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How to buy a business in Thailand
10/10/2022
While starting a new business is often the first choice for entrepreneurs, buying an existing company is one possible alternative. Buying a business in Thailand offers numerous advantages as it will already be fully incorporated and ready to start or continue operations. Furthermore, the immigration and work authorization procedures may be smoother than starting a new business.
In this article we explore some of the key considerations when considering how to buy a business in Thailand.
Key points
- When purchasing an existing company, it is essential that the prospective buyer undertakes the proper due diligence.
- 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.
Advantages and disadvantages of buying a business
There are numerous advantages to buying an existing business such as:
- The initial work to get the business up and running will have already been completed.
- It may be easier to obtain finance as the business will have an established record.
- A market for the product or service will have already be in existence.
- An existing market of customers, a reliable income and brand reputation may already be in place.
- Existing employees should have experience you can utilize.
- Many of the problems will have been discovered and addressed already.
However, there are some disadvantages for purchasing an existing business as well. Examples include:
- Purchasing an existing business often requires the investment of a large capital amount.
- Several months’ worth of working capital will be required to assist with cash flow.
- You may need to honour or renegotiate any outstanding contracts the previous owner entered into.
What do you need to consider when your buy a business in Thailand?
When purchasing an existing business in Thailand, the following areas must be considered:
- Due diligence,
- Contract drafting and review and
- Corporate restructuring and registration.
Due diligence
Much like purchasing property, it is also essential to perform due diligence when buying an existing company. Due diligence allows potential buyers the opportunity to verify key details regarding the target company.
Important areas of due diligence include:
- The company registration details,
- current shareholder list,
- current directors,
- financial balance sheets and bank statements,
- Employment contracts and all other contracts signed/entered into,
- Inquire about any potential disputes the company may be involved in.
Proper due diligence should include a background check on whether the company owes any back taxes or is facing any legal proceedings, such as bankruptcy.
Contract drafting and review
If the due diligence goes well and the transaction is to go forward, the next step is the drafting and preparation of the business purchase agreement/share transfer agreements and the contract detailing any other terms and conditions for the sale of the company.
What’s Included in a Business Purchase Agreement?
Purchasing a business is subject to a specific legal process. Business Purchase Agreements establish the legally binding purchase of a company. This type of agreement is often called a Shares Purchase Agreement (SPA) as you are buying the shares of the company that owns the business.
Such an agreement requires the buyer to purchase the business per the agreement’s terms and conditions. Typical terms included in an SPA include:
Term 1. Party Identification
This provision appears at the beginning of the business purchase agreement. It contains the legal names and contact information for the seller and buyer.
Term 2. Business Description
An overview of the company and its operations. This description should contain a statement attesting to the seller’s legal authority to authorize the sale, as well as other legal representations and warranties.
Term 3. Financial Terms
This contains details such as the purchase price, any deposits required by the seller, and the date and time of the transfer.
Term 4. Sale
It is important to define the type of sale, including the assets included and excluded as part of the transaction. This provision will also include a section on property transfers detailing the condition and value of assets, such as equipment, tools, and property.
Term 5. Covenants
This will include the details of the seller’s obligations surrounding the closing, including taxes, loans, fees, benefit transfers, and salaries. Additionally, you can use this section to list buyer and seller agreements and protective clauses, such as a non-competition agreement.
Term 6. Transfers
The buyer and seller must have a clear understanding of who is responsible for what, including the seller’s role, new employee training, and customer obligations. You can also detail the need for a bill of sale finalization to serve as the transaction’s conclusion.
Term 7. Closing
This section of the business purchase agreement will contain the details about logistics, the closing date, and time. Additionally, it executes title transfers and specifies the money to be paid at closing.
Term 8. Warranties
Warranties offer that the premises and equipment comply with applicable government codes and regulations as of the closing date and that all taxes have been paid. This strategy ensures that the buyer and seller enter into a good-faith transaction.
Company restructuring
When purchasing an existing company you will be required to undertake some changes to the company’s structure in order to allow the purchaser to take full ownership.
The 2 key changes that will need to be made is the transfer of shares and changing the company directors.
How do you change a company director?
The process for changing a company director is as follows (for a more detailed explanation, please see our post on the topic here).
1. The Board of Directors Meeting
The Board of Directors is usually required to call for the shareholders’ meeting in order to pass the resolution regarding the change of the company’s director and/or the authority of the director.
If the company’s Articles of Association stipulate that the Board of Directors are entitled to change the authority of the director, no resolution from the Shareholders Meeting will be required for such change.
2. The Shareholders Meeting
Companies are required to provide adequate notice of the shareholders meeting. Furthermore, such notice must be published in a local newspaper no more than seven days before the date of the meeting.
