Risks of Shareholder Nominees in Thailand: What Investors Should Know 

Thai authorities have intensified investigations into nominee shareholder structures. This article outlines the key legal risks and implications for investors. 

Recently, the Business Development Department of Thailand launched further investigations with the Department of Special Investigations into the use of nominee shareholder structures and found several hundred firms that may be acting as business nominees. While these inspections are mostly concerned with the hospitality and tourism sector at this time, the practice of individuals or entities being appointed as nominees to hold shares on behalf of another party could be found in other sectors as well. 

While this strategy may seem appealing for some reasons, it comes with its own set of risks and potential pitfalls that investors should be wary of. 

Lack of Transparency and Corporate Control

One of the primary concerns associated with shareholder nominees is the lack of transparency and control. When nominees hold shares, the true ownership and control of the company may be obscured, making it difficult for other shareholders and stakeholders to ascertain who is truly in charge. This can create opportunities for abuse, including insider dealings, asset stripping, and other forms of corporate misconduct. 

Legal and Regulatory Exposure Under Thai Law

Therefore, relying on nominee shareholders can expose investors to legal and regulatory risks. In Thailand, nominee arrangements are subject to scrutiny by regulatory authorities, particularly in cases where they are used to circumvent foreign ownership restrictions or conceal the identity of beneficial owners. If a shareholder is found by a court to be a nominee aiding, supporting, or facilitating foreign individuals or entities, severe penalties are imposed. The shareholder could face imprisonment for up to three years and a fine ranging from THB 100,000 to THB 1,000,000 or both. Additionally, the court may cease assets or issue orders to cease any involvement in aiding or abetting, joint business operations, or shareholding related to the violation. Failure to comply with the court’s order may result in daily fines ranging from THB 10,000 to THB 50,000, as stipulated in Section 36 of the FBA. 

Importance of Conducting a Nominee Health Check

In light of these risks, investors should refrain from using shareholder nominees in Thailand. To mitigate the risks associated with nominee shareholder structures, investors are strongly advised to conduct a Nominee Health Check before proceeding with any acquisition or restructuring in Thailand. This due diligence process verifies whether a company’s shareholding structure, capital contribution, and corporate documents comply with Thai foreign ownership regulations. It can also identify potential red flags, such as undisclosed beneficial ownership, inconsistent shareholder records, or financial patterns that may indicate nominee arrangements. Conducting such an assessment early helps investors protect themselves from future legal exposure, ensures compliance with the Foreign Business Act, and provides transparency for potential partners, buyers, or regulatory authorities. Alternative strategies, such as structuring investments through legitimate corporate entities or exploring joint venture arrangements with local partners, may offer more sustainable and transparent solutions while minimizing legal and reputational risks. 

Conclusion: Ensuring Transparency and Compliance

Ultimately, while shareholder nominees may offer small short-term benefits in certain situations, investors should keep in mind the heavy potential risks and implications before opting for this approach. By understanding the pitfalls associated with nominee arrangements and adopting robust due diligence measures, investors can safeguard their interests and ensure compliance with applicable laws and regulations in Thailand’s dynamic business landscape. 

If you have any questions or concerns about shareholding nominees and shareholding structures in Thailand, please contact us at [email protected].