Equity Finance 2024 Comparisons

Similar to other countries, the typical financing arrangements that are available in early-stage and venture capital financing in Thailand primarily revolve around equity and debt financing. These types of financing are typically structured through various forms, depending on the specific needs and growth stages of the company.

Equity financing remains a predominant method, particularly for early-stage companies, usually facilitated through private placements and crowdfunding. While debt financing is also common, conventional debt financing is less favoured by early-stage companies due to the credit status of the company and the obligation to repay, which can be challenging for companies with limited cash flow. Debt financing in an early-stage company may be in the form of a shareholders’ loan and/or a loan from investors with an option to convert debt into capital.

In recent years, Thailand has seen a rise in alternative financing methods such as investment token offerings. With the growth of blockchain technology, some companies have turned to investment tokens as a way to raise capital. However, the adoption of this type of financing is still limited to sophisticated issuers and/or investors who have a deep understanding of this type of financing scheme and can accept the risks associated with investing in the company through this channel.

The investor base in Thailand’s start-up and early-stage company ecosystem is diverse but remains concentrated among certain types of investors, including venture capitalists, private equity firms, institutional investors, angel investors and/or high net worth individuals.

Generally speaking, start-ups and early-stage companies typically tend to raise funds through share offerings as a primary source, as this does not require repayment and allows them to conserve cash over debt financing. However, the choice between equity and debt financing, or even between different equity financing and debt financing methods, depends on several factors, such as industry, the size of the company, the risk appetite of investors/lenders and founder(s) preference.

While early-stage companies and start-ups have limited financing options available to them – such as equity financing, debt financing and emerging methods like investment token offerings – the landscape broadens significantly as a company progresses to the growth stage. At this point, a company has typically achieved some market traction, developed its product and generated early revenue, making it more attractive to a wider range of investors and financing sources.

As a company matures, the financing options that were available during the early stages would remain relevant but are often structured differently to suit the company’s new needs and goals. As the company becomes more established, it is likely to gain access to additional, more traditional sources of financing that may not have been available or attractive during the early stages in both debt and equity financing. These include various types of credit facilities from financial constitutions (secured, unsecured and lines of credit), shareholder loans, capital injections from existing shareholders and new funding injected from strategic investors – all of these can provide the capital needed to scale operations, enter new markets and achieve long-term growth. These secondary sources of funding can offer several advantages to growth stage companies – eg, enhanced flexibility and bringing on a strategic partnership or strengthening the financial position and credit of the company.

The choice of financing at this stage is often driven by a combination of the company’s financial performance and growth objectives and the strategic value offered by investors in order to enable the company to continue its trajectory toward success.

Listing Platforms and Requirements

To facilitate the accession to equity fundraising from the public, Thailand's equity markets are structured into three distinct platforms, each catering to different types of companies.

• The Stock Exchange of Thailand (SET) is designed for large Thai and foreign companies with established track records. SET is suitable for major corporations seeking to raise significant capital and enhance their visibility.
• The Market for Alternative Investment (MAI) is targeted at medium and small Thai companies with solid track records. It serves as a platform for growing enterprises that have demonstrated stability and potential for expansion.
• Live Exchange (LiVEx) specifically targets Thai start-ups, and is unique in that it does not require companies to have a proven track record. The focus here is on disclosure rather than merit, making it an attractive option for early-stage companies. LiVEx aims to help these start-ups grow into larger entities that may eventually qualify for listings on the SET or the MAI.

Companies seeking to conduct initial public offerings (IPOs) and list newly issued shares on the SET or the MAI must undergo a comprehensive process and ensure that they have the qualifications required by the relevant regulations. This rigorous process includes the following.

• Review by qualified professionals as approved by the Securities and Exchange Commission (SEC): companies are subject to thorough review by financial advisers and auditors, all of whom must be approved by the SEC. In addition, financial advisers should have competent and experienced legal counsel and internal auditors to review areas beyond their expertise.
• Regulatory oversight: the process involves scrutiny by regulators to ensure compliance with strict standards related to internal controls, legal adherence, financial reporting, conflicts of interest, corporate governance and financial stability.
• Underwriting requirements: all IPOs in Thailand must be conducted through SEC-approved underwriters. The underwriters will typically perform a book-building process with institutional investors to obtain feedback on pricing and demand before finalising the IPO price. However, the regulator does not require the underwriter to perform firm underwriting on the offering, although underwriting after the book-building process is commonly used.

