In Thailand, business partnerships are governed by the Civil and Commercial Code and can be a versatile structure for both local and foreign business ventures. There are three main types of business partnerships, each with unique implications regarding liability, ownership, and legal status.
An unregistered ordinary partnership is the simplest form of business collaboration, where two or more people agree to jointly run a business without formally registering it. Partners share unlimited personal liability for the business’s debts and obligations, making this structure riskier for individuals involved. However, it is often used in small, informal business setups or family-run enterprises.
In a registered ordinary partnership, the business must be formally registered with the Department of Business Development (DBD). While the partnership gains a separate legal identity, partners still bear unlimited liability for the business’s obligations. Registered partnerships can enter into contracts, own property, and engage in legal activities independently of the partners.
A limited partnership provides more flexibility by allowing for two types of partners:
Limited partnerships are commonly used when outside investors are involved who want to protect their capital without taking on operational risks.
The Foreign Business Act (FBA) regulates foreign ownership in Thai businesses. Under the FBA, foreign participation is restricted in several key industries, including services, agriculture, and retail, unless the business has a Foreign Business License (FBL) or benefits from exemptions such as BOI promotion.
Foreigners can own up to 49% of a business in certain restricted industries, though full foreign ownership is allowed in non-restricted sectors or through BOI-promoted activities.
Foreigners often partner with Thai nationals to create a Thai-majority partnership, where foreign ownership is capped at 49%. This arrangement allows foreign investors to operate within sectors restricted by the FBA while retaining significant control over management.
The BOI offers incentives such as full foreign ownership, tax exemptions, and visa privileges for businesses that operate in priority sectors, such as technology, manufacturing, and export-related industries. BOI promotion allows foreigners to circumvent the FBA restrictions in certain industries, providing more flexibility.
A written partnership agreement is essential in outlining the terms of the partnership, including capital contributions, profit-sharing ratios, and dispute resolution mechanisms. This agreement reduces the risk of misunderstandings and helps ensure smooth operations.
Liability is a major factor in determining the type of partnership. In both ordinary and limited partnerships, the general partners bear full personal responsibility for the business’s debts, making it crucial to carefully assess the financial risks involved.
Thai partnerships are subject to corporate income tax, and partners are also required to declare their share of profits as personal income. The partnership itself is taxed as a separate legal entity, and the partners are taxed on their personal income, potentially leading to double taxation if not managed effectively.
Thai business partnerships offer a flexible and versatile structure for both local and foreign entrepreneurs. Whether forming an unregistered, registered, or limited partnership, it’s important to carefully consider liability, tax implications, and ownership restrictions under the Foreign Business Act. For foreigners, structuring the partnership in compliance with Thai laws or seeking BOI promotion can maximize opportunities while minimizing risks. By understanding the legal framework and properly drafting a partnership agreement, businesses can thrive in Thailand's dynamic economic environment.