Companies in Phuket have faced investigation by the Department of Special Investigation, for using Thai nominees to hold a majority stake, writes The Nation.

So far, four companies have been found guilty.

Under the Thai Foreign Business Act of 1999, foreigners are not permitted to own more than a 49% stake of businesses in certain industries, such as tourism, media, property development and telecommunications.

To circumvent such a law, some foreigners use Thai nationals as nominee shareholders.

The Commerce Ministry’s Business Development Department, working alongside the DSI and the Tourism Ministry, believes it has uncovered four firms out of more than 80 suspects, that are involved in such illegal practice.

Director-general of the ministry’s Business Development Department, Pongpun Gearaviriyapun, said last week that the four Phuket-based companies in question include one real estate and three tourism firms.

If found guilty, the offenders (both foreign and Thai) could face a fine between Bt100,000 – Bt1 Million, and/or three years jail time.

As well as Phuket, the DSI has also been conducting investigations in Bangkok, Pattaya, Samui and Hua Hun, and have found over 10 new suspects.

For the full story, see The Nation.

For more information on owning a business in Thailand as a foreigner, and about nominee shareholders, watch this video from Bangkok-based law firm Chaninat and Leeds:

If you are considering the prospect of establishing a Thailand branch of an existing company or starting a new business in Thailand, there are numerous factors to consider and decisions to make, particularly if you wish to proceed in accordance with Thai company law. There are numerous laws that will affect you and your company in Thailand (and abroad). Merely filling out forms without the knowledge of the application of the law can lead to serious complications and other problems.

It helps to become familiar the Foreign Business Act 1999. This sets out the rights of foreign companies in Thailand, as well as what is not permitted.

Most, although not all, foreign businesses looking to set up in Thailand require a Thai majority shareholding. Many foreigners prefer to form a Thai majority company, to allow the company to operate a business in a category that is otherwise restricted to foreigners. The registration of a Thai majority company generally requires less registered capital and less paperwork than the registration of a foreign company. A Thai majority company can also buy land.

Others however prefer the simpler but highly illegal practice of nominee shareholders. A nominee shareholder is a shareholder in name only; in reality nominee shareholders lacks any real financial stake or interest in the company.  There are companies in Thailand who will offer to supply Thai nominee shareholders. This is extremely high risk as not only will you have no knowledge of who the shareholder of your company is now will they owe you any loyalty, they are likely to be professional shareholders who will probably be listed as shareholders in multiple companies which will soon wave a red flag to the authorities.

Rather than break the law,  it is prudent to take qualified legal advice from an experienced Thailand lawyer. There are ways to deal with these situations but careful consideration needs to be taken of an individuals needs and resources.

Relevant Video:

Relevant Article:

56 Phuket Firms Believed To Be In Breach Of The FBA

The Commerce Ministry have reported that 56 companies in Phuket have allegedly breached the Foreign Business Act (FBA) by using Thais acting as nominees to enable foreigners to hold a majority control.

 The use of “nominee” shareholders is expressly forbidden by the FBA.

Most of the suspected companies are owned by Russian interests, and are connected to food and beverage trading, and financial agencies.

Prior to the introduction of the act in 1999, it was common practice to utilize loan-pledge agreements as a method for non Thai minority shareholders to control majority Thai shareholders.  This entails the Thai shareholders borrowing funds from the foreigner and “pledging” the shares back as security. However, the FBA made this practice illegal. While enforcement of the Thai nominee prohibitions of the Foreign Business Act has been infrequent to date, this news serves as a clear warning say Thailand lawyers, that this is now something the authorities are taking seriously.

Related Articles:

The Foreign Business Act and Other Foreign Business Restrictions