Are you planning to start a business in Thailand? Buying a business in Thailand is a more viable and convenient option to register your presence in the Thai market. This process offers several advantages when compared to starting a new business from scratch.
How to buy a business in Thailand?
In Thailand, potential investors seeking to purchase a business have multiple avenues to acquire an existing entity. Typically, two prominent strategies emerge out of these multiple avenues.
- Outright business acquisition;
- Purchase of business assets to transfer to a newly formed company.
Each approach involves distinct procedures, offers unique advantages, and necessitates careful consideration.
Buying the Business Outright
Purchasing a business requires obtaining both its assets and liabilities. The investor assumes control of the entire entity. This includes its operational structure, existing agreements with suppliers and clients, workforce, and market standing.
A significant benefit of this approach is preserving the business’s relationships with customers, suppliers, and employees.
However, this method also entails accepting the company’s liabilities, which may include hidden debts or potential legal disputes. Due diligence is crucial to ensure that you fully grasp all facets of the business you’re acquiring.
Buying the Assets and Transferring Them to a New Company
Rather than acquiring an existing business in its entirety, investors can choose to purchase only its assets. Eventually, they can transfer them to a newly established company. This approach is often preferred to avoid assuming the risks associated with the existing business’s liabilities.
By selecting this method, the buyer can avoid inheriting previous obligations and legal challenges concealed within the old business’s history. Instead, they acquire valuable assets. These can be property, equipment, key employees, and intellectual property, to utilize within a new business entity.
This option, however, requires careful inventory and valuation of assets and may involve renegotiating contracts and agreements. The buyer must also be ready to build new relationships with stakeholders. This is because the continuity of the business operations may face interruptions during the transition.
What are the Advantages of Buying a Business in Thailand?
When you purchase an existing company, you gain several advantages:
Inherit Existing Contracts with Suppliers and Clients:
- Maintain existing relationships and terms with suppliers and clients.
- Ensure a smooth transition and continuity of business operations.
Established Infrastructure: Acquire an already established infrastructure, saving time and effort in setting up the company.
Capital Requirements for Hiring Foreigners: If the company already has the required registered capital of 2 million THB, the new owners can continue to enjoy this benefit without paying it again.
Existing Market Presence: The business has an existing market for its products or services.
Brand Reputation: Inherit the brand reputation and customer loyalty of the business.
Experienced Workforce: Leverage a skilled and professional workforce to drive growth and operational efficiency.
What are the Disadvantages of Buying a Business in Thailand?
When considering purchasing an established company in Thailand, potential investors should be aware of several potential drawbacks:
Potential Liabilities: The new owner may be liable for unknown or hidden debts, lawsuits, tax obligations, or contractual obligations incurred by the seller before the sale. The buyer may also be held responsible for the seller’s actions or misconduct before the purchase, even if they were not involved or aware of them.
Lease Agreements: In Thailand, commercial leases may be short-term (3 years or less) and not registered with the Land Office. The lack of specific protections for commercial leases can be problematic.
Capital Investment: Buying a business often requires a substantial capital investment, which can be a significant barrier for entrepreneurs and investors.
Working Capital: Investors should have several months’ worth of working capital available to manage cash flow during the transition period.
Advantages of Purchasing the Assets of a Company
When acquiring the assets of a company, several benefits arise:
Liability Avoidance: Buyers can avoid inheriting liabilities like debts, lawsuits, or tax obligations that may not be readily apparent or disclosed by the seller. This shields the buyer from potential financial burdens.
Selective Acquisition: Buyers have the flexibility to choose which assets they wish to acquire and which ones to leave behind. This allows them to tailor the purchase to their specific needs and preferences, ensuring they only acquire assets that align with their business objectives.
Disadvantages of Purchasing the Assets of a Company
Loss of Intangible Assets: The buyer may miss out on the brand reputation, customer loyalty, market presence, and experienced workforce that come with an established business.
Loss of Existing Contracts: The buyer may not inherit any existing contracts with clients, potentially disrupting relationships and revenue streams.
Increased Tax Liabilities: Each asset may be subject to different tax rates and legal fees, potentially resulting in higher taxes and transaction costs for the buyer.
