When the relationship changes.

How the relationship changes

The following is a composite drawn from situations advisers in this market see repeatedly, not an account of any individual client. A Thai shareholder, spouse or long standing local partner has held a position in a structure for years. Nobody has thought about it because nobody needed to. Then the human situation changes in one of four ordinary ways. The person dies, and their heirs inherit the shares along with none of the understanding. A marriage ends, and property questions become part of a separation. A friendship or a commercial partnership fails. Or the person's own circumstances change, through illness, financial pressure or advice from someone new, and they begin to ask what their position actually is.

In each variation the same thing happens next. Documents that were never meant to be read carefully are read carefully: side letters, undated share transfers, loan agreements, proxies and pledges. And the foreign owner discovers that he has never tested whether any of it does what he was told it did.

The legal position, stated plainly

Under Section 36 of the Foreign Business Act B.E. 2542, a Thai national or entity holding shares on behalf of a foreigner, or assisting a foreigner to operate a restricted business, commits an offence. The stated penalty is imprisonment not exceeding three years, a fine of 100,000 to 1,000,000 baht, or both. The part that most foreign owners have never absorbed is that the liability falls on both the foreigner and the Thai party. Consequences reported in practice extend further still, to separate false statement offences under the Penal Code, dissolution of the company by court order, and compulsory disposal of land held through such an arrangement. Separately, the Land Code provides that foreigners generally may not own land, and the only route to direct individual foreign land ownership, Section 96 bis, requires a substantial qualifying investment commonly described as 40 million baht together with residential use and ministerial approval, and is so restrictive that it is rarely a usable option in practice.

That is the framework. Whether any particular arrangement falls within it is a question of fact and law that only qualified Thai counsel can answer on the actual documents, and no owner should assume either the best or the worst without that advice.

Why the owner's leverage is weaker than he assumes

Foreign owners in this position usually believe they hold the strong cards, because they hold the paperwork and they provided the money. Three things undercut that belief. The first is that the enforceability of documents whose purpose is to secure control that the law does not permit a foreigner to hold is, at the very least, uncertain, and this is precisely the question counsel must be asked directly rather than assumed. The second is that any attempt to enforce them takes the whole arrangement into a Thai court or before an authority, where the arrangement itself becomes visible and the owner may be describing his own exposure in the process of asserting his rights.

The third is timing. The owner is frequently overseas, frequently unable to act quickly, and frequently dependent on local people whose cooperation is exactly what has been withdrawn. Leverage that requires the other side's participation is not leverage. It is a hope with a document attached.

Why the Thai party is exposed too, and often frightened

It is worth saying clearly, because foreign owners rarely think about it and it changes how these situations are best approached: the Thai party carries real personal exposure under the same provision, and in many cases they carry it without having received anything of substance in return. A Thai shareholder in a nominee arrangement may face criminal liability, may be named in company records they cannot control, and may have signed documents they did not fully understand years ago on the assurance of a professional who is no longer involved. Heirs who inherit such a position inherit the exposure with it, and they usually had no part in creating it.

This is why so many of these breakdowns are driven by fear rather than by greed. A Thai party who has taken advice, or whose family has, may want out urgently and may care much more about their own position than about the property. Understanding that is not a negotiating tactic. It is the reason both sides usually need their own separate lawyers, and the reason a resolution that leaves the Thai party exposed is not a resolution at all.

What the composite shows about narrowing options

While the relationship was functioning, the owner and the Thai party could have sat down together, taken independent advice each, and considered every lawful route on the facts. Once the relationship has ended, the same routes may still exist, but they now require agreement between people who no longer trust each other, or between one of them and the other's heirs, ex spouse or creditors. Nothing has become impossible. Everything has become slower, more expensive, and dependent on somebody whose interests have moved.

The lawful routes that exist

Which of these is available depends entirely on the facts, the property type and counsel's assessment, and none of them can be selected from a list by the owner alone.

What to do first

If a relationship of this kind has changed or is changing, the guidance is short and it does not vary. Instruct qualified Thai counsel of your own, independently of whoever formed the company, and instruct them immediately. Tell them everything, including the parts that are uncomfortable and the parts you suspect are wrong. Expect them to advise that the Thai party takes their own separate advice, and do not treat that as an obstacle. Bring your advisers at home into the conversation as well, since your own country's tax and reporting rules may be engaged by whatever is done next. Do not attempt to resolve the position by private agreement drafted between the parties without advice.

Asia Global Partners is a private office and not a law firm, and gives no legal advice. Where a family asks the office for help in a situation like this, the work is coordination: instructing independent Thai counsel, keeping the sequence orderly across jurisdictions, and remaining the single accountable relationship while other professionals do the legal and accounting work. A confidential review taken while a relationship is still functioning is a very different exercise from the same review taken after it has ended, and only one of them is conducted at the owner's own pace.

This article is general information and not legal advice, and the Foreign Business Act and Land Code positions summarised here cannot be applied to your facts without advice. Instruct independently instructed Thai counsel immediately and be complete with them. Verify company and shareholder requirements with the Department of Business Development and land and title questions with the Land Department.

This briefing is general information, not legal, tax or investment advice. Thai rules change frequently and individual cases differ. Verify current requirements with the relevant authorities, including the Immigration Bureau, the Board of Investment, the Land Department, the Department of Business Development and the Revenue Department, and take advice on your own facts before acting.