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The central role of a share purchase agreement in Thailand for foreign investors
Foreign investors intending to acquire equity in a Thai company are inevitably confronted with a core legal instrument known as the share purchase agreement Thailand. This agreement is not a simple formality: it is the central contract that defines how ownership rights are transferred, how risks are allocated, and how compliance with Thai corporate law is ensured. A share purchase agreement sets out the purchase price, the conditions precedent, the representations and warranties of the seller, and the exact procedure for completion. Yet, unlike in some Western jurisdictions, signing the share purchase agreement alone does not make a buyer the legal owner of the shares. Under the Thai Civil and Commercial Code, ownership changes only when the share certificates are endorsed, and the transfer is recorded in the company’s share register book, with a new certificate issued by the directors. This distinction makes the share purchase agreement particularly critical in the Thai legal context.
For foreigners, the importance of careful drafting cannot be overstated. A well-structured share purchase agreement in Thailand protects against hidden liabilities, ensures compliance with ownership restrictions, and creates enforceable remedies in case of breach. Conversely, a poorly drafted share purchase agreement can jeopardize the validity of the transaction, trigger tax or regulatory penalties, and even expose parties to litigation. In short, the share purchase agreement is not merely a transactional step, it is the legal foundation upon which successful foreign investment in Thailand depends.
Table of Contents
How share transfers are regulated in Thailand
The rules regulating share transfers in Thailand are mostly found in the Civil and Commercial Code, the Public Limited Companies Act B.E. 2535, Foreign Business Act B.E. 2542 and notifications of the Department of Business Development. Tax issues are under the reign of the Revenue Code. So, share purchase agreement in Thailand needs to be in accordance with all these laws to avoid controversies or penalties imposed by the authorities. A share purchase agreement in Thailand will read similarly, or be similar, to the ones in Europe or USA. However, Thai business legislation poses certain formalities.
How the law regulates share purchase agreements in Thailand
A share purchase agreement is a bilateral contract between the seller and the buyer. Under Section 456 of the Thai Civil and Commercial Code contracts for sale of property must be consented to by parties and in some instances written. But in the case of shares in a private limited company, there needs to be an endorsement on the share certificate and an entry made in the company’s share register book.
In practice, Thai courts will uphold the provisions of a share purchase agreement as long as they do not conflict with the Civil and Commercial Code or public policy. If a share purchase agreement has provisions that conflict with Thai law, such provisions are null and void under Section 150 of the CCC. So the drafting (as per Thai statutory law) has to be careful!
Formal Requirements
Thai law imposes strict formalities when foreigners buy shares in Thailand. Under Section 456 of the Civil and Commercial Code, contracts for the sale of property must be in writing if they exceed a certain value, and this also applies to share transfers. Agreements should be signed, often with witnesses for evidentiary strength. Most importantly, the share certificate must be endorsed and the transfer registered in the company’s shareholder book before directors issue a new certificate. Without this registration, the buyer is not legally recognized as a shareholder. Unlike in many Western systems, signing the contract alone does not transfer ownership in Thailand.
Substantive Requirements
Beyond the form, the content of the share purchase agreement is critical. Certain clauses are considered essential. The agreement must set out the purchase price and the number of shares transferred, noting that under Section 1108 of the Civil and Commercial Code, shares cannot be issued below par value. Representations and warranties also play a central role, with the seller confirming ownership free of encumbrances, compliance with Thai law, and accuracy of financial records. Conditions precedent are common, particularly where foreign investors require a Foreign Business License before closing. Covenants ensure that the seller maintains the company in the ordinary course until completion. Finally, dispute resolution mechanisms, often arbitration clauses, are crucial to provide certainty in case of conflict. Thailand’s Arbitration Act B.E. 2545 and its membership in the New York Convention guarantee that arbitral awards can be enforced, both domestically and internationally.