Renegotiating Agreements: The buyer must renegotiate any contracts with suppliers and customers. This is because there is no mode of automatic transfer of existing agreements with the previous company with the assets.
What is Due Diligence When Buying a Company in Thailand?
When purchasing an existing business, thorough due diligence is crucial, similar to the due diligence process for property acquisition. Undertaking due diligence allows investors to validate key information and evaluate potential risks and opportunities associated with the target company.
Key areas of focus during due diligence include:
Company Registration Details: Review the company’s legal status, including registration details, shareholder list, and directors.
Liabilities: Identify any outstanding legal actions or liabilities (such as debts, taxes, contractual obligations, and legal claims) that the new owners would assume.
Financial Analysis: Examine the company’s financial health and stability by reviewing balance sheets, bank statements, and tax records.
Contracts and Obligations: Evaluate all contracts signed by the company, including employment contracts, vendor agreements, and lease agreements.
Legal and Regulatory Compliance: Inquire about potential legal disputes, pending lawsuits, or outstanding tax liabilities that the company may be facing.
By conducting thorough due diligence, investors can gain a comprehensive understanding of the target company and make informed decisions regarding the acquisition.
Drafting and Reviewing a Purchase Agreement
After finalizing the due diligence process, the next critical step is to draft and review the formal business purchase or share transfer agreement. These legally binding contracts set the terms and conditions for the sale, ensuring a seamless transfer of ownership. The following are the typical key elements in such agreements:
Party Identification: The agreement begins by providing the legal names and contact information of both the buyer and the seller.
Business Description: A comprehensive overview of the company is provided, including its operations, assets, and the seller’s legal authority to authorize the sale.
Financial Terms: The purchase price, any deposits required, and the precise date and time of the transfer are specified.
Sale Details: The definition of the type of sale depends on the assets that are inclusions or exclusions from the transaction. This may include equipment, property, and intellectual property rights.
Covenants: The seller’s obligations surrounding the closing process are outlined, including tax obligations, loan repayments, employee benefits, and any non-competition agreements.
Transfers and Obligations: The responsibilities of both the buyer and seller are clarified, such as the buyer’s role in employee training and customer obligations.
Closing Process: The logistics of the closing process must include the specific date, time, and location, as well as the transfer of title and payment arrangements.
Warranties: Warranties ensure compliance with applicable laws and regulations, as well as the payment of taxes and other financial obligations.
How do you Restructure the Company After the Sale?
When acquiring an existing business in Thailand, several structural adjustments must be made and registered with the relevant government agencies. Two primary modifications commonly required are the transfer of shares and the substitution of company directors.
Changing Company Directors
Board of Directors Meeting: The board of directors convenes a shareholders’ meeting to pass a resolution regarding the alteration of company directors or their authority.
Shareholders’ Meeting: A shareholders’ meeting is held to obtain their approval and confirmation of the change.
Director’s Signature: Upon approval of the director’s change, the necessary forms are completed and signed by the outgoing and incoming directors. Witnessing of the signatures is required.
Registration: Completed forms are submitted to the Department of Business Development, and the company’s company affidavit is updated to reflect the change in personnel.
Transferring Shares
Share Transfer Instrument: The transferor and transferee execute a share transfer instrument outlining the transfer details, such as party names, the number of shares, and share numbers.
Updating Shareholders Register: Post-transaction, the company’s shareholders register is updated, and the change is registered with the Ministry of Commerce.
Issuing a New Share Certificate: The Thai Limited Company issues a new share certificate to the transferee.
Payment of Stamp Duty: The transfer of shares is subject to stamp duty, calculated based on the paid-up value of the shares.
As a Thai or global investor, completing all these phases by yourself can be difficult and prone to errors. These errors might not show themselves in the initial phases of the business but can halt your growth. For complete end-to-end support on buying a business in Thailand, feel free to contact us.
You need to complete only one step before contacting us – select and open the deal with the business you want to buy in Thailand. Henceforth, we will take it forward legally in compliance with the Thai Commercial and Civil Code. Additionally, our add-on bookkeeping, accounting, and tax services can help you set up and maintain the finances of your new company as well. Email us at [email protected].
