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ResourcesCorporate and Tax AdvisoryThailand Tax LawIs it Better to Buy an Existing Thai Company or Setup a New One?

Is it Better to Buy an Existing Thai Company or Setup a New One?

Transcript of the above video:

This video is basically, as the title would suggest, it is a basically a video, we are going to briefly discuss the pros and cons of setting up a new company in Thailand versus taking over an old company.  Now to be clear and I want to make this abundantly clear.  We are not talking about necessarily buying a going a concern. So buying a company that is actually operational, you are buying that company because it has asserts or it has assets, or a book of business or something like this. That is a different thing we are talking about here. What I am simply talking about buying versus setting up a new company is basically, what we are talking about is more like “shelf” companies”.  I have seen this happen a lot, where somebody comes in, they are fairly new to Thailand, they are wanting to set up a business, they know somebody who has a company and that person doesn’t really want that company anymore; “Okay, I’ll sell it to you.” There are pros and cons to buying a pre-existing company; the biggest issue with buying a pre-existing company has to do with commercial due diligence. You really need to have somebody  who is able to go in there, have a look at that company, make sure that that there are no major issues associated with becoming a director of that company. In Thailand, and I am not going to delve into details of Thai Corporate Law. I am not a Thai Attorney, I am an American Attorney. I work with Thai Attorneys and sort of try to facilitate communication between our foreign clients and the Thai Attorneys but I do not have deep, deep expertise specifically in very detailed matters of Thai Corporate Law. What I am simply trying to state here is sort of a general surface notion. The information I am looking to impart is, you need to know what you are buying into, and a Thai company, if it is deficient in its tax filings on a yearly  basis or even monthly basis, there are serious ramifications for signing on to a company such as that. If the company hasn’t maintained its audited financial statements and balance sheets pursuant to Thai Law, signing on to that Company, becoming a director of that Company and therefore attaching certain personal liability associated with being part of that company, you can take, sort of, those liabilities on unknowingly.

So for this reason, due diligence is a very, very important aspect of buying a pre-existing Thai corporation if for no other reason than just ascertaining whether or not they’re up to date with their books is one of the most important things. Another thing to think about is setting up a new company, sometimes there are benefits to already having a Thai company up. It may have all of its tax filings done, it may have its VAT certifications done, it may have all of the, sort of ancillary documentation that is a fairly time consuming process to obtain. It may have all of that finished already and for this reason, sometimes buying a pre-existing Thai company is a good idea because it is going to essentially sort of fast track some of the things that have to do with setting up a new venture. On the pro side for setting up something new, you know exactly where that company’s been. You know everything about that company’s history, and for that reason, sometimes setting up a new company is better than getting into a pre-existing company. The other thing that I have  seen happen is people get into these, Thailand’s Corporate Law, and again I am not going to get into great detail, but it’s very different than the Western thinking about these companies. Most notably, Thai companies, unlike say an LLC in most US jurisdictions, if you fail to maintain your payments to maintain your LLC status, you are simply, your status lapses; it just ceases to exist. There are ramifications legally speaking for that, but for the most part if you simply wish to walk away from a structure like that, you can.

In Thailand, a Thai company, a limited company, there are obligations inherent with being a director on such an entity. Again, if that company doesn’t maintain its corporate filings, its tax filings, its yearly audited financial statements and balance sheets, there could even be criminal ramifications for that because failure to do that, it’s actually a crime in Thailand. So again, getting on to a company you haven’t dealt with in the past is an issue that should be addressed; again due diligence can probably sort out most of those questions. Setting up a new company, you can be relatively, well not relative, you can be assured that you know exactly from cradle to grave where that company has been. So there’s pros and cons to that. Sometimes, an old company, the person who sort of wants to “get rid of it”, will sell it at a cheaper price than setting up a new company. Again, if you take into consideration the due diligence and everything looks on the “up and up” and it looks like an okay thing to do, it might behoove an individual to buy an old company. I am not saying it is necessarily bad, I am saying things need to be thought about and not just rushed into when buying an old company. And for that matter, when setting up a new company, you have to think about “do I really want, is this business viable? Is it worth setting up a company and having to maintain various monthly accounting and tax obligations in relation to it?” All of these things should be thought about. But due diligence, and we have another video on this channel with respect to due diligence, I strongly recommend viewing that. Due diligence is the key. If you are buying an old company, you really need to know what you are getting into and due diligence, a good due diligence, we can provide services related to that, good due diligence is the key to understanding exactly what you are getting into when you are buying an old company.