Listing Requirements for Foreign Companies

Foreign companies seeking to list on Thailand’s equity markets are subject to stricter criteria than Thai companies. The requirements vary depending on whether the company is already listed in an SEC-approved country, as follows.

• Foreign companies not listed in an SEC-approved country must provide a detailed comparative analysis of Thai and foreign regulations regarding shareholder protection (regulatory mapping) and address risks related to legal gaps between foreign and Thai laws. They are also required to appoint at least two Thai directors and a Thai co-ordinator, all of whom must reside in Thailand.
• Foreign companies listed in an SEC-approved country are subject to less stringent requirements and are only required to provide a detailed regulatory mapping and appoint a Thai resident co-ordinator.

Listing on Thailand’s equity markets offers several benefits, including access to capital, providing an exit channel for investors and enhancing the company’s reputation and share value. However, there are potential challenges in terms of disclosure and/or procedural requirements and/or approval required for certain types of transactions entered into by Thai listed companies, particularly for foreign companies and shareholders from certain countries – eg, related party transactions and/or significant transactions on an acquisition and/or disposition of assets of the listed company. These may include tax implications in Thailand, which could act as a deterrent for pursuing IPOs and listings on the Thai equity market.

In Thailand, companies can undertake various types of equity restructuring, each serving different objectives and involving different processes, in order to optimise its capital structure, improve financial performance or accommodate strategic changes.

One of the simple ways to restructure equity that allows existing shareholders to maintain their ownership percentage is the issuance and offering of new shares to its existing shareholders in proportion to their respective shareholding, also known as a rights offering.

Alternative instruments offer a way to restructure equity with potentially lower dilution effects, including the issuance of warrants, bonds, convertible debentures and perpetual bonds.

Thai law only allows a public limited company to raise funds from the public through a public offering, which provides broader access to investors. This process will require the filing of a prospectus with the SEC and obtaining approval from the SEC before proceeding with a public offering. Public offerings can significantly increase a company’s capital and enhance its credibility and visibility in the market. However, this option requires rigorous compliance with legal, corporate governance and financial reporting standards.

In addition, Thai law allows public limited companies to offset outstanding debts by issuing new shares to creditors under a debt-to-equity conversion scheme. The challenges associated with debt and equity restructuring include obtaining approvals from relevant stakeholders, such as creditors, shareholders and, where applicable, regulatory bodies. The legal procedures and necessary approvals can be time-consuming and require extensive negotiation among the stakeholders.

However, public offerings, private placements and the debt-to-equity conversion scheme are not permitted for private limited companies. Instead, private limited companies can move around the limitation of the law by utilising a two-step process – for example, convert outstanding debt into a straightforward capital increase and subsequent debt repayment, with creditors first subscribing for newly issued shares with cash, and the company then using the proceeds from the subscription of newly issued shares to repay debts to the creditors.

In Thailand, corporate governance and shareholder requirements are determined by a company's legal form and status as either a private limited company, a public limited company or a public limited company listed on the stock exchange. Each type of company must adhere to specific requirements regarding the number of shareholders and the governance framework that ensures the company’s management and decision-making processes are conducted transparently and effectively, thereby safeguarding the company's best interest and protecting the rights of its shareholders.

Shareholder Requirements

A private limited company in Thailand is required to have at least two shareholders, which can be individuals or corporate entities.

For a public limited company, a minimum of 15 shareholders is required to ensure a broad distribution of ownership.

A public company listed on the SET or the MAI must have at least 150 minority shareholders collectively holding no less than 15% of the company's paid-up capital to meet free float requirements.

Corporate Governance Requirements

The corporate governance of both private and public limited companies in Thailand is designed to balance the power between management and shareholders on different levels, and to ensure that significant decisions reflect the collective will of the shareholders, as follows.

• Articles of associations – a document required by law for the incorporation of a company, which typically outlines the rights and obligations of shareholders and the corporate governance of the company.
• Shareholders’ agreement – shareholders of a company may also enter into a shareholders’ agreement to supplement the company’s articles of association by setting out specific rights and obligations for different groups of shareholders. This agreement often addresses matters not typically covered in the company’s standard governance documents. Common key provisions include board representation and appointment, reserved matters, voting rights, exit rights such as right of first refusal, right of first offer, tag-along rights, drag-along rights and put or call options. Key terms in shareholders’ agreement will normally be reflected in the articles of association of the company. For listed companies, the matters to be agreed in shareholders’ agreements tend to be limited due to relevant regulations and/or potential legal issues arising from agreement in the shareholders’ agreement – eg, regulations on acting in concert.
• Board of directors – the board is responsible for overseeing the management of a company and has the authority to make decisions on behalf of the company, subject to the parameters set out in the articles of association and decisions made by the shareholders’ meeting.
• Shareholders’ meeting – this serves as the ultimate decision-making body for key matters that impact on the company’s interest and governance. These include decisions on capital increase, capital reduction, amendments to the articles of association and other major corporate actions that may be reserved for shareholders.

