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A nominee shareholder is a shareholder in name only; in reality nominee shareholders lacks any real financial stake or interest in the company. Under Thailand business law, the practice of nominee shareholders is illegal. The prohibition is found in the Foreign Business Act 1999 , and the Land Act . Foreign companies with Thai nominee shareholders are coming under an increased amount of scrutiny.
Many foreigners choose to form a Thai majority company, (more than 50% of the shareholders are Thai), so that the Company is able to operate a business in a category that is restricted to foreigners. The registration of a Thai majority company generally requires less registered capital and less paperwork than the registration of a foreign company. A Thai majority company can also buy land.
In a Thai majority company, Thai shareholders own 50% or more of the shares. In the recent pas the maximum ratio of foreign ownership in Thai majority companies was considered to be 49% versus Thai ownership of 51%, However, for certain types of business activities a 39% maximum ratio of foreign ownership is required.
Pursuant to the law, shareholders own the equity of a company in proportion to their share ownership. Therefore, the majority of the equity in a Thai majority company will almost certainly be owned by the Thai majority.
In general, the majority ownership of a company are able to select a director and make decisions as to the operation of the company. Under certain circumstances, the use of preferential voting rights and the requirement of a super majority of shares to votes may alter voting rights in favor of minority share holders.
The use of “nominee” shareholders is expressly forbidden by the Foreign Business Act of 1999. It is a criminal often with significant penalties including fines and imprisonment. Prior to the introduction of the revised act of 1999 it was common to utilize loan-pledge agreements as a method for foreign minority shareholders to control majority Thai shareholders. This entails the Thai shareholders borrowing funds from the foreigner and “pledging” the shares back as security. However, the Act of 1999 made this practice illegal. While enforcement of the Thai nominee prohibitions of the Foreign Business Act has been infrequent, the practice is risky particularly if a company has engaged the use of professional nominees whose name appears on multiple company registrations.