A joint venture in Thailand is not recognized as a separate type of legal entity in accordance with Thai corporate laws. In fact, joint venture is seen as joint activities between two or more business entities in order to achieve a specific goal or participate in a project that can be successfully implemented as a result of pooling the resources and/or technology.
That is, a new company set up is implied, most often in the form of a private limited company, after which the parties to the joint venture in Thailand are regarded as shareholders and are vested with the corresponding rights and obligations. Typically, the obligations of the parties to a joint venture in Thailand are limited to their contribution to equity.
Investors can also create an association to work together on a specific project. As part of the conclusion of an association agreement in Thailand, partners share profits and are only liable for the obligations set forth in the association agreement. For investors engaged in construction on a project basis, as well as in the field of high technology, this form of cooperation will be extremely beneficial.
Further in the article, we will analyze the legal aspects of a joint venture set up and functioning in Thailand.
Restrictions on Doing Business in Thailand
Under the Foreign Business Act, foreigners are not allowed to engage in certain types of business in Thailand. It is not possible for a foreign person to register a joint venture in Thailand, if he plans to conduct the following activities:
- land trading;
- television broadcasting;
- activities that relate to national security or may affect culture or natural resources;
- domestic transportation;
- mining industry;
- business projects that are inferior in some respects and are not ready to compete with foreigners.
At least 75% of the total number of shares issued by a financial business company in Thailand must be owned by Thai nationals. Also, Thai citizenship must have at least three-quarters of the management team.
Similar requirements apply to a company wishing to obtain a license to operate transportation in Thailand. Only in this area requires that 51% of the shares belong to the Thais.
Preparation for a joint venture in Thailand
First of all, when creating a joint venture, issues such as the preparation of a memorandum of intent of the parties (agreements on the procedure for negotiating) and the choice of the legal form of the enterprise are subject to resolution.
In the memorandum of intentions, future partners record initial and proposed agreements:
- the size of the parties' participation in the authorized capital of the joint venture;
- the procedure for the distribution of enterprise profits;
- the timing of specific actions to create an enterprise;
- applicable law and more.
The venturer shall recognize its interest in the joint venture as an investment and account for such investments using the equity method.
Resolving disputes related to JVs in Thailand
In Thai jurisprudence, provided that the joint venture company is physically located in Thailand, Thai law is recommended as governing conflict situations.
As for the method of settlement of commercial disputes in Thailand, if the parties have different citizenship, arbitration is most often used. When resolving a dispute related to the activities of joint ventures in Thailand, the place of arbitration may be a country neutral to the parties.
Thai law is actively developing and improving the rules for establishing a joint venture in Thailand. We will actively monitor subsequent innovations. For more detailed information, you can order advice on creating a joint venture in Thailand from our legal experts. Contact us by filling out the application form on our website.