For listed companies, the corporate governance framework is more stringent, reflecting the need to protect public investors and maintain market integrity. The SEC and the SET impose specific governance requirements that listed companies must follow, and oversee compliance with such matters and with the requirements set out by the securities laws. This includes:

• rules on board composition;
• the protection of shareholders' rights and equal treatment for all shareholders regardless of their stake in the company in terms of access to information and participation in decision-making processes; and
• timely disclosure of material information such as financial results, major transactions and changes in management to ensure fairness in the market.

It is common for investors to provide both equity and debt financing to the same company. This allows investors to diversify or mitigate their investment risk, enhance overall returns and exert influence or control over the company's strategic decisions. Subject to the type of investor and the tax implications, investors would typically provide debt financing in the form of a shareholders’ loan and/or convertible bonds, which can be converted into equity at a later stage. The hybrid instrument allows investors to enjoy the fixed income of debt with the potential upside of equity conversion if the company performs well.

Key Considerations

Debt

This is a more secure form of investment, which entitles the investor to enjoy regular interest payments and has priority in repayment over equity in the event of liquidation. However, debt investors do not typically have direct voting rights or control over the company by law but can have contractual control through terms and conditions set out in the financing documents that give them certain controls or influence over the company’s financial and/or business decisions or restrict certain operation and/or actions of the company.

In an insolvency scenario, debt has priority over equity. Generally, no classes of debt are distinguished under Thai law and they would all be treated equally in terms of priority, except secured debt, which would have priority of repayment from the security or collateral or preferential rights as constituted by law. If no special agreements are in place, unsecured debt is generally ranked equally and repaid on a pro rata basis to other creditors.

In evaluating creditor rights to debt repayment in the context of business rehabilitation under the Bankruptcy Law, particularly regarding bondholders and loan creditors, the classification of these creditors plays a crucial role. This classification is determined by the plan preparer and is influenced by factors such as the presence of collateral and the relative priority of claims. When bondholders and loan creditors fall within the same classification, they will be treated uniformly. Conversely, if they are assigned to different classifications, their treatment and the sequence of debt repayment will be governed by the specifics of the rehabilitation plan and in accordance with the applicable legal framework that outlines the distribution of the debtor's assets.

Equity

This offers returns through dividends and capital gains, and a level of control over the company through voting rights, but comes with greater risk as, unlike interest on a loan, returns on dividends and capital gains are varied depending on the operational result of the company – in particular, shareholders are the last to be repaid in a liquidation scenario.

Under Thai bankruptcy law, the classification of creditors is determined by the rehabilitation plan preparer, who has discretion to categorise loans from significant shareholders separately from other external creditors, which can significantly impact the order of debt repayment. It is imperative that the preparer provides reasonable justifications for such classifications. Creditors who believe they have been unfairly classified have the right to file objections with the Central Bankruptcy Court within seven days of receiving notice of their classification. The Court must then review and revise the classification in accordance with the applicable legal provisions. Furthermore, shareholders who do not possess creditor status will only be considered for repayment after all other creditors have been fully compensated, as stipulated by the rehabilitation plan.

In Thailand, equity finance involves a range of features and techniques tailored to the needs of companies at different stages of development. The market is well developed, with various sub-segments and hybrid financing forms available, depending on the size, type and growth stage of the company. Factors that would influence equity financing decisions include the company’s valuation, the dilution effect of issuing new shares, the exit strategy that investors would seek and any regulatory requirements for public offerings.

The most common features for equity finance are ordinary and preferred shares, whereby preferential treatment concerning dividends, voting rights and liquidation proceeds may be included.

Different techniques for equity financing include IPO, private placement, venture capital financing, private equity financing, angel investment, convertible bond, crowdfunding, mezzanine financing and warrants.

Typically, existing shareholders are often the first source of equity financing, especially during the early stages of a company. The use of venture capitalists, private equity firms and strategic investors is also common, particularly as a company grows and seeks larger funding or requires specific expertise. If large funds are required, IPOs would be the preferred option.

