While incorporating a Partnership for Thai nationals is considered very simple to do with far less restrictions, partnerships for Foreigners are restricted by the Foreign Business Act.
Generally, a partnership is established through an agreement made by the potential partners. All prospective partners agree to invest in the establishment of a partnership prior to the commencement of a certain activity; in some cases a partner can join an already existing partnership (it can be done by either entering as a new partner or buying shares from one of the actual partners).
Terms shall be clearly specified (orally or in writing) when establishing a partnership; nevertheless, in some cases a partnership is based on relations between partners. Although it is not necessary to make the establishment agreement in writing, partnerships which are created to perform big projects and which require substantial investments (or the activities require documentary evidence), normally require a written agreement to avoid disputes in future.
There are two types of Partnerships in Thailand, Ordinary Partnerships and Limited Partnerships. According to the Thailand Civil and Commercial Code, a partnership is "A contract whereby two or more persons agree to unite for a common undertaking, with a view of sharing the profits which may be derived there from."
An Ordinary Partnership means that two or more people agree to unite their capitals to carry on activities together, with the purpose of sharing the net income derived from such activities. All partners are jointly and unlimitedly liable for the obligations of such as partnership.
An Ordinary Partnership is considered to be a kind of a contract. Therefore, it is not required by law to register the Ordinary Partnership. It could be incorporated by merely making an agreement between the partners without any formal registration. Nonetheless, an Ordinary Partnership can be registered if the partners so choose. Once the Ordinary Partnership is registered, it is considered as a juristic person.
Though the registration of an Ordinary Partnership is not strictly prescribed by the law, it can still be registered. The registration process is the same as the one prescribed for limited partnerships and limited companies. The provisions of Sections 1014 - 1024 of the Civil and Commercial Code are applicable for registered partnerships. In accordance with Section 1014, the Minister of Commerce, is presently responsible for the registration of partnerships and companies, it issues rules the governing the establishment of these organizations. In Bangkok, registration can be done at the Office of Central Company and Partnership Registration, while in all other provinces there are local registration offices.
In accordance with the provisions of the Civil and Commercial Code, the registration process prescribed for partnerships and companies is as follows:
Dissolution of a partnership shall include management of its property and liabilities. As all partners invest capital and unite assets while establishing a partnership, it is quite possible that some partners advance their money during the process of carrying on activities or use part of the partnership's capital. Thus, such partnership may be a creditor or a debtor in its relations with third parties. When dissolving a partnership, debts shall be settled and assets distributed; profits or losses shall be distributed as well. Apart from this, dissolution of a partnership includes termination of a certain agreements.
Liquidation means that all the assets of the partnership are brought together in order to pay-off debts and repay shares' value to the partners. The rest of money (if any) is considered as income and distributed between the partners. If the assets do not cover all the existing debts or there is not enough money to repay the shares' value, the partners shall take responsibility for losses accordingly.
In most cases with unregistered Ordinary Partnerships the partners carry on a small business and there are only a few partners, as well as just a few assets, if any, and generally, there are no debts to third parties. Thus, there is no need to perform liquidation. Partners usually find ways and agree on to how to liquidate assets and pay off debts.
A Limited Partnership exists when where there are one or more partners whose liability is limited to such amount as they may respectively undertake to contribute to the partnership, as well as one or more partners who are jointly and unlimitedly liable for all the obligations of the partnership.
The Limited Partnership is required to be registered and is considered to be a legal entity. Only the unlimited partner, is able to act as a managing partner. Therefore, if a partner whose liability is limited interferes with the business, they will become the unlimited partner and so will their liability shift to unlimited.
The process to register a Limited Partnership is very similar to the process required to register an Ordinary Partnership. Please see the deatils below.
Liquidation of a Limited Partnership is a little complex and requires the services of a lawyer specializing in Limited Partnerships. Section V subsections Section 1247 though to 1274 cover most of the requirements. Here is a quote; "The liquidation of a bankrupt registered partnership, or limited partnership shall be made, as far as practicable, in accordance with the provisions of the Thai Law of Bankruptcy".
Number of Partners
2 or more
2 or more
1 or more
Under the Foreigner Business Act, foreigners who wish to operate in any kind of partnership soon find out that their participation is restricted. If a foreigner invests more than half of the overall investment or names themselves a managing partner, the Foreign Business License law shall be applied. Therefore, to avoid the Foreign Business License, foreigners should not invest more than half and should not act as a managing partner in a partnership.
THUS, if a foreigner cannot act as a managing partner, it is less likely that they can protect their interests. Therefore Juslaws & Consult strongly suggests that foreigners stay away from all types of partnerships.