Scheme design and legal due diligence points to keep in mind when investing in / acquiring Thai start-up companies –BUSINESS LAWYERS

Fast-growing Thai startup market

According to TECHSAUCE, there were four investments and acquisitions targeting Thai startups in 2012, and the total investment amount was only about $ 2.6 million, but in 2021 it increased to 58, and the investment amount. Has increased to about $ 320 million .. It is one of the fastest growing markets.

In particular, unicorn-class startups such as Flash Express (transportation industry) and Bitkub (cryptocurrency exchange) have also been born from Thailand, and expectations for the Thai startup industry are increasing.

Scheme design considerations: Foreign capital restrictions

The first thing to consider when considering an investment and acquisition schemeForeign capital restrictions under the Foreign Business LawCan be given.

Under the Foreign Business Law, in Thailand, in order for a “foreigner” to carry out a certain regulated industry, in principle, a foreigner business license, etc. is required, and this definition of “foreigner” constitutes capital. It also includes Thai corporations in which foreign companies hold more than 50% of the shares they own. The businesses subject to regulation are the businesses listed in Attached Tables 1 to 3 of the Foreign Business Law.

Attached table Outline of target business
Business in Attached Table 1 There are nine industries that foreigners cannot run. In particular, it should be noted that land buying and selling is included.
Business in Attached Table 2 There are 13 industries that foreigners cannot run in principle for the purpose of national security, protection and development of traditional arts, and protection of natural resources and the environment.

It should be noted that domestic transportation (domestic land / sea / air transportation and domestic aviation business) is included.

Business in Attached Table 3 There are 21 industries that foreigners cannot run in principle due to the inadequate competitiveness of Thailand’s domestic industry.

Various industries are listed, centering on the service industry, and the points to be especially noted are in Section 21.“Other service industry”The point is that there is a catch-all control. In general, the provision of Software-as-a-service and applications is considered to fall under the category of “other service industry”.

The business in Attached Table 3 is an exception if a foreign business license is obtained from the Director-General, Department of the Business Development, which is approved by the Foreign Business Committee. Even “foreigners” can run the business.

In addition to obtaining a foreign business permit, there is also a way to obtain a foreign business certificate after obtaining a Board of Investment (BOI) investment incentive. BOI is an investment incentive agency in Thailand and provides investment incentives by giving benefits to domestic and foreign companies based on the Investment Incentive Law.

Certain businesses are covered, but basically, if the requirements are met, the benefits of exemption from the foreign capital regulations of the Foreign Business Law will be granted. In particular, there is a category (type 5.10) of “software development, digital service platform or digital content business” as one of the businesses that can receive this benefit, and it seems that there is a lot of room for start-up companies to utilize it.

The above is, so to speak, a straightforward response to foreign capital restrictions.

On the other hand, especially when it is expected that it will be difficult to obtain both foreign business licenses and BOI investment incentives, in order to avoid the application of foreign capital restrictions as described above, the form does not fall under “foreigners” in the first place. Attempts have been made on multiple structural ideas, such as devising a shareholder composition.

When considering the structure, it is necessary to comprehensively judge the risk of securing control, economic equity and foreign capital regulation, etc. before designing, and consult with legal experts etc. depending on the case. However, it should be designed.

Five Common Problems During Legal Due Diligence

When considering investing in or acquiring a Thai company, it is common to carry out various due diligence and take steps to confirm in advance whether there are any problems with the investment target, but especially for start-up companies. In terms of investment, there are often no track records and legal maintenance. Among them, the problems that are often found are mentioned below.

Problem 1 Insufficient stock-related documents

It’s not necessarily limited to start-up companies, but there are many cases where incomplete stock-related documents are discovered. In particular, according to the Thai Civil and Commercial Code, private companies in Thailand are obliged to create and keep a shareholder list, but in many cases the company does not create an appropriate shareholder list. ..

In addition, Thai private companies are required to issue share certificates to shareholders under the Thai Civil and Commercial Code. Unlike Japan, under Thai law, stock certificates are not securities, and are a type of evidence securities that prove shareholders, the number of shares, etc. Even if a share certificate is issued, the transfer of the share is not valid by the delivery or endorsement of the share certificate.