Restrictions

Under Thai law, there must be at least two shareholders for a private limited company, with no limit on the maximum number. In order to become a public limited company, the company must have at least 15 shareholders. A company that has more than 50% foreign ownership would be considered a foreign company, and would therefore be subject to limitations on what the company can do. For example, service businesses are restricted for Thai companies pursuant to the Foreign Business Act, and the applicable licence is required for a foreigner to operate a service business.

There would be additional requirements for regulated businesses, such as financial institutions, securities companies, telecommunications businesses, etc, which would require a licence and/or approval from the relevant regulatory bodies that oversee the relevant sectors.

Factors that would influence companies when seeking capital include size, age, shareholder composition and industry. These can influence a company’s decision on whether to opt for debt or equity financing, and the specific structure or technique it employs.

Companies in key industries such as tech, data, cloud, IT and life sciences are often at the forefront when it comes to seeking equity financing, as these sectors are attractive to investors due to their high growth potential, potential scalability, significant returns on investment, innovative nature and alignment with global technological trends.

The size of the company plays a crucial role in determining the type of financing sought. Larger companies with established operations and revenue streams are likely to have better access to financing options in both equity and debt, including public equity markets and large-scale private equity funding.

The age and stage of a company can also determine the types of financing that would be available. Early-stage companies are more likely to incline towards equity financing due to less creditability to acquire debt financing and limitation to service debt and/or commitment on repayments and interest costs, whereas matured companies with stable revenue bases can establish more credit and may prefer debt financing to avoid diluting ownership. Potential options for debt financing include shareholders’ loans, corporate bonds, private equity and venture capital loans, SME loans and bank loans. Companies in more traditional sectors or those with significant assets may also explore asset-backed financing as a viable alternative.

Shareholder composition also has a major influence on the types of financing that a company might opt for. Companies with a concentrated ownership may avoid equity financing to prevent the dilution of control, whereas companies with diverse shareholder bases might be more willing to raising equity to propel growth.

There are many factors that influence a company’s choice of financing, which is ultimately determined by the specific circumstances and strategic goals of the company.

The equity finance market in Thailand is a dynamic and evolving landscape that can be categorised into various segments, as follows.

• Public equity markets: the primary platforms are the SET and the MAI. As of 30 August 2024, these markets have seen 20 new IPOs with an aggregate offering size of approximately THB18.8 billion.
• Private equity markets: for venture capital and angel investors, there were 49 deals in the private equity market in the first quarter of 2024 alone, with a total transaction value of approximately THB93.8 billion.
• Debt-equity hybrid markets: there were ten and 23 convertible bonds offering in 2024 and 2023 respectively, with total transaction values of approximately THB409 million and THB291 million.

The key drivers for these equity financing deals include the economic growth of Thailand, creating a favourable environment for equity financing, a supportive and streamlined regulatory environment, and the digitalisation of the market with the adoption of new technologies.

Looking ahead to 2025, the equity finance market in Thailand is expected to experience an increase in growth. This optimism is driven by expected regulatory changes that will further reduce barriers to entry and enhance investor confidence, while the adoption of new technologies will enhance trading, investment and market surveillance, which would provide better market stabilisation.

In Thailand, companies have the option to raise capital through either private or public equity fundraising, depending on their specific business needs, stage of development and strategic objectives – both of which are equally important. Each approach has its own advantages and is suited to different types of companies based on their growth stage, investment requirements and regulatory considerations.

Private equity deals are usually suitable for early-stage and start-up companies, as they often require flexibility to secure and access funds quickly without the lengthy processes and burdens of the regulatory requirements associated with public offerings. Funds are often sought from strategic investors such as venture capitalists, private equity firms or angel investors, who can provide not only capital but also valuable industry expertise, mentorship and networking opportunities, which are crucial for the growth and scaling of start-ups.

In addition, private equity fundraisings offer the ability to customise the terms of investment to meet the specific needs of both the company and the investors, and to maintain a level of confidentiality over their business plans, financial performance and strategic decisions.

Public equity fundraising allows broader access to larger scale investments and investor bases, but would be more suitable for established companies that are also looking to gain credibility and visibility in the market.

Equity financing in Thailand is significantly influenced and driven by a network of sophisticated and large-scale advisers and investors. These key participants, including private equity firms, venture capital firms, investment banks and financial advisers, play a crucial role in identifying, structuring and executing investment opportunities that fuel the growth of companies across various sectors.

A well-established and sophisticated adviser, including a private equity or venture capital firm, can bring about source investment opportunities by leveraging on their extensive networks, such as industry contacts, business events, investment banks and financial advisers, and by aligning with their investment criteria and strategic goals. Private equity and venture capital firms also act as strategic partners, taking an active role in the management of their portfolio companies and working closely with the company’s leadership to implement growth strategies, improve operational efficiencies and enhance corporate governance.

