THE QUESTION IS NO LONGER “WILL YOU BE INSPECTED?”
THE QUESTION IS “WHEN WILL IT BE YOUR TURN?”
A Serious Compliance Warning for Foreign Investors, Thai Shareholders, Directors and Property
Owners
The issue of nominee structures and foreign control of Thai companies is no longer something that business owners can afford to ignore.
This article explains the legal status of น.ส. 3 ก. and how it differs from a Chanote.
In Phuket, where foreign investment and real estate transactions are substantial, companies involving foreign
shareholders, directors, investors, financiers or beneficial interests should take their corporate structures
Do not make the mistake of believing that “no inspection yet” means “no problem.”
It does not.
It may simply mean:
YOU HAVE NOT BEEN INSPECTED — YET.
WHAT MAY ATTRACT SCRUTINY?
A company may face questions regarding its structure where there are circumstances suggesting that the
registered ownership does not reflect the actual economic ownership or control of the business.
Potential areas of scrutiny may include:
- Thai shareholders holding shares funded by foreign persons;
- foreigners exercising effective control over the company;- foreigners directing business decisions despite not being registered shareholders;
- Thai shareholders having little genuine involvement in the business;
- shareholder arrangements or private agreements affecting control;
- loans or financing arrangements connected with share ownership;
- unusual or unexplained transfers of funds;
- foreign persons receiving the principal economic benefits of the business;
- corporate structures connected with the acquisition or use of real estate;
- long-term lease structures established for the benefit of foreign persons;
- powers of attorney or contractual arrangements giving foreigners effective control over assets or operations.
The critical issue is not merely:
“Whose name appears on the company registration?”
The more important question is:
“Who actually owns, controls, funds and benefits from the structure?”
A COMPANY REGISTRATION IS NOT A SHIELD
One of the most dangerous misconceptions is that a company is automatically protected because:
the company is properly incorporated;
the shareholder register is complete;
the articles are in place;
the accounts have been filed;
tax returns have been submitted;
and the company has operated for several years.
Corporate registration does not automatically answer the question of whether the underlying arrangement
complies with Thai law.Authorities may examine the substance behind the documents.
They may look at:
Money.
Control.
Decision-making.
Beneficial ownership.
Contracts.
Bank transactions.
Property transactions.
Relationships between the parties.
And the actual conduct of the business.
Paper compliance and substantive compliance are not necessarily the same thing.
“EVERYONE DOES IT” IS NOT A LEGAL DEFENCE
Another dangerous response is:
“Other companies are doing the same thing.”
That does not eliminate legal risk.
Nor does:
“We have been doing this for years.”
Nor:
“Our lawyer set it up.”
Nor:
“The company was registered by the authorities.”Nor:
“Nobody has complained.”
None of these statements, by themselves, establishes that the underlying arrangement is lawful.
The fact that a structure has existed for years does not automatically make it lawful.
REAL ESTATE STRUCTURES REQUIRE PARTICULAR ATTENTION
Companies involved in real estate should be especially careful where foreign persons are connected to:
property acquisition,
property development,
property management,
long-term leases,
lease renewals,
company ownership,
shareholder funding,
or control of the underlying asset.
A structure involving a Thai company and foreign beneficiaries should therefore be reviewed from both a
corporate law perspective and a property law perspective.
The question is not simply whether a lease has been registered.
The question is whether the entire arrangement surrounding that lease and the company behind it is
legally sustainable.
DO NOT WAIT UNTIL THE AUTHORITIES COME TO YOU
Once an official investigation begins, the situation is fundamentally different.
You may be asked to produce:
• corporate registration documents;
• shareholder records;
• evidence of share payments;
• bank statements;
• loan agreements;
• shareholder agreements;
• accounting records;
• tax records;
• contracts;
• property documents;
• lease agreements;
• powers of attorney;
• communications between shareholders and directors;
• evidence concerning the actual management and control of the company.
At that stage, the issue is no longer simply:
“Is our structure acceptable?”
It becomes:
“Can we demonstrate, with evidence, that our structure reflects the actual legal and commercial
reality?”
