Thai Law Insights

Loan Agreement as a tool for investing with Thai shareholders: some perspectives

Sirapat Dejyarnkorn

Foreign shareholders in Thailand should be aware of the aftermath of using a loan agreement to pay for Thai shares. Many foreigners want to associate and invest with Thai businesses but in some cases, Thai businesses are not in a position to participate or contribute to share payments. A possible solution may result in foreign investors offering to pay for the shares in advance. However, this type of transaction will constitute as nominee shareholding and may face sanctions under the Foreign Business Act 1999.

To avoid nominee shareholding transaction (nominee shareholder usually defined as a non-active shareholder obtaining no economic benefit for his/her equity position), a Thai shareholder may need is a sign a loan so that a foreign shareholder can enforce the loan agreement. Although, this is not the final evidence for proof of actual share payment because Thai authorities such as the Department of Special Investigation will check if the transactions are real. To solidify the Loan agreement, it is prudent to have conditions such as security, collateral, or interest.

Foreign entrepreneurs should be aware of the legal risk and impact of using loan agreements to acquire shares in Thai businesses.