More traditional players include financial advisers and investment banks, which also play a pivotal role by offering a range of advisory services, including deal structuring such as bilateral transaction or auction sale, valuation, market intelligence, due diligence, raising capital and regulatory requirements.

A company can benefit a great deal from collaborating with private equity and venture capital firms and other advisers, by having each deal thoroughly vetted and strategically structured to achieve the long-term goals of all parties involved.

Investors in Thailand typically realise the value created through their equity investments by planning an exit strategy aligned with the lifecycle of the investment, which is generally around five to seven years. The exit strategy is often influenced by the terms of the investment fund and the specific growth trajectory of the company.

Typical exit paths include trade sale to a strategic buyer, auction sale, IPO or secondary sale to another private equity firm, a venture capital firm or an institutional investor. Several factors must be considered when choosing an exit path in order to maximise the value of investment, including:

• regulatory compliance, as there may be restrictions on ownership, particularly foreign ownership or of a regulated business;
• valuation challenges – it may be difficult to accurately value a company, particularly a company in an emerging industry or where the market is volatile;
• tax implications – there may be tax consequences such as capital gains, but double taxation treaties and tax incentives may offer some relief depending on the investor’s residency status; and
• market conditions can determine the timing for an exit plan – if market conditions are favourable, this can impact the value realised.

The choice between equity and debt financing is critical for companies and is largely influenced by the size and stage of the company, the type of investors involved and the specific needs and objectives of the business.

Small companies in early stages tend to rely on equity financing, primarily because they may lack the credit history or collateral required to secure debt financing and because there is no immediate obligation to repay, which would create additional costs and expenses. Investors such as private equity and venture capital firms look to benefit from the company’s growth, particularly when the company is positioned for an IPO, so would prefer equity financing as it allows them to share in the company’s success and growth potential.

Larger companies would have more options for debt financing, such as bank loans, shareholder loans and/or bonds, but would often opt to balance between debt and equity financing to avoid any dilution effect on existing shareholders. Instruments such as bonds can be suitable for more mature companies by providing fixed returns to investors and preventing the dilution of equity, making them an attractive option for companies that are looking to finance expansions or other significant projects without giving up additional ownership.

The time taken to raise equity finance in Thailand can vary significantly depending on the method used and the complexity of the transaction. There are typically three methods that can be adopted:

• rights offering;
• private placement; and
• public offering.

Rights Offering

A rights offering is exclusively offered to existing shareholders of the company, who are given the right to purchase additional shares in proportion to their current ownership. This can be executed relatively quickly and takes approximately nine to 16 days, depending on the type of company. The process requires obtaining approval from the shareholders’ meeting first. Under Thai law, increasing the registered capital requires a special resolution of at least 75% of the total votes cast by the shareholders present and entitled to vote.

Private limited companies are restricted from raising equity capital from public investors, or are limited to a selected group of investors outside the private placement framework stipulated by the SEC (see next paragraph). To navigate this limitation, these companies often employ a combined strategy of secondary sales and rights offerings. Initially, existing shareholders sell their shares to external investors, who then fund the subsequent rights offering. During the rights offering, existing shareholders may exercise their rights partially. This action makes a portion of new shares available to the external investors from the secondary sale, allowing them to participate in the rights offering in proportion to their new ownership stakes.

Private Placement

Private placement involves offering shares to a selected group of investors, including institutional investors or strategic partners, who may or may not be existing shareholders. For a public limited company, the regulation stipulates a cap of no more than 50 investors or up to THB20 million in a 12-month period. For a private limited company classified as an SME, the restriction is limited to a maximum of ten investors or up to THB50 million per round of securities offering, but such limitations on the number of investors and offering amount do not apply to funds raised from institutional investors.

Similar to the rights offering process, prior shareholders’ approval for a capital increase is required to be obtained. Any private placement that would result in a significant price dilution for existing shareholders of listed companies shall include an opinion from an independent financial adviser in the notice to shareholders and require shareholder approval with a special resolution at a shareholders’ meeting and no veto vote exceeding 10% of the total number of shareholders attended and entitled to vote. The duration for this process usually takes 16–45 days.

Public Offering

An IPO or public offering is used when shares are offered to the public. This process is a lot more time consuming, usually taking around six months or more, especially for first-time offerings as the company or issuer is required to:

• go through an extensive due diligence process, including financial audits, legal reviews and compliance checks;
• prepare a detailed prospectus;
• address any regulatory concerns; and
• obtain the SEC’s approval.

