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Andi Refandi
Andi serves as a Senior Account Executive on Emerhub’s global team.
If you are an entrepreneur or an investor who wants to accrue shares in a local or foreign-owned company in Thailand, it’s important to have a Share Purchase Agreement (SPA) to mitigate any risk or prevent disputes. This guide will give you a comprehensive look at the importance of SPAs, different shareholding structures, legal considerations, and best practices.
Overview of Share Purchase Agreements in Thailand
Why Do You Need a Share Purchase Agreement?
A Share Purchase Agreement (SPA) is a legally binding document that outlines the terms and conditions for acquiring shares in a company. It ensures that both parties understand and agree on the transaction details such as the purchase price, number of shares, and any conditions or warranties associated with the shares.
Share purchase agreements in Thailand are necessary for mergers and acquisitions, shareholder exits, or when restructuring ownership. Here are key reasons why you should have an SPA when buying, selling, or distributing shares in your company:
- Clarity and Agreement on Terms: ensures that both the buyer and seller fully understand and agree on the terms of the transaction, including the purchase price, number of shares, and any conditions or warranties associated with the shares. This clarity helps prevent misunderstandings and disputes.
- Compliance with Thai Laws: SPAs must comply with Thailand’s relevant laws and regulations, such as the Civil and Commercial Code and the Public Limited Companies Act. This ensures that the transaction is legally valid and enforceable.
- Risk Management: includes provisions for due diligence, representations, warranties, and indemnification, which can help you assess potential risks and protect themselves from undisclosed liabilities. This process allows buyers to make informed decisions about the purchase.
- Protection of Interests: By including provisions for restrictive covenants and dispute resolution, SPAs safeguard the interests of both parties, ensuring a smooth transaction and minimizing the risk of legal complication.
- Flexibility in Ownership Structuring: facilitates changes in ownership structures, which can be crucial in navigating Thailand’s foreign ownership restrictions and ensuring compliance with the Foreign Business Act.
Key Considerations for Setting Up SPAs in Thailand
When setting up a share purchase agreement in Thailand, several key considerations are essential to ensure a legally robust and mutually beneficial transaction. This can include legal compliance, ownership restrictions, and financial thresholds that could affect your transaction.
- Foreign Ownership – Under the Foreign Business Act, restricted sectors (e.g. media, agriculture) are capped at 49% unless a Foreign Business License (FBL), a Board of Investment (BOI) promotion is secured or the company is registered under U.S.-Thai Treaty of Amity. SPAs must verify compliance with these limits to avoid penalties like fines (up to THB 1 million) or forced closure.
- Company Registration – SPAs should align with Thailand’s company registration process, and update the shareholder register post-transaction. Shares must then be transferred via a share transfer instrument and recorded in the company’s register with the Ministry of Commerce to ensure legal validity.
- Capital Requirements – SPAs should confirm the company’s capital structure and compliance with paid-up requirements depending on the shareholding structure.
- Thai-Majority Companies: No specific minimum, but shares must be fully paid (minimum THB 5 per share).
- Foreign-Majority Companies: Requires THB 2 million (fully paid) per work permit issued from the company or THB 3 million per restricted business activity under the FBA.
Common Shareholding Structures in Thailand
Business Entities in Thailand
SPAs are instrumental in facilitating ownership changes in Thai business entities, particularly in limited companies and joint ventures. Different ownership structures in Thailand provide a framework for transparent transactions and protect the interests of all parties involved. Here are the most common types of business entities in Thailand:
- Limited Companies – the most popular structure, offering limited liability to shareholders. SPAs allow for the transfer of shares in limited companies, enabling buyers to acquire control and voting rights. SPAs must comply with Civil and Commercial Code and the Public Limited Companies Act, ensuring all transactions are legally binding and properly documented.
- Partnerships – Partnerships offer different liability structures but are less common for foreign investors. While partnerships are not typically involved in SPAs, they can be part of a broader business arrangement that may lead to share transactions.