How to ensure compliance in a share purchase agreement in Thailand
It’s great to close the deal and be paid, but you also need to worry about compliance. Profit from a share sale is treated like other income for corporation tax purposes. Foreigners can hold no more than 49% of the shares in most service businesses under the Foreign Business Act. So, if foreign investors want a majority stake they will need to be creative about the deal. You can register a Foreign Business License or structure under the Treaty of Amity (which is available for U.S. investors).
And also land ownership is limited by foreigners according to the Land Code. Foreign buyers taking more than 49% of shares in a target which owns land could lead to regulators reviewing the deal. A share purchase agreement Thailand should thus also contain representations and warranties regarding compliance with land ownership regulations, if not even in certain cases conditions precedent to obtaining those approvals.
Due diligence before signing
Buyers would be wise to conduct legal due diligence before signing. In Thailand this means searching the company’s affidavit, shareholding structure and corporate documents at the Department of Business Development. Lawyers should also see financial statements, tax filings and pending litigation. This due diligence is crucial because, as with all matters pertaining to the Thai property market, caveat emptor applies. Where the buyer fails to determine company liabilities, post-closing remedies may be restricted. For instance, damages may be recovered only if the seller made misrepresentations. As such, wise investors do not sign a share purchase agreement without conducting their own due diligence.
Signing and completion
In Thailand, the contract for buying shares is signed once the parties agree on the terms, but completion only happens after all conditions precedent are satisfied. At that stage, the seller endorses the share certificates to the buyer, the transfer is recorded in the shareholder register, and the directors issue a new certificate. Until then, no legal transfer has taken place. Under Section 1131 of the Civil and Commercial Code, a shareholder exists only from the date of registration.
For this reason, contracts for foreign investors buying shares in Thailand must clearly describe the completion process, including delivery of certificates, payment method, board resolutions, and updates with the Department of Business Development.
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Dispute resolution
Disputes may arise from misrepresentation, delayed payments, or breach of obligations. While Thai courts operate under the Civil Procedure Code, international investors often prefer arbitration. If the contract for buying shares in Thailand includes an arbitration clause, Thai courts will uphold it unless it is clearly invalid. Under Section 14 of the Arbitration Act, courts must dismiss lawsuits when arbitration has been agreed.
As a result, most disputes are referred to the Thai Arbitration Institute or international centers such as SIAC. Foreign arbitral awards are also enforceable in Thailand under the New York Convention.
Share purchase agreement in Thailand and public companies
If the target is a public company, other rules go into effect. Every transfer of a large undertaking is required to be disclosed under the Public Limited Companies Act. And even under the Securities and Exchange Act B.E. 2535, when an investor’s children obtain ownership of exactly 25%, or 50%, or 75% of shares with voting rights listed in a market exchange, then he/she is required to make a tender offer as well.
As a result, a share purchase agreement that is between a publicly traded company will contain provisions on tender offer procedures and will comply with/on or under the benefit of the Securities and Exchange Commission. In this regard, the share purchase agreement is subject to strict regulation, making expert legal advice indispensable.
Tax implications in Thailand: Uniform rules across all types of companies
Taxation plays a central role. Buyers and sellers should anticipate liabilities to prevent disputes. Individuals who make capital gains from the sale of shares are liable to tax chargeable at progressive rates under Section 48 of the Revenue Code. Corporate income tax is 20% for companies. In case the seller is a foreign entity that does not maintain a permanent establishment in Thailand, withholding tax may be applicable at 15 percent unless there is double tax treaty protection.
Stamp duty is also relevant. Transfers of shares in companies incorporated in Thailand are subject to stamp duty under Section 104 of the Thai Revenue Code at the rate of 1 Baht per 1,000 Baht on the paid-up value of such shares. A share purchase agreement should specify who shall bear this expense. It is frequently split by the buyer and seller
Prohibited clauses and protections
When foreign investors buy shares in Thailand, they must be aware that certain clauses are prohibited and therefore unenforceable under Thai law. Any term that overrides shareholder rights, bypasses restrictions in the Foreign Business Act, or waives liability for fraud or misconduct is void under the Civil and Commercial Code and principles of public order.