Foreign investors must navigate certain legal and regulatory hurdles in order to invest in certain businesses in Thailand.

Key Restrictions on Foreign Investments

The Foreign Business Act (FBA) restricts foreigners from engaging in specific business activities in Thailand, such as cultivation and certain service sectors. A licence from the relevant Thai authorities must be obtained prior to operating a restricted business, particularly for businesses where Thai nationals are not ready to compete with foreigners. In addition to the FBA, some industries have a specific threshold for foreign shareholding. For instance, the telecommunications sector imposes a maximum of 49% foreign ownership, limiting foreign control over such regulated businesses.

The Land Code prohibits foreign companies (ie, those with more than 49% foreign ownership) from owning land in Thailand. As a result, foreign investors must explore alternative options, such as leasing land with the right to renew.

Strategies for Mitigating Foreign Investment Restrictions

There are several strategies to overcome the restrictions imposed by the FBA and the Land Code, including leveraging investment promotions, bilateral treaties and specific legal frameworks that provide exemptions and benefits to foreign companies.

• The Promotion of Investment Act gives the Thailand Board of Investment (BOI) the authority to determine certain exemptions, reductions or relaxations of restrictions for foreign investors. For example, the BOI may grant certain exceptions to foreign companies to engage in certain restricted businesses or may set specific foreign shareholding proportions and minimum capital requirements for foreign companies under the FBA to promote investments. It may also determine specific foreign shareholding proportions or minimum capital requirements for businesses for foreign companies to be granted investment promotions. Foreign companies with a BOI certificate may be granted the right to own land for business operations, subject to meeting specific conditions and approvals.
• The Industrial Estate Authority of Thailand (IEAT) allows foreign companies to own land within designated industrial estates for the purposes of conducting specific business activities. This exception provides an avenue for foreign investors to establish a physical presence in Thailand without violating the Land Code’s restrictions.
• Bilateral agreements and treaties, such as the US–Thailand Treaty of Amity and Economic Relations, allow foreign companies that have shareholders and directors with qualified nationality to apply for foreign business certificates to operate their businesses in Thailand, subject to certain conditions.

In Thailand, the payment of dividends to investors and the repatriation of capital outside the country are subject to the Foreign Exchange Control Act and the broader economic policies aimed at maintaining financial stability. Companies pay dividends to foreign investors or repatriate capital, providing they can prove there are legitimate underlying transactions specified by the Foreign Exchange Control Act that can be done for such outflow of capital. If such evidence can be provided, there are generally no significant difficulties in repatriating funds.

Moreover, in recent years, the Thai government has adopted a more relaxed approach to capital controls, in order to encourage foreign investment. This includes easing restrictions on the repatriation of profits and capital.

Thailand maintains a robust regulatory framework for anti-money laundering (AML) and know-your-customer (KYC) regulations, which are applicable to all forms of equity financings. The following entities are required to adhere to AML and KYC regulations:

• underwriters, financial advisers, securities brokers and asset management companies involved in equity financings; and
• digital asset operators engaged in coin offerings.

All entities involved in equity financings or coin offerings must conduct thorough due diligence to verify investors’ identities. This typically involves collecting and verifying personal information such as government-issued identification, proof of address and other relevant documentation.

In addition, entities must ensure that the funds used by investors do not derive from illegal activities, which involves assessing the source of funds to verify their legitimacy and ensuring that they comply with legal and regulatory standards.

Entities are also subject to ongoing monitoring and reporting obligations for any signs of suspicious activity. Transactions exceeding certain thresholds must be reported to the Anti-Money Laundering Office (AMLO), and any suspicious transactions must be flagged and reported accordingly.

In equity financing transactions in Thailand, the choice of law and place of jurisdiction are typically determined based on the specific circumstances of the transaction, the preferences of the parties involved and the nature of the investors.

Governing Law

The concept of freedom of contract is well recognised under Thai law, and there is no limitation on the parties' choice of law to govern their contractual relationship. However, most equity financing transactions involving Thai companies or assets within Thailand will generally be governed by Thai law due to the familiarity of local parties and because the assets and operations of the company are located in Thailand. Certain aspects of the transaction are subject to mandatory local legal requirements, such as corporate governance, securities regulations and tax laws and regulations.

However, in cross-border transactions, particularly where foreign investors are involved, the parties may choose a foreign law as the governing law. This is especially common in transactions where the investors are more comfortable with a legal system that they are familiar with or where the transaction involves sophisticated financial instruments that are better regulated under the laws of another jurisdiction.

