Acquiring Control: Share Purchases as a Strategic M&A Option in Thailand

Key Legal, Tax, and Compliance Considerations for Share Acquisitions in Thailand

Acquiring shares in a target company is a common and effective method for executing mergers and acquisitions (M&A) in Thailand. This approach allows an investor or acquiring company to assume control of the target company by purchasing either a majority or the entirety of its shares. Below, we explore the key aspects of this process, including the setup, compliance requirements, tax considerations, and other essential elements. 

Legal Framework for Share Acquisitions 

The legal framework for M&A transactions in Thailand is rooted in several key pieces of legislation. Private limited companies are governed primarily by the Civil and Commercial Code, while public limited companies fall under the Public Limited Company Act of 1992. If a public company is listed on the Stock Exchange of Thailand (SET), additional regulations apply, including the Securities and Exchange Act, and rules issued by the Securities and Exchange Commission (SEC). These laws and regulations collectively guide the process of acquiring shares in Thai companies. 

The Setup: How a Share Acquisition Works 

Acquiring shares typically begins with the buyer conducting due diligence to assess the financial, legal, and operational state of the target company. Once satisfied, the buyer negotiates and executes a share purchase agreement (SPA), detailing the terms of the transaction, including the purchase price, warranties, indemnities, and other key conditions. 

Share acquisitions may involve buying existing shares from current shareholders or acquiring newly issued shares as part of a capital increase in the target company. In the latter case, the target company must pass a special resolution in a shareholders’ meeting to approve the capital increase. Existing shareholders have the right to purchase newly issued shares first, and only if they waive these rights can the acquirer purchase the shares. Often, the acquirer will initially buy one share from an existing shareholder to qualify as a current shareholder, enabling them to buy the newly issued shares once the pre-emptive rights are waived. The capital increase and any share transfers must be registered with the Ministry of Commerce. 

Compliance Obligations 

Compliance is a critical component of share acquisitions in Thailand. The Civil and Commercial Code and Public Limited Companies Act lay out foundational requirements, while the Foreign Business Act (FBA) places restrictions on foreign ownership in certain sectors. Foreign buyers must ensure that their acquisition aligns with the FBA to avoid violations. 

Post-transaction, the share transfer must be reported to the Department of Business Development (DBD) under the Ministry of Commerce to update the company’s official records. For public companies, compliance with the Securities and Exchange Act may also be necessary, particularly when significant shareholders or insiders are involved. 

Tax Implications 

Tax considerations are a vital factor in structuring share acquisitions. In Thailand, capital gains tax applies to profits from the sale of shares. For individual Thai residents, this is taxed under the personal income tax framework. Non-residents may face withholding tax on the gains. When the seller is a corporation, capital gains are subject to corporate income tax. 

Buyers must also account for potential tax liabilities within the target company. A comprehensive review of the company’s tax records is essential to identify risks, which may be mitigated through indemnities or escrow arrangements. 

Characteristics of Cross-Border Transactions 

Cross-border share acquisitions in Thailand present unique challenges and opportunities. These transactions often involve navigating cultural differences, regulatory complexities, and various legal and financial considerations, each of which requires careful planning and execution. 

Regulatory complexity is one hallmark of cross-border acquisitions. Foreign investors must navigate a multi-layered regulatory environment, including the Foreign Business Act, tax treaties, and sector-specific laws. Foreign ownership restrictions also pose unique challenges. Certain industries, such as telecommunications, agriculture, and transportation, impose limits on foreign ownership. Structuring the transaction to comply with these restrictions while achieving control often requires thorough due diligence. 

Currency exchange and repatriation of profits, and tax implications for foreign parties add another layer of complexity. Tax treaties between Thailand and the investor’s home country can influence the taxation of capital gains, dividends, and other income streams.  

As it was shown, conducting due diligence across borders presents unique challenges. Evaluating legal, financial, and operational risks in a jurisdiction with different standards and disclosure practices often requires more detailed investigations and collaboration with local experts to uncover potential liabilities. 

Other Key Considerations 

1. Due Diligence: Thorough due diligence helps uncover hidden liabilities, such as unresolved legal disputes, employment issues, or compliance gaps, ensuring that the buyer is fully informed about the target company’s condition. 

2. Regulatory Approvals: Some industries, such as banking, telecommunications, or energy, require regulatory approval before completing a share acquisition. Obtaining these consents is a crucial step. 

3. Shareholder Agreements: Pre-existing shareholder agreements may include clauses like rights of first refusal or drag-along/tag-along provisions. Buyers must carefully review and adhere to these restrictions. 

4. Post-Acquisition Integration: Following the acquisition, integrating the target company into the buyer’s existing structure is a critical phase. This often involves adjustments to management, operational processes, and corporate governance. 

Conclusion 

Acquiring shares in a target company is a flexible and widely used strategy for M&A transactions in Thailand. While the process offers significant advantages, it also involves navigating a complex legal and regulatory environment. By thoroughly addressing compliance, tax, and integration issues, businesses can ensure a seamless acquisition process and position themselves for long-term success in the Thai market. 

If you are considering a share acquisition in Thailand and need reliable legal guidance, our team is ready to assist you at every stage of the M&A process. Contact us today to speak with our experts and gain insights tailored to your business.