Part 2 - Due Diligence for the Purchase of a Company Limited in Thailand
In this part 2 of our article on due diligence relating to the purchase of a company limited in Thailand we shall continue to examine other key matters which an investor should investigate and consider before purchasing, we shall cover a range of matters including checking on the corporate documents of the target company through to licenses/ permits and intellectual property.
Corporate Documents & DBD Registration Documents & Supporting Documents
One of the most important things which an investor should investigate with respect to a new company is the corporate registration documents & other company law documents of the target company (such as shareholder meeting minutes); much of this can be done at the Dept. of Business Development (DBD) but some will need to be obtained from the target company and its company secretary. To do a thorough check it involves examining a range of matters including:
1. Objects and principal business of the target company should be checked by examining its memorandum of association (and any amendments thereto since the date of incorporation) to see if they were processed in compliance with the law and that the necessary shareholder resolutions were duly passed to support such changes.
2. Articles of Association (from the date of incorporation of the target company) to see what they provide and whether their contents will pose any problems for the new investor especially with respect to purchasing shares or operating the company and to check whether they are compliant with Thai law. If there is an existing shareholder agreement then its provisions should also be considered to see if they conflict with the Articles of Association.
3. Director appointments should also be reviewed at the DBD to see if all of the directors (especially the current directors) were appointed correctly in accordance with the law and that all necessary supporting documents are in order such as form Kor New Director (director appointment form). It would also be prudent to obtain copies of shareholder resolutions where a director was appointed by the shareholders meeting as well as board of director (BOD) meeting minutes where a resigning director is replaced by the BOD for the remaining term of the resigning director.
4. Director resignations should also be investigated and it would be sensible to try and obtain copies of director resignation letters for past directors who resigned from this role as it is clear evidence that they have stepped down from this role (such letters are internal company documents but useful to examine nonetheless to ensure that there won’t be a conflict over whether a person is still a director or not).
5. Authorized director signing authority should also be investigated to see which directors can legally bind the target company and what conditions apply to such directors when they exercise this power. To check the current signing authority it is sensible to examine a recent certified copy of the target company’s Affidavit of Company Registration (as issued by the DBD) to see what it provides. It would also be sensible to review past signing authority of the directors too to check whether key contracts or documents executed in the past were done in accordance with these conditions.
6. Appointed auditor of the company to see who the current auditor of the target company is & copies of the audited financial statements of the target company as well;
7. Share capital structure is vitally important to check as an investor should be aware of the current authorized share capital, the current number of issued shares and whether the current shares are fully paid up or only partially paid up. To this end it is necessary to obtain a certified copy of the company’s form BorOrJor5 as it contains key information about the shareholders (name and address), whether such shares are fully paid up and the respective share numbers. Checking all submitted form BorOrJor 5 forms for several years in the past (if not since incorporation) would also be advisable as this should be cross referenced with the share register book to see if they are consistent & to track transfers of shares.
8. When examining share capital it is also a good idea to review the Company’s official share register book to see what it provides and whether it accurately reflects all shares issued by the target company and whether all transactions on such shares including pledges and transfers are accurately reflected therein. It is worth noting that according to section 1138 of the Thai Civil and Commercial Code (CCC), a company must have a company share register book (detailing shareholders, share numbers, transfers and dates thereof).
9. If the target company has had capital increases or decreases it is also a good idea to examine copies of the minutes of the respective board of directors and shareholder meetings to see if the necessary special resolutions were correctly passed at such meetings.
Specific Licenses or Permits to Operate its Business
Depending on the business operations of the target company, it may also necessitate the company to have certain licenses or permits which authorizes it to operate such business in Thailand. Hence, as part of a due diligence investigation an investor should check to see if any licenses/ permits are required by law and if so then obtain copies of all such licenses and permits from the target company to check the applicable conditions attached thereto and whether the transfer of shares to the new investor will pose any problem or will result in such license being cancelled/ void or if the transfer of shares will require permission or a notification to a Government department/ authority. Examples of specific licenses include:
i. A Telecommunications License issued under the Telecommunications Business Act of Thailand;
ii. A Factory License – This is issued by the Department of Industrial Works under the Ministry of Industry in Thailand;
iii. A Hotel License - Hotel licenses in Thailand can be classed into four different types depending on the scope and operations of the hotel such as whether it will offer seminar rooms, restaurant etc;
iv. Recruitment License - Note that for this type of license there are several key factors which a foreign investor should be mindful of such as the fact that the director of the company which applies for this particular license must be a Thai citizen, furthermore the applying company must have at least 51% of Thai majority ownership (the majority Thai shareholders can either be Thai natural persons or juristic persons such as a Thai majority owned company).
v. School License;
vi. Import Export License (otherwise known as a customs card);
vii. Alcohol License – To apply for this license an application needs to be submitted to the Excise Department under the Ministry of Finance.
Intellectual Property (Trademark / Service mark Registration)
If a target company has a trademark/service mark then it would also be sensible for an investor to check to see if such intellectual property is duly registered at the Department of Intellectual Property (DIP) and to obtain copies of such registrations to see what conditions apply thereto, when such registrations shall expire and in whose name the IP is registered, the target company or another party. If the target company has a trademark/ service mark which is not registered in its name then it would also be prudent to do a check of similar marks in the DIP database because if there are similar marks already registered in classes which are related to the business/products/ services of the target company then this could make later registration a very difficult, costly and time consuming matter especially if the owner of the other service mark/ trademark challenges its registration or the DIP refuses to approve such application.
Authors: Ryan Crowley & K. Chalapun (Jen).
Should you require any legal support relating to conducting a due diligence investigation on a company in Thailand then please contact us at
Dharmniti Law Office Co., Ltd.
2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330.
Tel: (66) 2680 9777
Fax: (66) 2680 9711
Email: ryan [at] dlo.co.th or chalapunj [at] dlo.co.th