How to safeguard your Investment in a Joint Venture Business in Thailand

It is common for foreign investors to do business in Thailand through a joint venture arrangement with a local Thai partner since forming a joint venture not only provides a strong potential for growth and innovative ideas, but also increases a greater capacity, resources, technical expertise, and access to established markets and distribution channels. 

Nevertheless, due to legal restriction, the foreign investors entering into a joint venture in Thailand often hold minority shares while the remaining majority shares are held by their local Thai partners. Thus, a common issue faced by the minority shareholders is how to protect their investment benefits. 

Joint Venture Agreement

Among other legal options, it would be prudence to first prepare and execute a Joint Venture Agreement (or Shareholder Agreement) which governs the rights and obligations amongst the shareholders in terms of conducting business and management because. The sample of essential terms and conditions of the Joint Venture Agreement should cover the followings:

  • Board Representation and Participation

Minority shareholders should have the right to agree on the number and nomination of directors as their representatives on board of the company in order to balance the management power and stay informed about the company’s activities. Ideally, those directors appointed by minority shareholders should be required as a necessary part to incorporate into quorum.

  • Key Management Personnel

In addition to the Board of Directors, the minority shareholder should extensively have the right to nominate the key management personnel e.g. CEO, CFO, and COO so as to balance the internal control of the company.

  • Affirmative Right

In a joint venture, the shareholders could mutually agree on “Affirmative Right” in favor of minority shareholders. This right create obligation on majority shareholders to seek prior approval from minority shareholders before making decisions on “Reserved Matters”, which are not the ordinary course of business, but are matters that generally affect shareholders’ interest in the company, for instance: (i) any changes in the share capital structure of the company; (ii) any matters with respect to issuance of capital or dilution of shares; (iii) any appointments or removal of key personnel, etc.

  • Restrictions on Share Transfers

When forming a joint venture, minority shareholders may make a decision in reliance on the long-term involvement of majority shareholders with capacity, resources and experience. If transfers of shares to a third party are permitted, premature department of majority shareholder could leave minority shareholders inappropriately tasked with duties that they may lack capacity or operational expertise necessary to continue the project. For this reason, minority shareholders should consider requesting a “Lock-Up Period” where no transfers of shares are permitted

Articles of Association

Moreover, certain terms and conditions of the Joint Venture Agreement, such as share transfer restriction, could be used against the third party only if they are enacted in the company’s Articles of Associate (so-called “AOA”) and officially registered with the Department of Business Development (“DBD”).

For more information please contact:

Bunnasomboon (Aaron) Chaiparinya
Partner
Email: aaron@jtjb.com 

Kanpimon Naksinn
Associate
Email: kanpimon@jtjb.com