Place of Jurisdiction

Thai courts typically have jurisdiction when the transaction is primarily domestic or when the assets and operations of the company are located in Thailand. Thai courts are generally considered reliable and fair, but the judicial process can be time-consuming and cumbersome, particularly for foreign parties who may not be familiar with the local legal system. There is also the language barrier, which can cause an additional level of complexity for foreign investors.

In some cross-border transactions, parties may agree to submit disputes to a foreign jurisdiction, particularly if foreign law has been chosen as the governing law. This is less common but can occur in transactions involving large international investors who prefer to litigate in their home courts or in a neutral jurisdiction.

Arbitration and Mediation

Arbitration is a common and effective alternative dispute resolution mechanism in Thailand, particularly in international transactions. Thailand is a signatory to the New York Convention, and both domestic and international arbitrations are recognised and enforced by Thai courts. When foreign parties are involved, parties often agree to arbitrate disputes through established international arbitration bodies such as the International Chamber of Commerce (ICC) and the Singapore International Arbitration Centre (SIAC). There are also locally recognised bodies, such as the Thailand Arbitration Centre (THAC) and the Thailand Arbitration Institute (TAI), but they are generally used in domestic transactions.

For foreign investors, arbitration may offer peace of mind and many benefits over litigation in the Thai courts, such as a neutral forum, the ability to choose the language of the arbitration and the parties can select arbitrators with specific expertise relevant to the dispute.

Mediation is also increasingly used in Thailand, but due to its nature is often used as a first step before arbitration or litigation. This can be a cost-effective and less adversarial means of resolving disputes.

The choice between litigation, arbitration or mediation depends on the nature of the transaction, the preferences of the parties and the need for an enforceable and efficient resolution mechanism. For foreign investors, arbitration tends to be the preferred method of dispute resolution due to its neutrality and effectiveness.

There have recently been several major high-profile incidents of companies listed in the SET 50 index (which are traditionally considered to have strong corporate governance practices) being involving in fraud cases, which has led to the following key trends and developments in Thailand.

• Increased regulatory scrutiny – following the aftermath of high-profile fraud cases, the regulators and related authorities are tightening the rules and increasing scrutiny. This has led to a heightened focus on due diligence, especially in verifying the credibility and track record of companies before committing to investments, and on the disclosure of information to public.
• Reputable auditors – investors should prioritise working with companies that are working with recognised/top list auditors. The credibility of financial statements is crucial, and having them verified by reputable auditors may mitigate risks of fraud or financial misrepresentation.
• Enhanced internal controls – investors should also look for companies that have robust internal control systems and internal audit mechanisms, such as audit committees, even in private equity deals.
• Focus on corporate governance – there is a growing emphasis on corporate governance practices across both the public and private sectors and adherence to best practices, including transparent financial reporting, effective board oversight and rigorous internal audits.
• Legal and compliance considerations – investors should remain vigilant about evolving the legal and regulatory landscape, especially in the area involving their investment.

Taxation of Dividends

Payments of dividends or other forms of payments made from the profits of a company incorporated in Thailand to its shareholders are generally subject to a withholding tax at a rate of 10%, unless otherwise exempted by tax benefit schemes, with certain conditions determined by the Thai Revenue Department.

However, shareholders of Thai listed companies or non-listed Thai companies whose shares are held for a certain period prior to and after the dividend distribution will be exempted from tax on said dividends.

Taxation of Capital Gains

Capital gains earned by Thai individuals are subject to withholding tax at progressive rates from 5% to 35%. Capital gains from the sale of shares in a company listed on the SET are tax-exempt for individual investors.

Capital gains derived by Thai companies are not subject to withholding tax.

Capital gains derived from or in Thailand by foreign investors, including companies not carrying on business in Thailand and non-Thai tax resident individuals, are generally subject to a withholding tax of 15%, unless otherwise exempted by a tax treaty between Thailand and the investor’s country of tax residency.

A Thai taxpayer would be obliged to deduct and remit the withholding tax to the Thai Revenue Department.

In addition to withholding tax, investors should also consider other types of taxes based on the type of financing injected into a Thai incorporated entity.

For equity investment, stamp duty at the rate of 0.1% of the transfer value or the par value of the transferred shares (whichever is higher) applies for a share transfer instrument. It is crucial to ensure that the stamp duty is paid, otherwise such share transfer instrument would be inadmissible as evidence in a civil lawsuit. Please note that late payment of stamp duty is subject to penalty.