- Joint Ventures – SPAs are crucial in joint ventures where foreign investors participate in restricted sectors. A Shareholders’ Agreement often accompanies SPAs in joint ventures to clarify governance and management rules among shareholders.
- Representative and branch offices – non-revenue generating entities used for market research or sourcing goods and services. While not directly involved in SPAs, these offices can serve as precursors to establishing a more substantial presence in Thailand, potentially leading to future share transactions as your business expands.
Different Share Types
Companies in Thailand typically issue two primary types of shares: Ordinary Shares and Preference Shares. Each type has distinct rights and characteristics that impact shareholders’ roles and financial interests. Here’s how they are different:
- Ordinary Shares – Holders have voting rights and receive dividends after preference shareholders. They are entitled to participate in general meetings and have one vote per share.
- Preference Shares – Typically used to give control to specific shareholders, often foreigners, by providing priority in dividend payments and potentially different voting rights.
Different share types are used to maintain control in restricted industries where foreigners cannot hold a majority stake. To navigate these restrictions, companies often issue preference shares, to grant foreign minority shareholders greater voting rights or control over the company, allowing you to influence decision-making without violating foreign ownership limits.
Best Practices for Foreign-Owned Companies in Thailand
Establishing a share purchase agreement for foreign-owned companies in Thailand requires a strategic, detail-oriented approach that aligns with both international standards and local regulatory frameworks. Here are some best practices that you should consider:
- Compliance with Ownership Limits – Ensure that the SPA complies with the FBA, Obtain necessary licenses or utilize incentives like BOI promotions to increase foreign ownership beyond this limit. Maintain a Thai majority (at least 51% ownership) to avoid restrictions and simplify operations, unless specific exemptions are met.
- Robust SPAs – Include detailed provisions in the SPA such as representations, warranties, indemnification, and dispute resolution mechanisms to protect both parties’ interests. Use clear and concise language, and ensure all documents are signed by both parties or their authorized representatives.
- Avoid Nominee Structures – Avoid using Thai nominees to circumvent foreign ownership restrictions, as this is illegal and can result in severe penalties, including fines and imprisonment. Ensure all ownership structures comply with Thai laws to maintain legal validity and avoid potential legal challenges.
- Local Partnerships – Form joint ventures with local partners to comply with foreign ownership restrictions while maintaining operational control through contractual agreements. Collaborate with local businesses to leverage their market knowledge and networks, enhancing the company’s presence and success in Thailand.
Emerhub provides you with comprehensive support across several key areas in establishing an SPA in Thailand. With our local experts, Emerhub assists in obtaining necessary regulatory approvals, such as those from the BOI or obtaining an FBL. We can help you navigate through restrictions, conduct thorough due diligence, and develop strategies that align with your business goals.
Get in touch with our local experts in Thailand and fill out the form below!
FAQs About Share Purchase Agreements in Thailand
Yes, Share Purchase Agreements (SPAs) in Thailand can be written in English. According to legal guidelines, SPAs do not have to be written in Thai; they can be drafted and executed in English, provided they comply with Thailand’s relevant laws and regulations. However, it is advisable to have a certified Thai-English translation available to ensure clarity and compliance with local legal requirements.
Share transfers in Thailand generally do not require approval from shareholders, but there are exceptions based on company regulations. Share transfers are typically governed by an instrument that must be signed by both the transferor and transferee, along with a witness.
However, if the company’s Articles of Association or shareholder agreements include provisions such as preemption rights or transfer restrictions, shareholder approval may be necessary. For instance, some agreements might require existing shareholders to waive their rights of first refusal before shares can be transferred to third parties. Therefore, it is crucial to review these documents before proceeding with a share transfer.
SPAs in Thailand are typically drafted by the legal counsel of the acquirer. However, the draft SPA will be negotiated and revised until both parties find it acceptable. This collaborative process ensures that the SPA reflects the interests and requirements of both the buyer and the seller, while also complying with Thai laws and regulations.
