Call us now:
A comprehensive overview of the strict prohibition on nominee structures in Thailand and its legal implications for foreign investors
Foreign investors wishing to set up a business in Thailand often encounter a particular structure known as a “nominee shareholder in Thailand.”
A nominee mechanism involves a Thai citizen who holds assets, shares, or ownership rights in their own name on behalf of another party, typically a foreigner, without exercising actual control or bearing economic risk or receiving benefit from those assets. Although this arrangement clearly provides a quick and effective way to comply with the mandatory local control requirement, Thai law directly prohibits it.
Foreign business activities in Thailand are governed by the Foreign Business Act B.E. 2542. The use of nominee shareholders to circumvent these regulations is a clear violation of the law and may result in civil, administrative, and criminal penalties for both the foreign investor and the nominee. This practice is not considered a legal grey area or a matter of regulatory discretion, it is a direct offence that can jeopardize the company’s operations, potentially leading to its forced closure and other serious consequences.
Thailand’s Ministry of Commerce is launching a new system called IBAS to better detect nominee businesses violating the Foreign Business Act. The tool will integrate data from multiple government agencies for more effective enforcement.
At Benoit & Partners, we advise foreign investors on the legal risks associated with nominee shareholder arrangements in Thailand. Our team provides guidance on compliance with the Foreign Business Act, lawful ownership structures, and alternatives to prohibited nominee practices. We assist clients in mitigating civil, administrative, and criminal exposure, particularly in light of enhanced enforcement tools such as the IBAS system implemented by the Ministry of Commerce.
Get expert legal guidance.
Table of Contents
What is a nominee shareholder in Thailand?
A nominee shareholder in Thailand refers to an individual or legal entity that holds shares in name only on behalf of another party, without actual ownership or voting rights. Parties commonly use such arrangements to illegally bypass Thai regulations. These regulations mandate that Thai nationals hold at least 51% of a Thai company’s shares.
Section 36 of the Foreign Business Act B.E. 2542 (1999) stipulates that any Thai individual or legal entity who agrees to act as a nominee shareholder in Thailand thereby enables a foreigner to indirectly own a business in a restricted sector. In such cases, the law imposes criminal liability.
This liability extends to both the Thai nominee and the foreign party involved. Under the Act, holding shares on behalf of a foreigner to circumvent legal ownership restrictions constitutes a criminal offence. The law imposes penalties of up to three years’ imprisonment and/or a fine ranging from THB 100,000 to THB 1,000,000. In cases of continued non-compliance, authorities may also impose additional daily fines.
Why do foreign investors use nominees shareholders in Thailand?
The nominee structure is frequently used by investors as an unlawful means to circumvent the restrictions imposed by the Foreign Business Act.
This legislation limits foreign ownership in several sectors, including retail, agriculture, and various service industries. Article 4 classifies a company as foreign if non-Thai nationals hold more than 49% of its shares. To avoid the requirement to obtain a Foreign Business License (FBL) or BOI promotion, some investors use Thai nationals as nominee shareholders in Thailand.
How the use of nominee shareholders is strictly prohibited in Thailand?
The use of nominee shareholders in Thailand to conceal foreign ownership is strictly prohibited under the Foreign Business Act. Section 36 specifically targets arrangements where Thai individuals or entities hold shares on behalf of foreign investors to bypass legal restrictions.
Under this provision, both the foreign investor and the Thai nominee may be held criminally liable if the arrangement enables a foreigner to operate a restricted business, falsely present the business as Thai-owned, or otherwise circumvent the Act. Penalties include imprisonment of up to three years, fines ranging from 100,000 to 1,000,000 Baht, or both.
In addition, the court may order the termination of the nominee arrangement, cessation of the business operation, or cancellation of the relevant shareholding or partnership. These measures are intended to ensure transparency and prevent the deliberate evasion of Thailand’s foreign ownership restrictions.
How do the authorities detect nominee structures in Thailand?
For companies suspected of using nominee shareholders in Thailand, the Department of Business Development and the Ministry of Commerce actively investigate by examining the financial capacity of Thai shareholders, the origin of funds, and the contracts signed. If a shareholder cannot justify their contribution or signs a blank share transfer, authorities may consider that person a nominee.
What are the legal consequences of using a nominee shareholders in Thailand?
Penalties for engaging in nominee arrangements are stringent. Foreign investors may face fines of up to THB 1,000,000. They may also face forced business closure and deportation. Courts can sentence violators to up to three years in prison, along with monetary fines. In addition, authorities have the power to order the dissolution of the company involved.
What is the position of the Thai courts on nominee shareholders?
Thai case law is consistent. Courts consider any structure based on a nominee null and void. Judges prefer a real economic analysis. If authorities prove that the Thai shareholder has no real investment, they will consider the company foreign. According to Supreme Court precedent, if a shareholder cannot justify their contribution or signs a blank share transfer, courts will consider that person a nominee.
Get expert legal guidance.
What are the legal options for foreign shareholders?
It is possible to obtain a foreign business licence (FBL), although the procedure is lengthy and strict. The FBL is an official authorisation granted by the Department of Business Development under the Foreign Business Act B.E. 2542. It allows a majority foreign-owned company to operate in sectors listed as restricted (lists 2 and 3), provided that it can demonstrate that the proposed operation will not adversely affect the national economy and that it will even bring benefits.
Another legal route is the Board of Investment (BOI). This government entity encourages foreign investment by granting 100% ownership, tax benefits and easier access to work permits. BOI companies are exempt from the Foreign Business Act.
