New company ownership rules might affect you

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kmm
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Post by kmm »

I understand everyone's concerns but my company has been using a couple of strategies; namely secured loan agreements and Minority Shareholder Protection Schemes, to further protect the interests of Farang landowners in these situations. However as I am always getting into trouble for promoting my company I am not too sure what I am allowed to say in this forum and what I am not! Anyone can PM for me a more detailed explanation of the above and/or a moderator can let me know what I can say here without incurring anyone's wrath.
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Lev
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Post by Lev »

kmm wrote:However as I am always getting into trouble for promoting my company I am not too sure what I am allowed to say in this forum and what I am not! Anyone can PM for me a more detailed explanation of the above and/or a moderator can let me know what I can say here without incurring anyone's wrath.
Real estate and company promotion under any guise is forbidden on this forum unless you wish to support it as it would be you, this is only fair. This also extends to PM's which can be monitored and disabled if necessary.
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Post by Beguine »

[quote="kmm"]I understand everyone's concerns but my company has been using a couple of strategies; namely secured loan agreements and Minority Shareholder Protection Schemes, to further protect the interests of Farang landowners in these situations. However as I am always getting into trouble for promoting my company I am not too sure what I am allowed to say in this forum and what I am not! Anyone can PM for me a more detailed explanation of the above and/or a moderator can let me know what I can say here without incurring anyone's wrath.[/quote]

Secured loan agreements and minority protection schemes seem to draw attention to the existence of nominees as in the case of Kularb Kaew. There are legal precedents in Thailand for the courts regarding property bought by a Thai with a mortgage from a foreigner as illegally owned by the foreigner. This is extending the same unsound principle to share ownership. Minority protections could make a company fit the definition of a foreign company in the new FBA that looks at who has voting rights.
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Post by Beguine »

Any one have any tips on restructuring an existing company owning a house?

Does it make sense to remove the farang as authorized signatory completely or maybe add one or more Thais as alternate signatories, assuming the farang is currently sole authorized signatory?

Should the farang resign as a director or consider adding one or more Thais as directors?

Is it still possible to change Thai shareholders without them being scrutinized in the same way as they are being scrutinized in new company registrations with foreigners as shareholders or authorized directors?

Is there any benefit in reducing from 49% to 39% foreign shareholding or would be better to reduce to nil with a lease.

What is their attitude to a Thai wife owning shares, even if she doesn't have a high salary? It is OK for her to own the property outright but that situation is covered by the foreign spouse's declaration at the Land Office. On the other hand, it seems totally unreasonable not to allow a husband to give his wife free shares in a family business without her having to prove she earned the money to buy them herself.

Is is worth amending the company's memo and articles to exclude Annex 1 activities like rice milling etc that the company has no intention of ever doing? I presume it is necessary to keep in the one about buying and renting out land. I assume like other posters that they are more likely to look at what the company actually does but removing those activities might take away an excuse for an inspection.

Is the situation hopeless and the best thing is to donate the property to a Thai wife, gf or friend and try to do a lease or usufruct?
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Post by Burger »

Bequine,

The last thing I read from the Governement was that the new 'no more than 49% voting rights for foreigners' only applied to List's 1 and 2 of the FBA.

All the companies house buyers set up to buy property list the objective of the company as doing a business (sometime in the future!?!?) on List 3, which is exempt from the new voting right issue.

So I don't see a concern to hold property in a company.
If/When it changes later, then lease the land to A.N.Other.

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Post by Beguine »

Burger, I think that List 3 companies with 50% or more foreign voting rights can be grandfathered under the new FBA, if they register. But registration would invite an inspection to see if there are nominees which would be very dangerous if the company owns land. The Land Code definition doesn't yet include voting rights as the definition of an alien but there again it would be very dangerous to be a test case. The Land Code says half or more of the capital without specifying that this is paid-up share capital. That probably allows them to look at the overall source of capital for purchasing land, including debt and equity. That would be problematic for B2 million companies that have purchased property for a lot more than B2 million using loans from the foreign director. A free legal website www.samuiforsale.com has a lot of info on the topic. They are not selling real estate or legal services through the website, so I think its OK to mention it.
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Post by Burger »

Beguine
Burger, I think that List 3 companies with 50% or more foreign voting rights can be grandfathered under the new FBA, if they register.


What I read from the government was that List 3 were exempt altogether, not just 'grandfathered' ??
They are also going to revise List 3 and take out some of the service industries from the FBA altogether, which will be good for foreigners.

With regard to the Land Code, they have not been bothered to enforce it up until now, not sure what the new registering requirements will be, above what info they already have ?

Hopefuly we'll see soon enough.

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Post by Beguine »

Burger, List 3 companies that are foreign through preferential voting rights will have a year to report to the Commerce Ministry and get a certificate to continue in business as foreign companies. There is already a procedure to do this i.e. applying for an alien business licence for a list 3 activity. Currently it is decided by a committee at the ministry and you have to submit a lot of documentation including 5 year financial projections, headcount plan etc. It is not clear whether this process will be made any easier for those applying in this special case, since they are already in business. The ministry doesn't require all the projections etc from American owned companies applying for alien business licences under the treaty or from foreign representative offices.

