Buying an existing business in Thailand

[Siani]

Someone I know is thinking of buying an existing business in Thailand. Does anyone know the pitfalls please? I understand that the requirements include a Thai business parnter, is this so? Also to leave a minimum of 2 million baht in the bank there?
Any info gratefully received

[Spitfire]

Research the business and who you are buying it off if you can and don't do anything hasty.

Pitfalls everywhere with this one, even if you are a hard-nosed veteran of Thailand.

Lots of "Depends on this, depends on that..."

Money has a nasty habit of doing a disappearing act here.

Imo, and only in my opinion, it's better to start off a business by yourself than buy an existing one as the road of this sort of stuff is littered with failures.

[Siani]

Research the business and who you are buying it off if you can and don't do anything hasty.

Pitfalls everywhere with this one, even if you are a hard-nosed veteran of Thailand.

Lots of "Depends on this, depends on that..."

Money has a nasty habit of doing a disappearing act here.

Imo, and only in my opinion, it's better to start off a business by yourself than buy an existing one as the road of this sort of stuff is littered with failures.

Thanks Spifire, sounds advice. Do you know if he has to leave 2 million in the bank also?

[Spitfire]

Not entirely sure and wouldn't want to just speculate too much.....you'd need one of the legal boffins like SJ, Lomuamart or a couple of others to straighten that one out.

Maybe they will see it and clear it up as this is still a new post.

[Siani]

Not entirely sure and wouldn't want to just speculate too much.....you'd need one of the legal boffins like SJ, Lomuamart or a couple of others to straighten that one out.

Maybe they will see it and clear it up as this is still a new post.

Thanks spitfire, all very helful

[barrys]

It's difficult to give concrete advice here without knowing more about the "existing business" as the term is very vague.

First of all though, due diligence is crucial concerning the past performance of the business - simply relying on accounts presented by the owner, even if signed of by an "accountant" here, might not be sufficient.
You need to find other ways of verifying this.

What is the legal status of the business - limited company, limited partnership, sole tradership etc. etc.?

If you're buying a business that is presently a limited company, in effect you're simply buying out the shares and changing the shareholders and directors.
I can't envisage any scenario that would legally require having or leaving a minimum of 2 million baht in the bank in this case.
As for a partner, a foreigner cannot hold more than 49% of the shares in such a company.
This doesn't mean you need a Thai partner as such, but at least 51% of the shares have to be held by Thai nationals.
However, there is still nothing to stop that foreigner being the sole director with sole signing powers, depending on the business sector concerned.

With a bit more info we could probably give you some more meaningful advice.

[hhfarang]

Also, there are still a lot of businesses (licenses) owned by Americans that are freehold due to a treaty between the U.S. and Thailand years ago. So that would make a huge difference if the business were one of those and the buyer was an American. This part of the treaty has expired and no new licenses to own (100% of) a business will be issued by the Thai government but existing ones were not revoked and can be sold from one American to another (kind of like the lifetime golf memberships here).

[margaretcarnes]

As Barry rightly says it's fraught area with different company options. I would add that another important thing to bear in mind is whether the farang actually needs to have a company in his own name, or whether he simpy wants to fund the purchase of a business in a Thai partners name for example.
Most often it's the latter. i.e farang provides the capital for a Thai partner - wife/GF - to run a business as purely a Thai one. The farang then has no legal involvement - and no legal rights either.
If the farang wants control of a business then yes - he needs to buy into the company which runs it and, as pointed out, can only have a 49% share holding (apart from Americans.) The remaining 51% of shares can be split between about 7 Thais who - in my experience at least - have often simply been paid a fee to sign the documents and have no further involvement. That in itself can be a worry! And the farang still needs to have the required amount of capital in baht.
He would also still need to get into the realms of work permits amd the minimum legal number of Thai employees.

[Siani]

Thanks Spitfire Barry, HH and Mags for the very useful and helpful info. All advice is appreciated.

[barrys]

If the farang wants control of a business then yes - he needs to buy into the company which runs it and, as pointed out, can only have a 49% share holding (apart from Americans.) The remaining 51% of shares can be split between about 7 Thais who - in my experience at least - have often simply been paid a fee to sign the documents and have no further involvement. That in itself can be a worry! And the farang still needs to have the required amount of capital in baht.
He would also still need to get into the realms of work permits and the minimum legal number of Thai employees.

Just to clarify the above somewhat:
7 shareholders (total of Thai + farang) used to be the minimum number of shareholders for a limited company.
Two or three few years ago, this was reduced to a minimum of 3.
They are getting stricter now with regard to nominee shareholders, which is what you refer to above.
In any case, it is wise to get the Thai shareholders to sign share transfer certificates right at the beginning.

Concerning the company's registered capital, the assets can be taken into account here. It is not necessary to hold this amount in liquid assets additionally - and presumably an existing company should still hold the assets of the business.

It is possible to be a shareholder of a company and a/the director without "working" and therefore without the need to apply for a work permit or thus have the prerequisite number of Thai employees.