How can you protect yourself against the illegal use of a nominee shareholder in Thailand?
It is essential to ensure that the funds held by each Thai shareholder are of legal origin and to document everything transparently. Avoid any secret clauses or private documents that could be interpreted as evidence of a hidden agreement.
What are the concrete effects of using a nominee shareholders in Thailand on business life?
The use of nominee shareholders in Thailand is not merely a technical breach of the law; it has serious legal and practical consequences for companies. Such arrangements directly violate the Foreign Business Act (FBA), which restricts foreign ownership in certain businesses to 49 percent unless specific approvals are granted. Attempts to circumvent these rules through nominee structures may result in severe penalties, including heavy fines or forced business closure.
Nominee arrangements also undermine corporate governance by concealing the company’s true beneficial owners. This lack of transparency weakens accountability, distorts voting rights, and may lead to improper dividend distribution. As a result, the company’s credibility and internal governance are compromised.
In addition, companies using nominee shareholders often struggle to obtain financing, as banks and financial institutions require clear ownership and control structures. Legal risks and potential litigation further discourage investors and business partners, who may avoid association with unlawful or non-compliant entities.
Nominee structures may also facilitate tax evasion by obscuring the identity of the real owner or operator, leading to underreported income and unpaid taxes. This exposes companies to scrutiny and enforcement actions by authorities such as the Department of Business Development and the Revenue Department.
Ultimately, reliance on nominee strategies threatens a company’s long-term sustainability, potentially resulting in dissolution, criminal liability, and loss of stakeholder confidence.
What impact does this have on mergers and acquisitions?
In the context of an acquisition, the audit must also extend to a review of the company’s shareholders. Identifying a nominee shareholder in Thailand can lead to the cancellation of the transaction or negatively impact the company’s valuation. Therefore, a thorough legal due diligence is essential.
Are any reforms planned?
The current trend, driven by initiatives from the OECD (Organisation for Economic Co-operation and Development) and the FATF (Financial Action Task Force), is toward increased transparency. As a result, the use of nominee shareholders is strictly prohibited and will remain so. Authorities are also planning to strengthen enforcement and oversight measures to detect and prevent nominee arrangements more effectively.
What is the role of law firms?
Law firms are also at the heart of structuring international investments in Thailand. They offer tailored legal solutions, draft essential contracts and verify that operations comply with the Foreign Business Act B.E. 2542 (1999).
In addition, they manage applications for Foreign Business Licences and BOI promotion. They prepare files, communicate with the authorities and secure projects. If disputes arise, they defend companies before the competent courts and administrations, in particular the Department of Business Development (DBD).
Conclusion
In conclusion, Sections 35 to 37 of the Foreign Business Act impose strict penalties for any attempt to establish a front company. The Act explicitly prohibits the concealment of beneficial ownership, with Section 36 specifically addressing the use of nominee structures. Operating through companies with nominee structure in Thailand is both illegal and highly risky, as the law prescribes severe consequences for such violations.
It is therefore strongly recommended to pursue lawful options such as obtaining a Foreign Business License (FBL), securing BOI promotion, or forming transparent and compliant partnerships. Ensuring the legal security of your investment with the guidance of an experienced law firm is essential. At Benoit & Partners, we assist our clients throughout every step of their establishment in Thailand.
If you need further information, you may schedule an appointment with one of our lawyers.
FAQ
A nominee shareholder in Thailand is a Thai individual or legal entity that holds shares in name only on behalf of a foreign investor, without having genuine economic interest, decision-making power, or exposure to risk. The arrangement is designed to conceal foreign ownership and is strictly prohibited under Thai law.
No. Nominee shareholder structures are explicitly illegal under the Foreign Business Act B.E. 2542 (1999). They are not tolerated as a legal workaround or grey area and constitute a direct violation of Thai law.
Some foreign investors use nominees to unlawfully bypass foreign ownership restrictions under the Foreign Business Act, which generally limits foreign shareholding to 49% in restricted business sectors unless an exemption applies (e.g. Foreign Business License or BOI promotion).
Section 36 of the Foreign Business Act expressly prohibits Thai nationals or juristic persons from acting as nominees for foreigners to enable circumvention of foreign ownership restrictions. The provision applies to both the Thai nominee and the foreign investor.
Both the foreign investor and the Thai nominee face:
Imprisonment of up to three years
Fines ranging from THB 100,000 to THB 1,000,000
Additional daily fines for ongoing violations
Courts may also order the cessation of business operations, forced divestment, or dissolution of the company.
Yes. Authorities have the power to order the closure or dissolution of companies found to be operating through nominee structures, in addition to criminal penalties.
Authorities such as the Department of Business Development (DBD) examine:
The financial capacity of Thai shareholders
The source of funds used to acquire shares
Shareholder loan agreements
Blank or pre-signed share transfer documents
Control over management and bank accounts
If Thai shareholders cannot justify their investment, they may be deemed nominees.
IBAS is a new enforcement system launched by the Ministry of Commerce that integrates data from multiple government agencies to detect nominee businesses more efficiently. Thousands of high-risk companies have already been flagged, significantly increasing enforcement risk.
Thai courts take a substance-over-form approach. If evidence shows that a Thai shareholder has no real investment or control, courts will disregard the formal shareholding and classify the company as foreign. Nominee structures are routinely declared null and void.
Foreign investors may face:
Criminal liability
Heavy fines
Forced divestment
Deportation
Blacklisting or long-term immigration consequences
Using nominees also exposes investors to loss of control, fraud, and unenforceable agreements.