In addition, under Thai law, in order for a share transfer to be valid, it is necessary to conclude a share transfer instrument between the transferring parties, but for past share transfers of startup companies, this share There are still cases where the transfer is completed without creating a transfer certificate, and there are also cases where there is doubt about the ownership of the shares of the current shareholders when evaluated legally. Although the response method is case by case,As a new investor, first of all, the correction of deficiencies in stock-related documents should be sought as a prerequisite for transaction execution.It will be considered.

Problem 2 Insufficient licensing

The problem that Thai startups do not have the required permits can also be found in legal due diligence.

In particular, if you do not have a license related to e-commerce or a license related to the Central Bank of Thailand (in the case of FinTech companies), there are not only fines but also imprisonment for directors, and the acquirer or investor will make a director. It is safe to have these licensing deficiencies corrected before dispatching.

Especially in start-up companies, it is often the corporate value itself that the license is properly held and the business that requires the license can be performed.For important permits that form the basis of a business, the completion of acquisition should be a prerequisite for transaction execution in many

Problem 3 Inadequate employment contract

Thai start-ups often do not have written employment contracts with their employees. Since it is not legally required to conclude a written employment contract, there is no problem with the absence of the employment contract itself, but if there is no written employment contract, a new investor will be with the current employee. It will be difficult to accurately confirm the working conditions and arrangements between the two.

In addition, we often do not have an employment contract between the founder or officer and the target company. Similar to the above, there is no problem with the absence of the employment contract itself, but there are cases where it is difficult to confirm the employment conditions of the founder and officers, and it is difficult to confirm whether there is a promise of high compensation etc. Please note that there is.

If no employment contract has been signedTaking the opportunity of investment and acquisition, it is a prerequisite for closing a transaction to negotiate and conclude a new employment contract for the purpose of clarifying the current and future employment conditions.It is possible.

Problem 4 Attribution of ownership of intellectual property rights

In the case of Japan, except for the copyrighted work of the program, it is a copyrighted work created by a person engaged in the business of the corporation, etc. based on the initiative of the employer, and the corporation, etc. is in the name of its own work. The author of the publication is supposed to be the employer unless otherwise specified in the contract, employment rules, etc. at the time of its creation.

In addition, the author of the work of the program created by the employee on the job based on the initiative of the employer is also the author of the employer unless otherwise specified in the contract, employment rules, etc. at the time of creation. .. In this way, attributed work for hire to employers seems to be the majority in the world.

On the other hand, in Thailand, the opposite is true. That is, in Thailand, the copyright of a work created by an employee in the process of employment belongs to the author himself unless otherwise agreed in writing, and the employer is the purpose of employment. Therefore, you only have the right to convey the work to the public.

In other words, in the case of Thailand, the copyright created by the employee belongs to the employee unless otherwise agreed. Based on the current situation of deficiencies in the above employment contract, it is possible that the copyright created by the employee does not belong to the target company, but to the employee, so be careful. Is required.

In such a case, as an example of countermeasures, it is conceivable to change the work rules to clarify this point. Even under Thai law, changes to work rules that are disadvantageous to employees require the consent of employees, so as part of renewing the work rules and internal rules of the target company when investing, while obtaining the consent of employees, intellectual property It is conceivable to make changes to clarify the company attribution in the work regulations.

Problem 5 Personal loan from the founder

In the early stages, many Thai start-up companies draw loans from their founders to run their businesses. When investing in a Thai start-up company as a new investor, it is necessary to limit and restrain the use and use of the funds, such as using them for the purpose of business expansion, so that the investment funds will not be used for repayment to the founder. In addition, it is desirable to confirm the source of the operating funds of the target company and agree in advance on the timing of repayment, repayment schedule, ranking, etc.

In this way, when considering investing in a Thai start-up company, it is necessary to pay particular attention to Thai foreign capital restrictions, and at least the points introduced above when conducting legal due diligence. is needed.

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