5P of Laws all entrepreneurs should know!! - Startup Thailand

22 June 2023

Doing business as a Startup or SME, the entrepreneur is required to study and learn a range of different factors to ensure the business success. “Legal factor” is also another important knowledge for business execution to learn and understand in order to prevent risks that may arise and to ensure strategic business planning for sustainable success of the business, and even greater productivity on ongoing basis. Khun Rubkwan Choldumrongkul, Vice President of the Thai Startup Trade Association and Founder of LawXTech has summarized the key “legal matters” which all entrepreneurs should know arranged under 5 key headings, namely 5Ps - P-Presence / P-Partner / P-Product / P-People and P-Public.

P-Presence Laws concerning the Company establishment and management

including the key topics to be considered for the due management of the company as follows:

Shareholders and Directors: Under the current law, all companies must have at least 2 shareholders, who are the owners of the company, having the voting right and the right to the dividend generated from their investment. The shareholders then shall appoint “Directors” to represent the company in making various contracts and agreements.
It should be noted that in case any company having the foreign shareholders holding shares of more than 50%, the company must check if it is necessary to apply for a Foreign Business License (FBL).
Registered Capital: Every company must specify their registered capital that will display the assets in the company; provided that the factors to be taken into consideration in determining the registered capital include: (1) the business sector – some sector requires the license and the specific law defines the minimum registered capital that the license applicant shall maintain to be qualified; (2) the factor of whether the company have foreign shareholdings and/or hire a foreign labor where the company may be required to have 2 to 3 MTHB registered capital, or (3) the credibility of the company since the registered capital shall display the value and the size of the business.
Company Objectives: Every company shall define and register their business objectives that cover all of the company’s business operations unless the Company would not be entitled to carry out the unregistered business.
Corporate Documents: The key corporate document that the Company shall generate and maintain, in addition to the DBD-registered document include 2 types of documents, including (1) Shareholders Documents which the company shall prepare to confirm the share ownership for each shareholder - a share certificate which must be issued to each shareholder, and a Shareholder Register, which must record all shareholding changes; and (2) minutes of the Shareholders’ and Board of Directors’ meetings, which record various company decisions where of which some decisions may be required to be registered with DBD within a predetermined schedule.

P-Partner: Laws governing shareholders and investors

These are legal matters that the shareholders shall agree among themselves and between the shareholders and the investors, including:

Shareholders’ Statutory Rights: Under the general laws, shareholders shall be entitled to (1) vote, (2) receive investment consideration, and (3) audit and inspect the business operation.
- In voting, a majority shareholding vote requires the vote of more than 50% of the vote and for the critical matters (i.e., the capital increase-decrease, merger or dissolution of the company), the law stipulates that over 75% of the voting rights is required.
- Types of shares under the laws are divided into: (1) Common Shares, to which no special rights apply; and (2) Preferred Shares, which carry preferred rights either better or worse than the common shares; provided that different rights for the preferred shares shall be registered in the Company’s articles of association that shall be filed with DBD.
Shareholders’ Agreements: The Shareholders shall be entitled to agree to add additional rights and obligations among the shareholders and shall define those additions into the shareholders’ agreement that shall become binding upon the shareholders. Therefore, the shareholders shall agree all the terms and conditions to be implemented in all circumstances and scenario, best (IPO and Exit) or worst (shareholders fight or default).
Fund-raising from Investor: A company can raise fund in 3 main sources: (1) equity where the investor shall become the owner of the Company yet the company is prohibited to offer shares to the public; (2) debt where the investor shall become the lender that shall get repayment and interest – generally the company shall enter into the loan agreement with the investor but if the company would like to issue the debenture, the company shall follow SEC requirements; and (3) token offering where the token holder shall be entitled to all the rights defined in the whitepaper yet the issuance of token shall be in compliance with SEC requirements.

