Thailand’s Proxy Problems: Dissecting the Surge in Nominee Liability Claims
Key Takeaways
- Thai companies are required to have at least two shareholders. To meet this requirement, local business owners often use nominee shareholders—typically Thai nationals or entities. However, foreign investors are prohibited from employing such structures under the Foreign Business Act, B.E. 2542 (1999).
- A nominee is a Thai person or company registered as the holder of shares on behalf of a foreigner, yet they do not invest financially, hold a significant beneficial interest, or exercise any real control over the company.
- There continues to be significant media and regulatory attention around the use of nominee shareholding structures.
- Thailand reduced the minimum number of shareholders required to establish a private limited company from three to two, effective from 7 February 2023!
Introduction
If you browse any major newspaper in Thailand today, you are likely to encounter a story related to nominee shareholding agreements.
Under Thai law, a limited company must have a minimum of two actual shareholders. Thai business owners frequently appoint nominee shareholders to satisfy this statutory requirement, and under current laws, this practice is not illegal. However, the situation is entirely different for foreigners. Under the Foreign Business Act, B.E. 2542 (1999), foreign investors are currently prohibited from utilizing nominee shareholding structures in a Thai company.
What Is a Nominee?
Under Thai law, a nominee is defined as a Thai person (whether a citizen or a naturalized citizen) or a Thai company in whose name a property or company shares are registered, but who acts on behalf of a foreigner or foreign company.
For example, a nominee shareholder—whether an individual or an entity—may be registered as holding shares in a company with partial foreign ownership. However, this nominee does not contribute financially to the company, often lacks the necessary funds to pay for the shares, holds little or no beneficial interest, and exercises no control over the company in any form.
Why Does It Matter?
The recent surge in nominee liability claims in Thailand has significant consequences. For instance, the tragic case of a high-profile building collapse under construction in Bangkok, which resulted in multiple deaths, suggests that a nominee shareholding structure may have been utilized. According to Section 36 of the Foreign Business Act:
“A Thai national or juristic person that assists a foreigner in avoiding the Foreign Business Act by means of holding shares as a nominee or being a nominal owner of the company, shall (including the foreigner allowing Thai nationals or juristic persons to do so) be liable for a fine of 100,000 to 1,000,000 Baht and/or imprisonment of up to three years.”
Decoding Section 36, a Thai person involved in a nominee shareholder structure may be liable for a fine of up to one million baht and/or imprisonment for up to three years.
Concluding Remarks
According to various news reports, there is an ongoing dialogue among legislators, legal practitioners, and industry stakeholders aimed at reshaping the legal paradigm. The goal is to support commercial innovation in Thailand ensuring it continues to be a stable place to do business while fostering a stronger sense of accountability.
As always, we recommend that before entering any form of shareholding agreement or structure, you consult an experienced legal professional.
With a highly experienced Corporate/M&A team, WSR Law is well positioned to assist local and international businesses with all aspects of corporate law in Thailand.
