Common Company Setup Mistakes

The first question is not what the company should look like, but what it will do. The business activity is checked against the restricted lists in the Foreign Business Act before anything is filed. Where the activity is open, a standard company with foreign shareholders is straightforward. Where it is restricted, the structure has to work around the restriction, and that is harder to fix after incorporation than before it.

A company formed for one activity and then used for another can find itself outside the scope its shareholders assumed. A shareholder who expected full ownership may discover the business is restricted, and a later restructure brings filings, costs and sometimes a change of control that was not planned. We confirm the activity first, then set the structure to match it.

Where a foreigner cannot own 100% because the activity is restricted, the temptation is to place Thai shareholders in the company to meet the ownership rules. That is lawful only where the Thai shareholders hold real economic interest in their own right. Shares held on instruction from a foreigner, or funded by the foreigner, are nominee shares, and nominee structures are unlawful.

The authorities scrutinise shareholding, particularly for land-holding companies. A nominee structure can be unwound, with serious consequences for the foreigner and the individuals who acted as nominees. A genuine Thai partner with a real stake is a different matter, and we document the basis of each shareholder's interest so the company stands up to review.

Registered capital is not a vanity figure. It determines how many foreign staff the company can sponsor for work permits, alongside the Thai-to-foreign employee ratio. Capital set too low at incorporation limits the work permits available, and a later capital increase means a fresh filing and the documentation that goes with it.

The capital should be set to support the planned operations and the foreign staff the business actually needs. Setting it high without the funds to support it is not a solution either, as the capital must be paid in and accounted for. We set the figure to the business plan, not to a generic minimum or an inflated guess.

The default memorandum and articles are written for the ordinary case, not for a company with foreign and Thai shareholders, different classes of contribution, or an eventual exit. A company that relies on the default articles can find that control, transfer of shares, and deadlock are all dealt with only when a problem has already arisen.

A shareholder agreement sits alongside the articles and sets out the matters the founders want to control: who decides what, how shares are transferred, what happens on a departure, and how disputes are resolved. Where the company has foreign shareholders, the agreement is usually bilingual so every shareholder understands the same terms. We draft both to match the real arrangement, not a template.

A Thai company carries obligations from the first month, not the first profitable year: bookkeeping, withholding tax on payments where it applies, value-added tax once registered, social security for employees, and audited financial statements filed annually. A company that treats these as annual tasks discovers, usually at the first audit, that months of records are missing.

Compliance lapses accumulate into penalties and, in serious cases, personal liability for directors. We set the compliance calendar at incorporation so the obligations are met from the first month, and the accounting and tax work runs alongside the business rather than behind it.