Setting Up Company Partnerships under Thai Law
The Civil and Commercial Code of Thailand assists with the formation of partnerships similar to those found in the laws of other countries. However, partnerships are normally not formed by foreign investors due to particular difficulties that arise due to the Foreign Business Act of 1999. Generally speaking, the formation of a limited company is more advantageous to foreign investors since the majority of Thai-owned companies with foreign directors are still considered “Thai nationals” for the purposes of the Foreign Business Act. In contrast, partnerships, even if formed with majority Thai capital investment, are still considered “foreign nationals” if the managing partner is a foreign national. Nevertheless, it is possible for foreign nationals to operate business in Thailand as a partnership in certain cases, such as if they are operating a business that is unrestricted by the Foreign Business Act, or if they have obtained a Foreign Business License or a Foreign Business Certificate under the Thai-U.S. Treaty of Amity. A few of the notable points regarding the operation of a partnership is as follows:
- There are three forms of partnerships: an unregistered ordinary partnership, a registered ordinary partnership, and a limited partnership.
- For the unregistered ordinary partnership, it refers to a business partnership arising from a contract and does not constitute a juristic person. The partners are jointly and unlimitedly liable for the obligations of the partnership and are bound to each other by the terms of their partnership agreement. If an ordinary partnership is then registered, it will have the status of being a juristic person. Nevertheless, the partners are still personally liable to third parties.
- The limited partnership, on the other hand, is distinct from an ordinary partnership in that the liability of the partners is differentiated between managing partners and non-managing partners. As for non-managing partners, their liability is limited to the amount of their respective contribution. However, as for managing partners, they have unlimited liability for all the obligations of the partnership.
- A key distinction of the partnership in general is that the partners are directly liable either for the obligations of the partnership or for the amount of their contribution, depending on the case. In light of this, the limited company is a more popular choice since individual shareholders face no personal liability upon paying for the full amount of their shares.
Depending on the type of business activity, one form of corporate organization may be more suitable than another. Furthermore, foreign investors in Thailand must still be mindful of the Foreign Business Act and choose an appropriate form of corporate organization accordingly. Foreign investors are advised to consult with competent Thailand lawyers before beginning business operations in Thailand.
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