Cabinet Approves Draft for Single Person Company Incorporations

On 24 January 2017, the cabinet approved a draft of the Incorporation of Single Person Companies Act (the “Draft Act”).  The purpose of this Draft Act is to support small and medium enterprises (“SMEs”) by allowing a legal entity to be incorporated with only one owner instead of three shareholders under the provisions of the Thai Civil and Commercial Code.  The current military government believes that this law will promote SMEs to competitively operate businesses with fewer formalities under a single person company structure instead of operating under the traditional limited company structure.

The Draft Act states that a single person company can be incorporated by one “owner” who must be a Thai natural person of legal age (at least 20 years old) and must not be incompetent, quasi-incompetent or bankrupt.  Any person being prosecuted for fraud or other commercially related offences and nominee shareholding offences under the Foreign Business Act cannot incorporate a single person company unless such person has been released from his/her sentence for not less than five years.  With such owner qualifications, the Draft Act will not benefit any foreign investment intended to set up a wholly-owned subsidiary in Thailand.

Features of the Draft Act include the following:

  • A single person company will be identified by the designation “…Company Limited (single person)”. The single person company will be deemed a separate legal entity from its shareholder.
  • The Draft Act has adopted several provisions from the CCC with regards to relationships with its directors or third parties and liquidation of a single person company. The Draft Act also restates some provisions applied to limited companies under the CCC, such as those on dividend payments, capital increase and decrease.
  • The Draft Act also imposes new requirements for incorporation of a single person company, such as qualifications of and liabilities for owners, and responsibilities of directors. For example, all shares in a single person company must be fully paid-in by its owner at the time of incorporation while a limited company under the CCC only requires 25% of the share capital to be paid-in.
  • A single person company may be transformed into a limited company under the CCC when conditions prescribed under this Draft Act are met.

The Draft Act is still subject to review by the Council of State and the National Legislative Assembly.  However, extensive changes are not expected to be made.