Young startup owners devote the majority of their time to building their companies. They do so by developing, refining, and selling their product or service and employing exceptional employees. Additionally, they work relentlessly to entice potential investors to invest in their ideas and business plan. However, to get things along as quickly as possible, many other significant issues skip the vision. Additionally, engaging lawyers and other professional counsel is frequently out of the question owing to financial constraints. This should not be your case for your process of Company setup in Thailand.
Perceiving to be overly harsh or demanding, many startup founders are unwilling to negotiate funding contracts meaningfully. Moreover, the fear of losing a possible round of funding is common. As a result, this leads to poor decisions or the acceptance of onerous and unfair investment terms. Many startup founders sign investment agreements and other important legal documents without a thorough review. Additionally, many founders do not understand and/or research the relevant laws and regulations adequately. Along with that, they ignore other important legal and tax matters and put them on a “to-do” list to deal with later.
Ignoring or failing to address critical legal, regulatory, and tax issues early on in your startup’s path can lead to problems and even disaster later on. To avoid complications in your startup, we recommend that founders make sure they grasp and appreciate the relevance of the five major risks for Company Setup in Thailand.
Choosing a suitable legal entity for your startup business
For every successful startup, securing investment is a rite of passage. Your immediate family and friends may invest in your ideas. Additionally, they can provide financial support in the early stages of your growth. Such supports can be in form of gifts or personal loans. External investors can express their interest in the later stages of your growth. On their will to invest, they can take an equity stake in a separate legal entity, usually a limited liability company.
It is critical for founders to establish their legal corporation early on in their business journey for various reasons. For this, you must know about the types of business entities that you can form in Thailand and learn about their incorporation criteria.
Agreements among founders and other shareholders
Conflicts are bad for any firm, but they’re especially bad when you’re starting from zero. One of the most significant strategies to minimize conflicts is to be clear about the roles and duties of the various stakeholders. Moreover, this must be in relation to each other, as well as the startup’s management and operations.
Therefore, when drafting a shareholders’ agreement, ensure the following mentions in it –
- Rights, duties, and liabilities of each shareholder
- Purpose of business, role, and status of directors and shareholders
- How the company is to be managed and by whom
- Meeting and quorum requirements
- Share transfer restrictions or other share lock-up mechanisms (if applicable)
- Company Dividend Policy
- Rights of first refusal and tag-along and drag-along rights,
- Methods of resolving disputes among directors and/or shareholders
- Business exit policy
A good shareholders’ agreement will be comprehensive in nature and be drafted by a professional legal consultant.
Tax planning
Typically, startups operate on a limited budget. Startups must always completely comprehend the necessity of appropriate tax preparation risk. The maximum rate of corporate income tax (CIT) in Thailand is set at 20% on net profits in general. Startups with a registered capital of less than THB 5 million and revenue from the sale of products or services with an annual turnover of less than THB 30 million will be exempt from the first THB 300,000.
A lower CIT of 15% will apply to enterprises with a net income of more than THB 300,000 but less than THB 3 million. Startups may also be eligible for various tax benefits from the Revenue Department (RD). These can be tax incentives to stimulate technology research and development and innovation. Additionally, tax incentives to encourage SMEs to employ computer programs is also on the list. Companies with an annual income of more than THB 1.8 million must register with the RD for Value Added Tax (VAT).
Protecting intellectual property rights
Most startup businesses have the foundation of new technology and innovation. The risks of losing your proprietary rights to your inventions are great if not protected with proper IP rights. As a result, it’s vital to the types of intellectual property rights in Thailand. They can be trademarks, copyrights, patents, or trade secrets. You should know about them and use them to protect your creations. This will prevent your unique idea from being stolen or otherwise illegally utilized by third parties right from the start.
Investors will want to see that any intellectual property for your business has the protection and control of your startup. Intellectual property is often in the ownership of the individual founders rather than the firm itself. In these cases, there must be a transfer of the IP from the individual owners to the business. Furthermore, founders should ensure that their workers’ employment contracts include an IP protection clause. Moreover, such a clause should immediately assign the IP rights to the company for any such development by the person during their employment.
By doing so, you will avoid future issues with employees who may claim ownership of any IP developed over the course of their job. Before deciding to make an investment in your company, investors will thoroughly investigate these issues, therefore it is crucial to address them right away.
Employment contracts
Your staff is one of your most valuable assets. Although most businesses start out with a small number of employees, you should always make sure to have a written agreement in place with them. Employment contracts do not have to be long, but they should include the basic terms of employment, such as the job description, working hours/days, salary, probationary period, if applicable, bonus and other entitlements, confidentiality requirements, assignment of IP provisions, and any other issues that the employer and the employee have agreed to. Other privileges and benefits, including provident fund payments under the Provident Fund Act, shall be supplied as required by labor legislation.
Potential investors can expect written employment agreements with your staff. If you do not already have such contracts in place, you should do so before inviting any investor to come in and conduct due diligence on your company. Failure to address these basic concerns may make you appear unprofessional. Finally, it will work against you in the eyes of investors.
Apart from these, there are various other risks which if not backed up with a mitigation plan can ruin your startup business. The most important step of creating such a plan is to hire a professional and experienced law firm. Mail us at [email protected] for support and guidance for your Company setup in Thailand.
