56 companies operating in Phuket are believed to be contravening the Foreign Business Act by having Thais acting as nominees so that foreigners can hold majority control.
In addition, among the 56 Phuket companies, 24 firms were only incorporated this year and are not yet properly operating, 13 conduct a business listed in Annex III of the FBA, eight refused to co-operate with the investigation, and three companies failed to respond when contacted by the authorities. It is thought most have Russian investment.
Thailand attorneys explain that the use of "nominee" shareholders is expressly forbidden by the Foreign Business Act 1999. It is a criminal often with significant penalties including fines and imprisonment. Prior to the introduction of the revised act of 1999 it was common to utilize loan-pledge agreements as a method for foreign 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 Act of 1999 made this practice illegal. While enforcement of the Thai nominee prohibitions of the Foreign Business Act has been infrequent, the practice is risky particularly if a company has engaged the use of professional nominees whose name appears on multiple company registrations.
Flickr photo credit: Edwin.11