P-Product: Laws governing the product development and sales

There are 3 main issues that the entrepreneurs shall consider relating to product:

Compliance: The entrepreneur shall consider the necessity for the company to apply for the license to develop and launch the products in order to reduce the risk of being penalized or the risk of having their business suspended. For instance, the application for the digital platform license for e-marketplace business, the application of the license for fintech or healthtech. In addition, for certain product or services, the entrepreneur shall understand the laws that may prescribe the product liabilities that the entrepreneur may be subject to, in particular for all the consumer products.
Protection: Every product or service of the company have intellectual property that the Company shall understand in order to protect those rights.
- Intellectual property rights in Thailand are divided into (1) copyrights (no registration required); (2) patents protecting the physical invention (registration is required to be protected); (3) trademarks (protected with or without registration yet with the registration more protection will be provided); and (4) trade secrets (no registration required but do require protective measures, including the entry into the confidentiality agreement). It should be noted that intellectual property rights registration is territorial so registration made in Thailand only covers Thailand yet if the entrepreneur intends to expand to other markets, the registration in such country would also be required.
Commercialize In selling products and services, the entrepreneur should prepare the sale and purchase agreement in writing to define clearly the rights and obligations between the company and the customers, in particular the company’s liability limitation. The written agreement can be made in paper or electronic form and signed with electronic signature. It should also be noted that some types of agreement (i.e., service agreement) would require to affix stamp duties to be fully enforceable.

P-People: Laws governing the human resources

In principle, a company may engage their labor force either as the outsourced freelance or an employee yet in case of the employment, the Labor Protection Act shall be applicable to protect such employees.

Key Labor Laws that the entrepreneur shall comply with: The Labour Protection Act determines minimum standards that all employer shall comply with and shall not agree to lessen such minimum statutory rights defined under the laws.
Minimum statutory labor rights that Entrepreneur shall be aware of: (1) working hours: 8-hour per day or 48-hour per week with a break time of 1 hour per day and 1 day per week; (2) overtime work shall be compensated in the following rates: 1 time for overtime on working days / 1.5 times for working on holidays and 3 times for overtime work on holidays; (3) right to sick leave, personal leave, and national holidays of 13 days/year and 6 annual leave days after working a full year.
Termination of employment except (i) when it is the liability of the employee; (ii) in case of the expiry of the employment term as pre-defined; or (iii) the employee resigns, the entrepreneur shall pay the severance to the employee who has worked for more than 120 days (including probation).
Other provisions to be defined in the employment agreement. (1) the intellectual property rights – unless defined in writing in the employment agreement, all the intellectual property rights created by the employee shall belong to the employee so this term shall be defined in the employment agreement; and (2) in case the employer will provide additional consideration to the employee (i.e., ESOP or bonus), the conditions for the vesting and distribution of those consideration shall be defined clearly.

P-Public: Laws with which business operators must comply

to reduce the risk of punitive measures being applied, and to reduce the risk for investors or partners in working with the company, summarized as follows:

Tax divided into (1) direct tax – corporate income tax where in case of SMEs, the tax rate would be a progressive rate of up to 20%, with payments made twice per year; (2) withholding tax that the company shall execute in making certain payments, for instance, dividends (10%) or service fee (3%) payable once a month; (3) value Added Tax collected from consumers at a rate of 7% and shall be paid every month for the surplus of the sales taxes, comparing to collected purchase tax; provided that any business operator having gross revenue exceeding 1.8 MTHB shall be obligated to register for value-added tax or alternatively any business operator can voluntary register for VAT; (4) Specific Business taxes for certain kinds of transactions such as selling real estate; and (5) Property taxes, which the local government collects from the business holding property, such as land tax or advertisement signing tax.
PDPA: Personal Data Protection Act which is the law that all the entrepreneur registered in Thailand shall comply with in processing the ‘personal data’ which means any data which may be directly or indirectly identify one single individual such as a photograph, name or surname, username, password or application use behavior. PDPA protects the personal data of all the individual, Thai or foreigner, provided that in case of the EU people, the entrepreneur shall also be complied with GDPR. PDPA do not forbid the use of personal data, but if it is to be used, there must be compliance with 4 main principles: (1) Necessity – all the personal data processing shall have their necessity in terms of objectives and time; (2) No Surprise – the entrepreneur shall notify the relevant data subject of the privacy notice and if required, get the prior consent from them; (3) Keep it Safe – implement the appropriate information security measures to prevent unauthorized process by third party and notify the relevant authority in case of any materially adverse data breach within 72 hours; and (4) Respect the rights – the entrepreneur shall respect the data subject’s rights over their personal data

Rubkwan Choldumrongkul, Vice President of the Thai Startup Trade Association and Founder of LawXTech