Joint Ventures

The term "Joint Venture" as used in this chapter refers to a limited company owned principally by two or more corporate shareholders. It differs from a "Joint Venture" referring to an unregistered partnership, which is not a limited company. However, the term "Joint Venture" is often used to describe both forms of business.

Practical Considerations: As a means of facilitating a business in a new country, many companies enter into joint ventures with Thai companies. This business entity is also entered into by foreign companies doing business in Thailand to be in accordance with the rules and provisions stated in the Alien Business Law or the Promotional Certificate issued by the BOI (Board of Investment). Conversely, some Thai business are also motivated to form joint ventures with foreign companies because they require the technology or experience and wish to establish or expand their businesses.

It must be noted that upon entering into a joint venture each side has it's own interests to protect. Foreign companies are concerned about protecting their technology and name while making a profit, and the Thai side, also seeking to profit, must protect it's investment as well. Commonly, the result is that the control of the joint venture and the distribution of the profits are negotiated privately. This is in most cases not filed with any governmental authority. Foreign partners may have their equity interest in the joint venture limited to 49% or less because of legal restrictions stated in the Alien Business Law or conditions attached to a Promotional Certificate issued by the BOI.    

A requirement demanding a super majority (more that 51% of the shares) may be provided by the Articles of Association with regard to matters voted on by the shareholders. Whether a super majority is advantageous or disadvantageous to shareholders is dependent on particular circumstances, and one must weigh the pros and cons carefully before coming to a decision on implementing such a provision. 

Relevant Contracts: 

A variety of contracts are negotiated in establishing a Joint Venture including the following: Intellectual Property, technical Assistance Agreements, management Agreements, and Shareholder Agreements.  

The joint venture agreement, in most cases, provides for the constitutional documents involving the joint venture company to be formed. This is in addition to the agreements referred to above. The Memorandum of Association which outlines in detail the objectives of the company is the first of such documents.

Sometimes the case that a foreigner wishes to avoid any direct involvement in a Thai business organization. Alternatively, he may wish to use only Technical Assistance Agreements, Supply of Material Agreements, Trademark Licensing Agreements, and other arrangements.  

The Ministry of Commerce may require a company to abandon goals which are forbidden to foreigners if they are owned by a foreign majority. A Memorandum with 40 objectives belonging to the Ministry of Commerce may be used by a Thai majority company, or they may create their own memorandum. More often than not, the Memorandum is not an issue of contention between the parties to a joint venture. 

The Board of Investment may require that joint ventures deposit with them agreements concerning the transfer of know-how and technology related to the companies promoted by the BOI.

Intellectual Property Rights Agreements:

Technical Assistance and Trademark License provisions are usually contained in the joint venture agreement. The BOT (Bank of Thailand) must be provided with copies of these agreements if an application to remit funds abroad is made pursuant to them. In most cases agreements such as these allow the foreigner to remit profits abroad at low total tax rates. Another source of profit to a parent company are agreements for the supplying of raw and other materials to the joint venture.

Management Agreements: The Thai side sometimes requires that a provision for a management agreement in their favor be stated in the joint venture agreement. This would give the Thai side allowance to receive management fees and is thought to offset to some degree, the advantages foreigners receive from the payments relative to the above mentioned agreements.

The Articles of Association details how a company will be managed and lays out the relationship between shareholders and directors. This is the second important document which is to be filed with the Ministry of Commerce. The Articles of Association must be in good order for there to be effective control by a particular group of shareholders. The Articles may provide for the division of shares of a company into one or more classes may be done, with each class having specific rights. There are a number of ways to structure different classes of shares and apportion rights to each class. One factor to be considered when classes have largely equal rights is the possibility of a deadlock. In light of this, with careful drafting most class of shares issues may be resolved.