[Siani]

If the farang wants control of a business then yes - he needs to buy into the company which runs it and, as pointed out, can only have a 49% share holding (apart from Americans.) The remaining 51% of shares can be split between about 7 Thais who - in my experience at least - have often simply been paid a fee to sign the documents and have no further involvement. That in itself can be a worry! And the farang still needs to have the required amount of capital in baht.
He would also still need to get into the realms of work permits and the minimum legal number of Thai employees.

Just to clarify the above somewhat:
7 shareholders (total of Thai + farang) used to be the minimum number of shareholders for a limited company.
Two or three few years ago, this was reduced to a minimum of 3.
They are getting stricter now with regard to nominee shareholders, which is what you refer to above.
In any case, it is wise to get the Thai shareholders to sign share transfer certificates right at the beginning.

Concerning the company's registered capital, the assets can be taken into account here. It is not necessary to hold this amount in liquid assets additionally - and presumably an existing company should still hold the assets of the business.

It is possible to be a shareholder of a company and a/the director without "working" and therefore without the need to apply for a work permit or thus have the prerequisite number of Thai employees.

Thanks Barry, all the info is really helpful

[Super Joe]

Do you know if he has to leave 2 million in the bank also?

I've always understood that within a certain period of getting the business up and running, ie: a year or so, you should have deposited 25% of the registered capital. And no real requirement to deposit more as it is seen as being used, or waiting to be used, as working capital. But that was told me 6 odd years ago, so I'd use it as the basis for a question, no more really Siani.

Does anyone know the pitfalls please?

I'd say unknown tax liabilities for sure, (Corporation and VAT) but I don't know how the heck you would 'due diligence' them if someone was being deliberately creative. Examples that spring to mind:
a) Any property bought that was underdeclared/valued at land office carries forward a liability to the company.
b) Any undeclared/undocumented income could surface, via an inspection etc, which could mean 'x' amount of tax, maybe at the higher rate etc.
c) VAT, in the UK I had a VAT inspection and believed I had done everything above board (IR excluded ), but they found a month 5 years back when that month had took me over the VAT threshold... if projected forward from that month on... so I should have registered for VAT at that point. It didn't matter the following months went back below, they treated me as VAT applicable from then. I managed to back-charge some employers but cost me 9k sterling. Could be anything though!?!?

Barry or someone mentioned 'due diligence', which is dead right, I don't know exactly what that entails but I do know I wouldn't have any faith in anyone over here carrying that out properly. If I did want someone in HH to do it for me though, I'd definately go to Jim Finch @ Chavalit & Finch. I wouldn't risk it personally unless there was a very good/enticing reason to be honest Siani, but best of luck whichever you decide.


SJ

[Siani]

Do you know if he has to leave 2 million in the bank also?

I've always understood that within a certain period of getting the business up and running, ie: a year or so, you should have deposited 25% of the registered capital. And no real requirement to deposit more as it is seen as being used, or waiting to be used, as working capital. But that was told me 6 odd years ago, so I'd use it as the basis for a question, no more really Siani.

Does anyone know the pitfalls please?

I'd say unknown tax liabilities for sure, (Corporation and VAT) but I don't know how the heck you would 'due diligence' them if someone was being deliberately creative. Examples that spring to mind:
a) Any property bought that was underdeclared/valued at land office carries forward a liability to the company.
b) Any undeclared/undocumented income could surface, via an inspection etc, which could mean 'x' amount of tax, maybe at the higher rate etc.
c) VAT, in the UK I had a VAT inspection and believed I had done everything above board (IR excluded ), but they found a month 5 years back when that month had took me over the VAT threshold... if projected forward from that month on... so I should have registered for VAT at that point. It didn't matter the following months went back below, they treated me as VAT applicable from then. I managed to back-charge some employers but cost me 9k sterling. Could be anything though!?!?

Barry or someone mentioned 'due diligence', which is dead right, I don't know exactly what that entails but I do know I wouldn't have any faith in anyone over here carrying that out properly. If I did want someone in HH to do it for me though, I'd definately go to Jim Finch @ Chavalit & Finch. I wouldn't risk it personally unless there was a very good/enticing reason to be honest Siani, but best of luck whichever you decide.


SJ

Thanks SJ...really helful sound advice, really it is appreciated. All the bits and pieces of info which have been posted I will be making a list for my friend.

[migrant]

As mentioned due diligence is important.

This is the process of the buyer doing their own investigation, or hiring it done, into the business.
I have had many clients buying businesses that hire me to look through their books for problems, inconsistencies, etc.

I've told clients, on occasion, to go (if it is the type of business where this makes sense) into the business at odd hours, observe the traffic, sales also.

@HHF I think the Amity treaty was scheduled to expire, but has been extended. I may be wrong and can't remember the exact last time I looked, but thought not too long in the past

[Siani]

As mentioned due diligence is important.

This is the process of the buyer doing their own investigation, or hiring it done, into the business.
I have had many clients buying businesses that hire me to look through their books for problems, inconsistencies, etc.

I've told clients, on occasion, to go (if it is the type of business where this makes sense) into the business at odd hours, observe the traffic, sales also.

@HHF I think the Amity treaty was scheduled to expire, but has been extended. I may be wrong and can't remember the exact last time I looked, but thought not too long in the past

Thanks Migrant for your advice, really helpful.