List 3 companies that have nominee Thai shareholders are already illegal under the existing FBA and will continue to be. The "grandfathering" of list 3 is merely for companies that have real Thai investors holding over 50% of the shares who control less that 50% of the votes. But these companies will be classified as alien after registration. The definition of alien in the Lands Code only refers to capital, no voting rights. However, it is hard to imagine the Lands Dept being happy that a company running around with an alien business certificate owns land.

The businesses being taken out list 3 are only businesses where foreign participation is already controlled under separate laws like securities trading, tourism and retail. They decided to live in the last item in list 3: any service business not specifically mentioned in the act. Therefore all service industries are prohibited to foreing companies without an alien business licence.
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Post by Burger »

Beguine,

The Government ammendment only said they had to report themselves within 1 year, it did not say they had to obtain a certificate to continue, whether in a new format, or in the present format (ie an Alien Business Licence).

I can't put the Government's Ammendment to the FBA on here, but an extract of the exact wording said:

2. Adjustment Time Frame
2.1 Existing businesses with foreign voting rights of 50% or more will be allowed to continue their operation under the following conditions:
Businesses under List Three (3) are eligible for continued operation provided that they have reported themselves to the authority within 1 year of the enactment of this ammending act.


Maybe the key to it all is what is required under the 'reporting'.

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Post by johnnyk »

My 2 satang is that 'reporting' is key.
It sets up a "Now we know who you are and where you are" scenario. Much easier to find you if they change the rules down the road.
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Post by Burger »

Know what you mean Johnny, but Ministry of Commerce knows all about our company and our shareholders.
Land office knows if that company bought land.

Wonder what else they'll ask for ?

I think if they 'had it in for us' they wouldn't have excluded us from the restructuring requirement for Lists 1 & 2 re: 'no more than 50% of the voting rights' ??

We'll have to wait and see.

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Post by Beguine »

Burger, This is from the MoC's Department of Business Development's explanation of the amendments on its website www.dbd.go.th

"What will happen to a company that was previously Thai (foreigners holding 49.99% shares) but will become foreign company due to foreigners having voting rights at 50% or more? Will it be considered as violating the new law or will it be given time to comply?

The government understands that such company was not in violation of the FBA before so it will be given time to comply with the new law. All such company will be required to report to the Department of Business Development in order to obtain Certificate to continue operation. However, the length of operation will differ between businesses in Lists 1, 2 and List 3."

Clearly List 3 companies need to report AND obtain a certificate just like Lists 1 and 2. The difference between the 3 lists, as it goes on to say, is that the certificate allows List 3 companies to continue in business indefinitely with majority foreign voting rights (but not with majority shareholding directly or thro nominees), whereas the certificates for Lists 1 and 2 will only be temporary. It is not clear what this certificate is, what documents and conditions will be required. However, it sounds suspiciously like an alien business licence and it would be tempting for them to use the existing procedures for that or just make it an alien business licence plain and simple. Probably the procedure will involve some mechanism to exclude inactive shell companies and those that own land may be reported to the Lands Dept for to see if they are in breach of the Land Code.

I think that anyone who owns land through a company with preferential voting rights would be insane to apply for this certificate. Just get rid of the preferential voting rights and you don't have to report. Even if you don't own land but have nominees, you would not want to invite the MoC to examine your nominees which is likely to be a condition for issuing the certificate. Reporting is only interesting for genuine joint ventures without land where the Thais own over 50% but have agreed to have less than 50% of the votes because they really want the foreigners to run the business and provide technical know how, brand name or whatever. These do exist and some may even be set up just to take advantage of the grandfathering.
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Post by Burger »

Bequine,
Thanks for the link, hadn't seen that before, only the summarised version.

So your average Limited Company on List 3 of the FBA have to report within 1 year to the Ministry of Commerce to obtain a 'certificate' to continue operations indefinately and be 'grandfathered' (as it says on the 'explanations section, seperate to the Q&A section).

What's interesting though is that businesses on Lists 1 & 2 have only 2 years to continue before they HAVE to give the majority voting rights to Thai's, but List 3 (where most of us 'average' foreigners operate) can continue with foreigner having the majority voting rights INDEFINATELY, (providing certification/grandfathering).
That sounds positive, plus the bit where it says "The Government understands that such company was not in violation of the FBA before"

As you rightly say, what is that 'certificate' and what is required for it, will it be issued automatically to allow business to continue ? or will it be stringent ?
Presumably soon enough they'll let us know the details of it.

To me the 'certificate' is different to the 'Alien Business Licence' as that's for companies who want the foreigner to hold more than 49.99% of the shares.

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Post by Beguine »

I don't spose they've decided what kind of certificate to issue yet. It could end up being the same as an alien business licence as to all intents and purposes it is the same thing. The only difference is the alien business licence is currently applied for before registering the company. Let's just hope they change their minds and scrap most of List 3. Things are getting stranger by the minute and anything could happen. Somkid, the architect of TRT's ruinous economic policies, and marketing spin brought back to explain the sufficiciency economy to foreign investors. I hope he flies to Phuket to explain to foreign pensioners why the sufficiency economy means they don't need to own their retirement homes.
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grandfathered?

Post by sonmic »

perhaps a stupid question, but what is "grandfathered" exactly?
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