Ecovis Global > Invest in Thailand: Joint Venture Agreement as an Option
Invest in Thailand: Joint Venture Agreement as an Option
2. June 2021
Foreign investors in Thailand who are only minority shareholders in joint ventures can protect their investment shares. There are a number of measures available for this purpose, such as a joint venture agreement.
It is common for foreign investors to do business in Thailand through a joint venture arrangement with a local Thai partner. This not only offers great potential for growth and innovative ideas, but also increases capacity, resources, technical expertise, and access to established markets and distribution channels.
Nevertheless, due to legal restrictions, 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 problem faced by minority shareholders is how to protect their investment benefits, say the local Ecovis experts.
We can advise you on drafting a joint venture agreement if you want to secure your investments in Thailand. Bunnasomboon (Aaron) Chaiparinya, Partner, JTJB International Lawyers Co., Ltd. – Member of ECOVIS International, Bangkok, Thailand
Joint Venture Agreement
Among other legal options, it would be prudent 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. The following is an example of the essential terms and conditions which a joint venture agreement should cover:
Board Representation and Participation: Minority shareholders should have the right to agree on the number and nomination of directors as their representatives on the board of the company to balance management power and stay informed about the company’s activities. Ideally, the directors appointed by minority shareholders should be seen as a necessary part to incorporate into quorum.
Key Management Personnel: In addition to the Board of Directors, the minority shareholder should have the extensive right to nominate key management personnel e.g., CEO, CFO, and COO, to balance the internal control of the company.
Affirmative Right: In a joint venture, shareholders could mutually agree on “affirmative right” in favour of minority shareholders. This right creates an 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 which generally affect shareholders’ interests in the company. For example:
Changes in the share capital structure of the company
Matters relating to the issuance of capital or dilution of shares
Appointments or removal of key personnel
Restrictions on Share Transfers: When forming a joint venture, minority shareholders may make decisions which rely on the long-term involvement of majority shareholders in terms of capacity, resources, and experience. If transfers of shares to a third party are permitted, the premature departure of a majority shareholder could leave minority shareholders inappropriately tasked to continue the project without the necessary capacity or operational expertise. For this reason, minority shareholders should consider requesting a “lock-up period” during which no transfers of shares are permitted.
Articles of Association
Moreover, certain terms and conditions of the joint venture agreement, such as share transfer restrictions, may only be used against the third party if they are enacted in the company’s articles of association and officially registered with the Department of Business Development.
For further information please contact:
Bunnasomboon (Aaron) Chaiparinya, Partner, JTJB International Lawyers Co., Ltd. – Member of ECOVIS International, Bangkok, Thailand
Kanpimon Naksinn, Associate, JTJB International Lawyers Co., Ltd. – Member of ECOVIS International, Bangkok, Thailand