Mergers and Acquisitions in Thailand for Foreigners can be a great way to expand existing business to the Thai market. Using this option, foreign investors gain the possibility to acquire shares of Thai companies and work collaboratively toward a common goal mutually decided. The process is very open for Thai investors but holds some challenges for foreign investors.
The reasons that make the process cumbersome for foreign investors are the restrictions of the Foreign Business Act. However, there are possibilities of busting these challenges and proceeding in the process. But before that, you should understand the restrictions on foreign investors for M&A in Thailand.
Restrictions on Mergers and Acquisitions in Thailand for Foreigners
Foreign investors expecting cross-border M&A agreements in Thailand may face significant difficulties due to Thailand’s law restrictions on foreign ownership. These restrictions may affect the M&A structure chosen as well as a foreign investor’s degree of influence over a target company.
The primary law governing foreign ownership of firms in Thailand is the Foreign Business Act of 1999. Companies registered overseas or domestically with 50% or more of the shares held by non-Thais are considered foreign under the Foreign Business Act of Thailand. The Foreign Business Act contains three categories that restrict the kind of businesses that foreign corporations may do.
This means that without a foreign business license or any conditional exemption in accordance with the provisions of the act, ministerial regulations, investment promotion laws, industrial estate laws, or treaties between Thailand and certain countries, foreign investment in companies operating a restricted business is limited to less than 50% of the shares.
Furthermore, foreign ownership is not possible for various types of businesses and activities. This is because special Thai legislation reserves these business structures for Thai citizens. For example, the Land Transportation Act of 1979, after amendment states that only limited companies with at least 51% Thai-owned shares may operate in the land transportation business. In addition, the Land Code Act of 1954 forbids foreign nationals from owning land in Thailand unless specifically approved by legislation governing industrial estates or investment promotion.
Key Takeaway with Solutions
The major reason that makes the M&A structure formation challenging for foreign investors is the restrictions of the Thai Foreign Business Act. However, for this single challenge, there are various solutions as well. Generally, these solutions relate to the methods by which foreigners can register a Thai business in Thailand and proceed to register the M&A structure. Some of these methods are as follows:
- Registration of Limited Companies with 51% Thai Shareholding
- Obtain Board of Investment Thailand Promotions and Certification
- Receive Industrial Estate Authority of Thailand Privileges
Apart from these, there are certain other processes to achieve the eligibility to form an M&A structure in Thailand. For that, you need to contact a leading corporate law firm in Thailand and seek their legal due diligence services. Legal due diligence entails a careful examination of a target company’s corporate structure, operational procedures, regulatory compliance, licenses, labor, property, and other pertinent aspects. This will reveal whether there are any foreign ownership restrictions pertaining to the target company or the proposed investment.
Stages of Forming Mergers & Acquisitions in Thailand
Stage 1:
A Memorandum of Understanding (MoU) or Letter of Intent (LoI) is signed by the parties. At this stage, an MOU should specify the binding provisions and confidentiality terms.
Stage 2:
By conducting due diligence on the business, real estate, legality, and finances, among other things, the buyer examines various issues within the target organization.
Stage 3:
The parties begin the buy-sell negotiation after the due diligence procedure and resolve issues raised by the due diligence.
Stage 4:
The parties prepare the Sales and Buy Agreements and relevant documents to make them ready for signature and the business seal. The Thai Civil and Commercial Law confirms the signed agreements.
To make yourself eligible to form a Mergers and Acquisitions in Thailand, there are various parameters that you must abide by. It starts with an understanding of the Thai corporate structure and compliances properly. Additionally, you must have a proper knowledge of the Thai tax and regulatory landscape.
However, if you hire a reliable corporate law firm in Thailand, it will make the process easier for you. All you need to do for this is to email us at [email protected] and go for an email consultation.
