The Foreign Business Act 1999  regulates the business activities of foreigners in Thailand. The act classifies business activity into three categories and places restrictions of various degrees of severity on foreign ownership and operation of these businesses.

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Although it is possible to obtain an alien business license or American firms have the benefit of setting up an amity company, many foreigners choose to form a Thai majority company, that is a company where more than 50% of the shareholders are Thai, so that they are able to operate a business in a category that is restricted to foreigners. The formation of a Thai majority company generally requires less registered capital and less paperwork than the formation of a foreign company.  Until recently, these companies were also under less scrutiny than foreign companies.  A Thai majority company can also buy land.

A Thai nominee shareholder is a shareholder in name only; in actuality, nominee shareholders lack a real financial stake or interest in the company.  The practice of nominee shareholders is illegal.  The prohibition is found in the Foreign Business Act, the Land Act and other laws.  It is a criminal offense often with significant penalties including fines and imprisonment . 

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Relevant Article:56 Phuket Firms Believed To Be In Breach Of The FBA

56 Phuket Firms Suspected Of Breaching FBA

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.

Related Documents 

Foreign Business Act 

Related Articles 

The Foreign Business Act and Other Foreign Business Restrictions

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