It is also required to send notice by registered post to shareholders whose names are listed in the register of shareholders. It will be deemed to have been received if the registered post has been sent to the shareholder’s address as listed. This must be done seven days before the meeting.
The shareholders meeting can only be held if one quarter of the company’s shareholders are present.
Timeline: Notice to call for the shareholders meeting shall be sent to the shareholders at least 7 days before the meeting, if not stipulated otherwise in the company’s Articles of Association.
3. Obtain the directors signature
Once the change of director has been approved by the shareholders and/or the Board of Directors meeting, the appropriate forms will be completed. The director in question will be required to sign these documents along with the authorised director(s) of the company. Please note, the director must be physically present in Thailand to sign the required documents.
Timeline: Must be done within 14 days after the resignation of the director.
4. Register the change at the Department of Business Development
After the forms have been completed and signed, they must be filed at the Department of Business Development. Within 24 hours of the filing taking place, the company must update their company affidavit to reflect the change in personnel.
After the resolution has been passed, the application forms for changing director and/or the authority of director, a copy of the ID card/passport of both the old and new director (signed) must be filled at the Department of Business Development by the authorised ‘former’ director within 14 days of the change.
How do you transfer shares?
The process for transferring shares in a Thai company is as follows (for a more detailed explanation, please see our post on the topic here).
1. Completion of a Share Transfer instrument
In order to start the process, a transferor has to execute a ‘Share Transfer Instrument’ with the transferee. A share transfer instrument needs to clearly state the names of the transferee and transferor, the number of shares being transferred and the share numbers. Finally, the instrument must be signed by both parties and at least 1 witness.
2. Update the Shareholders Register
Once the transaction has been completed, the company’s Shareholder Register must be updated accordingly and the change registered with the Ministry of Commerce. Failure to do so will invalidate the transfer.
3. Issuing a new share certificate
Thai Limited Companies are required to issue a share certificate to the transferee.
4. Payment of Stamp Duty
In Thailand, the transfer of shares is subject to the payment of Stamp Duty. The rates are as follows, for every 1,000 Baht or fraction thereof of the paid-up value of shares, Stamp Duty at the rate of 1 Baht will be applied.
What is the process for restructuring a company?
The following processes, legal documents and government forms will need to be completed/prepared in order to register the restructuring of the company:
- Performing the share transfer,
- Registration of a new shareholder list,
- Changing the company directors.
- Registration of the new board of directors,
- Drafting a company resolution to authorise the new owners to access the corporate bank account,
- Any amendments to the company structuring, such as new articles of associations and shareholders’ agreement.
How can Belaws help?
For more information about purchasing 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 a foreigner open a company in Thailand?
Yes it is possible for a foreigner to open a company in Thailand. There are also options available which allow 100% foreign owned companies as well.
How much does it cost to set up a company in Thailand?
The official fees for registering a company in Thailand are THB 7,500.
How do I start a limited company in Thailand?
- Step 1: Choose and register a company name.
- Step 2: Draft and file the Memorandum of Association.
- Step 3: Call and hold a Statutory Meeting of the shareholders
- Step 4: Register the Company with the Ministry of Commerce.
- Step 5: Register the company for Value-Added Tax (VAT) and Income Tax
Is it good to start a business in Thailand?
Thailand is an attractive option for those wishing to start a business. Thailand has a great infrastructure in place and scheme such as the BOI provide great incentives for companies to take advantage of.
How much money do you need to start a business in Thailand?
Typically, it costs between THB 40,000 to THB 60,000 (excluding VAT and Government fees) to start a business in Thailand.The official fees for registering a company in Thailand are THB 7,500.
How can a foreigner start a small business in Thailand?
Yes, foreigners can start a business in Thailand. However, certain business activities are restricted by the Foreign Business Act and in order for businesses to undertake them they must obtain a Foreign Business Licence/Certificate which can be time consuming and complicated.
What is the biggest problem in Thailand?
The biggest problem facing foreign owned companies is being able to undertake their desired business activity as a 100% foreign owned company. Many business activities are protected by the Foreign Business Act and in order for a company to operate in these protected industries, they will be required to be majority owned by Thai Shareholders (unless a BOI promotion has been obtained).
Why is it hard to do business in Thailand?
The Foreign Business Act limits to the business activities a 100% foreign owned company can undertake. This means Thai Shareholders will need to be sought or a BOI promotion obtained in order for a company to legally operate.
Can I own a company in Thailand?
Yes, foreigners can start a business in Thailand. However, certain business activities are restricted by the Foreign Business Act and in order for businesses to undertake them they must obtain a Foreign Business Licence/Certificate which can be time consuming and complicated.
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