In recent years, Thailand’s rapid economic growth has attracted more foreign enterprises and investors. Many have entered the market and established companies. However, some use nominee shareholders to bypass Thai laws and evade legal and shareholder regulations. This practice was once regarded as a shortcut. As the Thai government tightens supervision on foreign businesses, legal risks tied to nominee shareholders and foreign investments are becoming more apparent.

What is a nominee shareholder?

A nominee shareholder is when a foreign entity or individual appoints a local citizen or company to hold Thai company shares on their behalf. Through the nominee shareholder, the foreign investor actually controls and operates the company. Thai law limits foreign ownership to 49%, making nominee arrangements appear legal but often risky.

Legal Risks Existing in Nominee Shareholders in Thailand

1.Visa and Work Permit Issues

Many foreign enterprises use nominee shareholders in Thailand but often lack legal work visas or permits. According to Thailand’s immigration laws, foreigners engaged in work in Thailand need a legal work permit. Otherwise, they will face the risks of high fines, detention, and even deportation. For example, recently, the Phuket Immigration Bureau arrested several foreigners for overstaying their visas. Among them, a Chinese citizen had an astonishing overstay of 1,317 days.

2.Illegal Business Activities

The practice of nominee shareholders can easily lead to the company’s operations exceeding the scope permitted by law. Foreign enterprises use nominee shareholders to bypass Thailand’s “50% rule.” However, investigations can expose the true foreign controllers. Such hidden operations are illegal and may lead to business closure, fines, or prosecution.

3.Risks of Transnational Crimes and Illegal Employment

In recent years, the Thai government has stepped up its crackdown on illegal business activities, transnational crimes, and illegal employment. Raids by Phuket Immigration Bureau show that nominee-run foreign enterprises often engage in illegal employment and transnational crimes. Many lack work permits and evade taxes and immigration checks. Once detected, the relevant enterprises and individuals will face serious legal consequences.

4.Issues Concerning Enterprise Property and Profits

In addition to compliance risks, the nominee shareholder model may also give rise to disputes over property ownership and profit distribution. Due to the asymmetry of power and interests between the nominal shareholders and the actual shareholders, it may lead to chaotic decision-making in the company’s operation process, deterioration of shareholder relations, and even disputes when the company needs to distribute profits. Moreover, in the event of corporate debt disputes or bankruptcy, nominee shareholders may face unforeseeable liability.

How to Avoid the Legal Risks Brought by Nominee Shareholders?

1.Ensure a Legal Shareholder Structure

Foreign investors should abide by Thailand’s requirements regarding shareholder structure, establish companies through legal channels, and ensure that the shareholding ratio of foreign shareholders does not exceed 49%. For most foreign-funded enterprises, they can cooperate with local Thais or legal local companies to establish a transparent shareholder structure and avoid the nominee shareholder model.

2.Legally Apply for Visas and Work Permits

Senior executives and employees of foreign-funded enterprises should apply for work visas and work permits in accordance with the law. With legal work permits, foreign enterprises can avoid penalties for illegal work. It is recommended to ensure the validity and compliance of visas and work permits.

3.Avoid Using “Shell Companies”

Foreign-funded enterprises should avoid circumventing legal regulations through means such as “shell companies” or nominee shareholders, and instead adopt operation methods that comply with Thailand’s company law and tax law. A legally registered company can not only reduce legal risks but also enhance the company’s reputation and market competitiveness.

4.Strengthen Compliance Management and Risk Assessment

Conduct regular legal compliance reviews and risk assessments to ensure that the enterprise complies with relevant laws and regulations in Thailand during its business operations, especially in the areas of tax, immigration, and labor laws. It is recommended to hire professional legal or compliance consultants to help the enterprise address potential legal risks and compliance issues.

The Thai government is gradually tightening its supervision over foreign-funded enterprises. Nominee shareholders and illegal business models will face increasing legal pressure. Foreign-funded enterprises should avoid evading Thai laws through illegal means such as nominee shareholders, adopt compliant shareholder structures and operation models, and ensure that all foreign-related personnel have legal work permits and visas. Only by conducting business in a legal and compliant manner can enterprises gain a foothold in the Thai market and achieve long-term development.

If you have any questions regarding nominee shareholders in Thailand or the compliance of foreign investments, please feel free to contact Wellion at any time. We will provide you with professional legal and compliance advice to help you carry out your Thai business smoothly.