THAILAND Trends and Developments Contributed by: Nattaya Tantirangsi, Kantinan Buraphacheep and Chawit Khiewtai, MSC International Law Office
Any matters omitted in the IJV agreement will be gov - erned by the company laws, by default. IJV as a private or public company – what to choose It is advisable that an IJV is first incorporated as a private company because it is more convenient for the JV parties to manage. A public company is more heavily regulated on both legal and financial aspects. If, however, the IJV parties would like to do an initial public offering or an IPO for the JV company, the pri - vate JV company can be converted to a public com - pany at any time, subject to its shareholders’ approv - al, once it is IPO-ready. Currently, there is no legislation available to convert a public company to a private company, though there have been discussions of the matter. Therefore, it is wise for the JV to carry itself as a private company first and be converted to a public company only when it is necessary. Pitfall of an IJV agreement In Thailand, it used to be normal for a JV agreement or a shareholders’ agreement to include the JV company as a party to have certain obligations regarding the company’s management, including when the compa - ny breached any of its obligations, the company itself would be liable to the other parties of the agreement, aka the shareholders of the company. Supreme Court Decision No 3402/2548 later ruled that any payments from the company to its shareholders must be paid in accordance with the company laws, and the company’s liability to pay its shareholders due to a certain breach of the shareholders’ agreement was not statutorily allowed in the company laws. The court added that such a provision would affect the company’s stakeholders and, therefore, was void. An IJV as a separate entity from the IJV parties Unlike a UJV, an IJV is usually formed as a limited company where the IJV parties become the compa - ny’s shareholders. An IJV has its own capacity to perform legal acts as well as to be liable for any breach it may constitute. It can start a claim against any person as well as being
claimed against as a legal entity, while its sharehold - ers’ liability is limited to the unpaid amount of share capital, if any. Liability of UJV parties, however, is unlimited. Tax exposure of an IJV and its shareholders Like a UJV, an IJV is a tax entity separate from the JV parties and it has the same tax exposure as a lim - ited company. Unlike a UJV, any dividends paid to its shareholders in Thailand or to non-resident sharehold - ers will be subject to Thai tax. An exemption of dividend tax is given to a Thai cor - porate shareholder if it (i) holds at least 25% of voting rights of the dividend-paying company’s shares, and (ii) holds such shares for at least three months before and after the receipt of the dividend (accrual basis). If, however, the corporate shareholder is a listed com - pany, the percentage of shares held in the dividend- paying company is irrelevant. Only the condition of “holding of shares for at least three months before and after the receipt of dividend (accrual basis)” is required to be met for the listed company to enjoy dividend tax exemption. Other differences between UJVs and IJVs Fund raising Since a UJV is not a legal entity, any sources of fund - ing that require the fund raiser to be a limited company (private or public) will not be available to it. A UJV’s ability to raise funds depends mainly on the JV par - ties’ profiles or its capability to source its own funding. Sources of funding for an IJV are vastly available. From term loans from banks, issuing debt instruments, aka debentures or BE, to an IPO, an IJV can freely decide what would be the best fit for its business growth. Business expansion This topic discusses inorganic growth which depends on external resources for business expansion, as opposed to organic growth where the JV’s growth is from its internal resources. Mergers, amalgamation and entire business transfer (a form of acquisition), if undertaken according to the Thai Revenue Department’s regulation regarding tax
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