws and regulations, as well as the payment of taxes and other financial obligations.
How do you Restructure the Company After the Sale?
When buying an existing business, there are certain changes to the company’s structure that must be completed and registered with the relevant government authorities. Two key changes that typically need to be made are the transfer of shares and the replacement of company directors.
How do you Change Company Directors?
The process for changing company directors involves the following steps:
Board of Directors Meeting:
The board of directors must call a shareholders’ meeting to pass a resolution regarding the change of company directors or their authority.
Shareholders’ Meeting:
A shareholders’ meeting must be held to receive their vote and confirmation of the change.
Director’s Signature:
Once the change of director has been approved, the necessary forms must be completed and signed by the outgoing and incoming directors. The signatures must be witnessed.
Registration:
The completed forms must be filed with the Department of Business Development, and the company’s company affidavit must be updated to reflect the change in personnel.
How do you Transfer Shares?
The process for transferring shares in a Thai company includes the following steps:
Share Transfer Instrument:
The transferor and transferee must execute a share transfer instrument, which includes the details of the transfer, such as the names of the parties, the number of shares, and the share numbers.
Updating Shareholders Register:
After completing the transaction, the company’s shareholders register must be updated, and the change must be registered with the Ministry of Commerce.
Issuing a New Share Certificate:
The Thai Limited Company must issue a new share certificate to the transferee.
Payment of Stamp Duty:
The transfer of shares is subject to the payment of stamp duty, which is calculated based on the paid-up value of the shares.
How can Belaws help?
For more information about buying a company in Thailand, why not talk to one of our experts now?
Please note that this article is for information purposes only and does not constitute legal advice.
Our consultations last for a period of up to 1 hour and are conducted by expert Lawyers who are fluent in English, French and Thai.
Consultations can be hosted via WhatsApp or Video Conferencing software for your convenience. A consultation with one of our legal experts is undoubtedly the best way to get all the information you need and answer any questions you may have about your new business or project.
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Frequently asked questions
Can foreigners own a business in Thailand?
Yes, foreigners can own a business in Thailand.
Is Thailand a good place to start a business?
Yes, Thailand is suggested as a favorable place to start a business.
What are the main options for buying a business in Thailand?
Investors can either buy the business outright or purchase only the assets and transfer them to a new company.
What are the advantages of buying a business outright?
Advantages include maintaining existing relationships but also absorbing the company’s liabilities.
Why is inheriting existing contracts beneficial?
Inheriting existing contracts allows for a smooth transition and continuity of business operations.
How does buying a business save time in setting up?
Acquiring an established business means acquiring an already established infrastructure, saving time and effort.
How can buying a business fulfill capital requirements for hiring foreigners?
If the existing company has satisfied the capital criteria, new owners can continue to enjoy this benefit without additional payment.
What potential liabilities should buyers be aware of?
Buyers may be liable for undisclosed debts, legal disputes, and the seller’s actions or misconduct.
What challenges might arise with lease agreements in Thailand?
Some lease agreements may only be for 3 years or less, potentially causing issues due to a lack of specific protections for commercial leases.
What is due diligence when buying a business in Thailand?
Due diligence involves reviewing registration details, liabilities, financial analysis, contracts, and legal compliance.
What elements are typically included in a purchase agreement?
Elements include party identification, business description, financial terms, sale details, covenants, transfers and obligations, closing process, and warranties.
What changes to the company’s structure are needed after buying a business?
Changes may include the transfer of shares and the replacement of company directors.
How do you change company directors in Thailand?
The process involves a board of directors meeting, shareholders’ meeting, director’s signature, and registration with the Department of Business Development.
What is the process for transferring shares in a Thai company?
The process includes executing a share transfer instrument, updating the shareholders register, issuing a new share certificate, and paying stamp duty based on the shares’ paid-up value.
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