Thai Business Partnerships

Thai Business Partnerships provide a flexible method for two or more individuals or entities to conduct business together without forming a limited company. Partnerships are governed by the Civil and Commercial Code (CCC), Book III: Obligations, Title XXII: Partnerships and Companies (Sections 1012–1096). The CCC establishes the types of partnerships, formation procedures, management structure, liability of partners, and dissolution.

Partnerships in Thailand are categorized into three main types, each with distinct legal characteristics and liability structures.

II. Legal Basis and Statutory Authority

A. Governing Law

Civil and Commercial Code (CCC), Sections 1012–1096: Provides the legal framework for the formation, management, and dissolution of partnerships in Thailand.
Partnership and Company Registration Act B.E. 2476 (1933): Establishes registration requirements for partnerships.
Revenue Code B.E. 2481 (1938): Governs taxation of partnership income.
Foreign Business Act B.E. 2542 (1999): Limits foreign participation in certain partnership types.

B. Key Legal Principles

Partnerships are contractual relationships between two or more parties who agree to carry on business together for profit.
Partners may be individuals, juristic persons (companies), or a combination of both.
The rights, obligations, and liabilities of partners depend on the type of partnership chosen.

III. Types of Business Partnerships in Thailand

A. Unregistered Ordinary Partnership

An informal partnership that does not require registration.
Partners have unlimited personal liability for partnership debts.
Each partner is an agent of the partnership and can bind the partnership in legal agreements.
Suitable for small businesses or temporary ventures.

B. Registered Ordinary Partnership

Requires registration with the Department of Business Development (DBD) under the Ministry of Commerce.
Has a separate legal personality but retains unlimited liability for partners.
Provides greater transparency, as the partnership must maintain registered records.
Partners can sue or be sued in the partnership’s name.

C. Limited Partnership

Consists of two types of partners:
- General Partners: Have unlimited liability and manage the partnership.
- Limited Partners: Have liability limited to their capital contributions and may not participate in management.
Must be registered with the DBD.
Commonly used for investments, joint ventures, and partnerships with passive investors.

IV. Formation of Business Partnerships in Thailand

A. Partnership Agreement

Although not legally required, a written partnership agreement is highly recommended.
Key elements of a partnership agreement:
- Names and addresses of partners.
- Partnership name and business purpose.
- Capital contributions (cash, property, or services).
- Profit and loss-sharing ratios.
- Management structure and decision-making authority.
- Admission and withdrawal of partners.
- Dispute resolution mechanisms.
- Procedures for dissolution.

B. Registration Procedure for Registered Partnerships

Name Reservation:
- Submit a name reservation request to the DBD.
- The name must be unique and must not conflict with existing company names.
Submission of Partnership Application:
- Complete and submit the DBD’s partnership registration form.
- Attach a copy of the partnership agreement (if any).
- Provide identification documents for all partners (ID cards for Thai nationals, passports for foreigners).
Issuance of Registration Certificate:
- The DBD issues a Certificate of Partnership Registration, which serves as legal proof of the partnership’s existence.
Tax Registration:
- Register with the Revenue Department for a Tax Identification Number (TIN).
- Register for Value Added Tax (VAT) if annual revenue exceeds THB 1.8 million.

C. Minimum Capital Requirements

There is no minimum capital requirement for partnerships under Thai law.
However, partners may agree on specific capital contributions in the partnership agreement.

V. Rights and Obligations of Partners

A. Rights of Partners

The right to participate in management (except limited partners).
The right to receive a share of partnership profits as agreed.
The right to inspect partnership books and records.
The right to withdraw from the partnership in accordance with the agreement.

B. Obligations of Partners

The duty to contribute capital or services as agreed.
The duty of loyalty and good faith toward the partnership.
The duty to indemnify the partnership for losses caused by their wrongful acts.
The duty to avoid conflicts of interest.

VI. Profit and Loss Sharing

A. General Rule (Section 1057 CCC)

Profits and losses are shared according to the terms of the partnership agreement.
If the agreement does not specify, profits and losses are shared in proportion to the partners’ capital contributions.

B. Special Provisions for Limited Partners

Limited partners are entitled to receive a share of profits but are not liable for losses beyond their capital contributions.

C. Capital Withdrawal Restrictions

Partners may not withdraw their capital without the consent of all other partners.
Withdrawals that reduce the partnership’s ability to meet its obligations may be challenged.

VII. Liability of Partners

A. Unregistered and Registered Ordinary Partnerships

Partners have joint and unlimited liability for partnership debts and obligations.
Creditors may claim against the personal assets of partners to satisfy partnership debts.

B. Limited Partnerships

General Partners:
- Have unlimited liability for partnership debts.
- Manage the partnership and act as its legal representatives.
Limited Partners:
- Liability is limited to their capital contributions.
- Prohibited from participating in management.

C. Liability for Unauthorized Acts

Partners are not liable for actions taken by other partners outside the scope of partnership business.
The partnership agreement may specify which partners have authority to bind the partnership.

VIII. Dissolution and Winding Up of Partnerships

A. Grounds for Dissolution (Section 1074 CCC)

Expiration of the partnership term (if specified).
Mutual agreement of partners.
Bankruptcy of the partnership or a partner.
Withdrawal or death of a partner (unless otherwise agreed).
Court order for dissolution (e.g., partner misconduct).

B. Winding Up Procedure

Assets of the partnership are collected and liquidated.
Partnership debts are paid in the following order:
1. Debts to third parties.
2. Repayment of partners’ capital contributions.
3. Distribution of remaining assets to partners.
Any deficit is shared among partners according to their profit-sharing ratios.

C. Notification of Dissolution

If the partnership is registered, the dissolution must be registered with the DBD.
The DBD will record the dissolution in its public register.

IX. Taxation of Partnerships

A. Registered Partnerships

Treated as juristic persons for tax purposes.
Subject to corporate income tax (CIT) at the standard rate of 20%.
Must file annual financial statements and tax returns with the Revenue Department.

B. Unregistered Partnerships

Not treated as separate legal entities.
Partners are taxed individually on their share of partnership income.

C. Withholding Tax Obligations

Partnerships must withhold tax on payments to suppliers, service providers, or contractors.

X. Legal Risks and Best Practices

A. Draft a Clear Partnership Agreement

Avoid verbal agreements to prevent disputes.
Define the roles, responsibilities, and profit-sharing ratios of each partner.

B. Choose the Appropriate Partnership Type

Use a Limited Partnership for investments involving passive partners.
Use a Registered Ordinary Partnership for transparency and legal protection.

C. Regularly Review and Update Agreements

Amend the partnership agreement to reflect changes in business operations.
Review and update profit-sharing arrangements as necessary.

D. Maintain Accurate Financial Records

Ensure compliance with tax and accounting regulations.
Retain records of partner contributions and distributions.

XI. Conclusion

Thai business partnerships offer a flexible and straightforward way for two or more parties to engage in business together, but they also carry significant risks, particularly in terms of partner liability. Understanding the different types of partnerships and their legal implications is essential for minimizing risks and ensuring the success of the partnership.