Services / Cross-border transactions and investment
Cross-border ventures: who manages matters
A venture with a foreign partner usually starts with an agreement before any company exists. That is exactly the period in which two statutes operate together: one fixing liability, the other deciding whether the resulting vehicle is foreign.
The period before incorporation is the exposed one
A venture agreement signed before any entity exists may fall within section 1012 of the Civil and Commercial Code — a contract by which two or more persons agree to carry on a business together with a view to sharing the profits. If it does, section 1025 makes all the partners jointly liable without limit for all its obligations. That is precisely the stage at which venturers have usually not turned their minds to liability at all.
If the vehicle chosen is a registered partnership
Once the vehicle is to be a registered partnership, a second statute engages at once: section 4(3)(b) of the Foreign Business Act B.E. 2542 (1999) provides that a limited partnership or registered ordinary partnership whose managing partner or manager is a natural person without Thai nationality is foreign. That subsection measures the manager, not the proportions of capital.
Two negotiations commonly run as one
Venturers commonly negotiate capital shares and management authority together, treating the two as moving in step. In a partnership structure, section 4(3)(b) gives management authority a legal consequence of its own. Agreeing that the foreign side will manage in exchange for a lower capital share may therefore produce the opposite of what was intended so far as the vehicle's status is concerned.
The shareholders' agreement once a company exists
Where a limited company is formed instead, section 1025 liability ceases to be the issue and the status question moves to sections 4(3)(a) and 4(4), which measure shareholding and capital contributed. A shareholders' agreement then does a different job from the earlier venture agreement: it governs the relationship between shareholders inside a structure already settled, rather than creating the structure itself.
An order that makes the decision tractable
Because the two statutes answer different questions, a workable order is to settle the structure first — whether to form an entity at all, and if so a company or a partnership — then check status under whichever limb of section 4 fits that structure, and only then draft the shareholders' or venture agreement to match. Drafting before the structure is settled generally produces a document that has to be rebuilt.
PREPARE
What to bring
- Any venture agreement signed before the entity was formed
- The intended vehicle, company or partnership
- Who will manage, and their nationality
- Each side's share of capital and value contributed
- The business to be carried on and any list it may touch
QUESTIONS
Questions this raises
No company yet, but we have already started working together.
This is the period in which section 1012 operates, because the definition attaches to the substance of the agreement rather than to the existence of an entity. If it applies, section 1025 makes the partners jointly liable without limit for all obligations. The sensible response is to settle the structure quickly and, in the meantime, to keep obligations incurred in the venture's name to what is necessary.
Can the foreign side hold a small share but manage?
The answer differs by structure. In a registered partnership, section 4(3)(b) measures the managing partner or manager directly, so a low capital share does not help. In a limited company the measure is sections 4(3)(a) and 4(4), which look at shareholding and capital contributed. The question therefore has to be answered after the structure is chosen, not before.
LAW
The legislation
- Civil and Commercial Code, sections 1012 and 1025
- Foreign Business Act B.E. 2542 (1999), section 4
ENQUIRIES