A further danger is the use of “blank shares,” certificates signed by the seller but left without the buyer’s name. Ownership in Thailand only becomes effective once the transfer is registered in the shareholder book and a new certificate is issued by the directors. Blank shares therefore expose investors to fraud, disputes, and non-recognition by the courts or the Department of Business Development..
Challenges in finalizing a share purchase agreement in Thailand
In practice, negotiations in Thailand can be complex. Cultural differences, language barriers, and variations in legal traditions often slow progress. Some concepts familiar to civil law systems, such as indemnity or escrow, require adaptation to fit Thai law.
Enforcement is another challenge. While Thai courts do uphold contracts, litigation can be lengthy and costly. For this reason, many contracts for buying shares in Thailand include arbitration clauses. Without a clear dispute resolution mechanism, foreign investors risk facing expensive and prolonged disputes.
Importance of legal advice
For foreigners, it is crucial to recognize that Thai law differs greatly from other jurisdictions. Local legal counsel is indispensable at every stage. Thai lawyers ensure compliance with the Civil and Commercial Code, the Foreign Business Act, the Revenue Code, and other sector-specific rules. They also structure deals to avoid regulatory pitfalls and negotiate terms that protect the client’s interests. For foreign investors buying shares in Thailand, carefully drafted contracts reduce risks and make a smooth completion far more likely.
Conclusion
Buying shares in Thailand is not the same as signing an ordinary contract. It forms the legal backbone of any share transfer and must comply with the Civil and Commercial Code, the Foreign Business Act, and the Revenue Code. Approvals, formalities, and tax rules all need to be considered.
Foreign investors must be aware that without proper contracts, a transaction may be void or unenforceable, and sanctions may apply. With carefully prepared agreements, however, buyers and sellers can complete deals with legal certainty and confidence.
Q&A
A share purchase agreement in Thailand is a contract between a seller and a buyer setting out the terms for the transfer of company shares. It defines the price, conditions, representations, warranties, and completion process.
While Thai law does not explicitly require a share purchase agreement, in practice it is indispensable. It protects both parties, ensures compliance with the Civil and Commercial Code, and records obligations that go beyond the mere endorsement of a share certificate.
Signing the share purchase agreement is not enough. The seller must endorse the share certificate, and the company must record the transfer in its share register. The directors then issue a new share certificate to the buyer. Under Section 1131 of the Civil and Commercial Code, the buyer only becomes a shareholder at that moment.
Due diligence in Thailand includes reviewing the company’s affidavit, shareholder list, financial statements, tax records, debts, and litigation. Without proper checks, the buyer risks hidden liabilities that may not be covered by warranties.
Not always. Under the Foreign Business Act, foreigners are restricted to 49% ownership in many sectors. If the company operates in a restricted business, the buyer may need a Foreign Business License or to structure the deal differently.
Capital gains from the sale of shares are taxable under the Revenue Code. For foreign sellers, withholding tax may apply unless reduced by a double tax treaty. Stamp duty also applies at 1 Baht per 1,000 Baht of share value. The share purchase agreement usually states which party pays these costs.
Key clauses include purchase price, representations and warranties, conditions precedent, covenants, and dispute resolution. Many share purchase agreements in Thailand also contain arbitration clauses enforceable under the Arbitration Act and the New York Convention.
Yes. Many parties choose arbitration, either with the Thai Arbitration Institute or an international center like SIAC. Foreign arbitral awards are enforceable in Thailand if the New York Convention requirements are met.
Thai law differs from many Western jurisdictions. Local lawyers ensure compliance with the Civil and Commercial Code, the Foreign Business Act, and the Revenue Code. They also adapt international transaction standards to the Thai legal system and protect the client’s interests.