That is a much more serious question.
THE RISK MAY EXTEND BEYOND THE COMPANY
Potential nominee-related issues should not be treated as merely an administrative problem for the company.
Depending on the facts and applicable law, exposure may potentially involve individuals connected with the
structure, including:
shareholders,
directors,
persons providing or arranging funds,
persons exercising control,
and other persons participating in the relevant arrangement.
Accordingly, anyone involved in a foreign-related corporate structure should understand exactly what they
have signed, what they have agreed to, where the money came from, who controls the company, and
who ultimately benefits.
“I was only a shareholder” may not be sufficient if the facts show otherwise.
LEGAL COMPLIANCE REVIEW — BEFORE ENFORCEMENT
A proper compliance review should examine the structure as a whole.
CORPORATE STRUCTURE
Who owns the shares?
SOURCE OF FUNDS
Who actually paid for the investment?
BENEFICIAL OWNERSHIP
Who ultimately benefits?CONTROL
Who makes the decisions?
MANAGEMENT
Who actually runs the business?
CONTRACTUAL ARRANGEMENTS
Are there agreements that change the practical ownership or control?
BANKING
Do financial transactions correspond with the declared corporate structure?
PROPERTY
Who owns, controls or benefits from the property?
LEASE\
Why was the lease structure established and who is the ultimate beneficiary?
DOCUMENTATION
Does the paperwork accurately reflect the real arrangement?
IF YOU ARE THINKING “WE SHOULD CHECK THIS LATER” — CHECK IT NOW.
Waiting has no strategic advantage when a potential compliance issue already exists.
The earlier a problem is identified, the greater the opportunity to:
understand the risk,
obtain proper legal advice,
correct documentation where legally appropriate,restructure future transactions lawfully,
and prevent a manageable compliance issue from becoming a much more serious legal problem.
But once an investigation has already commenced, your options may become considerably more limited.
THE CLOCK IS NOT YOUR FRIEND
For companies with foreign involvement, the most dangerous mindset is:
“We will deal with it if the authorities ever come.”
That is not compliance.
That is waiting for enforcement.
And nobody knows exactly when an individual company may come under scrutiny.
Today may be someone else’s inspection.
Tomorrow may be yours.
FINAL WARNING
If you have a Thai company involving foreign shareholders, directors, investors, funding or beneficiaries—
DO NOT ASSUME YOU ARE SAFE BECAUSE YOU HAVE NOT BEEN INSPECTED.
If your company is connected to Thai real estate and long-term rights granted to foreigners—
DO NOT ASSUME THAT REGISTRATION ALONE ELIMINATES THE RISK.
If the person whose name appears on the documents is not the person who actually controls the business—
DO NOT IGNORE THE ISSUE.
If you cannot explain the source of funds, ownership, control and beneficial interest—
DO NOT WAIT.
BEFORE THE GOVERNMENT ASKS THE QUESTIONS — ASK YOURSELF FIRST.
Who really owns the company?
Who really controls it?
Who really funded it?
Who really benefits from it?
And does the legal documentation tell the same story as the reality?
If the answer to any of these questions makes you uncomfortable—
THAT IS EXACTLY WHY YOU SHOULD HAVE THE STRUCTURE REVIEWED NOW.
Because the most expensive time to discover a legal problem is:
AFTER THE INVESTIGATION HAS ALREADY STARTED.
SKY HIGH LAW & INVESTIGATION
LEGAL • CORPORATE • REAL ESTATE • INVESTIGATION • COMPLIANCE
Proactive Legal Compliance Review
We assist businesses, investors, shareholders and property owners in reviewing foreign-related corporate and
real estate structures, identifying potential legal and compliance risks, and developing lawful solutions before
problems escalate.
“The absence of an inspection is not proof of compliance. It may simply mean that your turn has not come
yet.”
DON’T WAIT FOR YOUR TURN.KNOW YOUR RISK. REVIEW YOUR STRUCTURE. PREPARE BEFORE YOU ARE INSPECTED.
Sky High Law & Investigation
Phuket, Thailand