For a debt financing, interest payments made by a Thai incorporated entity to an overseas investor are generally subject to a withholding tax of 15%, unless the withholding tax is reduced by an applicable tax treaty between Thailand and the investor’s country of tax residency. Stamp duty also applies to certain types of financing documents – eg, loan agreements.

Public grants or tax relief are not typically available in Thailand. Nonetheless, the Thai tax authority has introduced temporary tax relief measurements in response to specific circumstances, such as natural disasters (eg, floods) or pandemics (eg, COVID-19). The conditions for obtaining such relief vary depending on the measures approved by the government and/or the Thai tax authority.

Thailand has established a comprehensive network of double tax treaties to prevent double taxation and facilitate international investment. At present, Thailand has concluded double tax treaties with 61 jurisdictions based on the OECD Model Tax Convention and the UN Model Tax Convention, aiming to eliminate double taxation that may arise between the contracting states.

A double tax treaty generally contains the following four major parts.

• Scope of the tax treaty – this defines the residency of the contracting states and specifies who is covered under the treaty (Persons Covered). The treaty generally only applies to income tax (Taxes Covered).
• Types of income – the treaty outlines the types of income and the respective tax rates that are entitled to benefits under the tax treaty.
• Elimination of double taxation – this provides methods to eliminate double taxation, such as the exemption method whereby the treaty exempts certain income from taxation in one of the contracting states, or the tax credit method whereby the treaty allows a tax credit in one state for taxes paid in the other.
• General provisions – this includes provisions for tax administrative assistance and co-operation between the contracting states, such as the Mutual Agreement Procedure, which sets out a mechanism for resolving disputes related to the interpretation or application of the treaty, and the Exchange of Information, which provides guidelines on the sharing of tax-related information between the contracting states to ensure the proper enforcement of tax laws.

Investors with tax residency in a jurisdiction that has a double tax treaty with Thailand may be entitled to certain tax reductions or exemptions, depending on conditions set out in the respective double tax treaty.

In addition, it is important to note that Thailand has enforced the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) since 1 July 2022. The MLI modifies existing double tax treaties to align with the latest international tax standards and prevent tax avoidance practices, and applies to Thailand’s double tax treaties with 43 jurisdictions. The implementation of the MLI may also affect typical investment planning strategies, and should be considered on a case-by-case basis.

Rights of Equity Shareholders

Upon the commencement of bankruptcy or business reorganisation processes, a shareholder shall cease to have control over the management of the company’s assets and operations, while an official receiver (in a bankruptcy) or a plan administrator (in a business reorganisation) will be entitled by the relevant law to manage the company’s assets and operation in place of the company’s shareholders and directors.

Shareholder’s Role

In the case of bankruptcy, shareholders shall not have a decisive role in the proceedings, as the main purpose of bankruptcy is the management and settlement of assets for distribution to all creditors on a fair basis.

During the process of a business reorganisation, shareholders shall not have the right to vote in the creditors’ meeting in respect of the business reorganisation plan; they can only participate in the consultation session or render information that is beneficial for the proceedings. The plan administrator will ensure the company has taken the steps required under the business reorganisation plan. The shareholders shall be able to resume their rights in respect of the management of assets and operations upon completion of the business reorganisation plan and the court’s issuance of an order for the cancellation of the business reorganisation.

Payment Order

In the case of insolvency, the company shall be obliged to distribute its assets for payment to all creditors prior to distributing returns of capital to its shareholders. After all debts have been paid in full, including any fees and expenses incurred in the insolvency case, the remaining amount shall be distributed to the shareholders. Therefore, the shareholders may not receive any return on their investment.

Uncalled Capital Commitments

If there is any unpaid capital by any shareholder, an official receiver (in a bankruptcy case) or a plan administrator (in a business reorganisation case) shall be authorised, on behalf of the company, to demand the payment of unpaid capital from the shareholder. If the shareholder fails to pay for its capital, its share capital may be forfeited and an auction sale may be held, the proceeds of which shall settle the unpaid capital due to be paid by such shareholder.

Length of Process

Bankruptcy proceedings generally take approximately two to five years, subject to the circumstances of each case. Key procedures include filing a petition for bankruptcy, hearings, receivership procedures, the accumulation and distribution of assets, and payment to debtors.

Business reorganisation proceedings usually take longer than bankruptcy processes due to the involvement of debt restructuring and the creditors' meeting in the plan for business reorganisation. In practice, a business reorganisation generally ranges from three to seven years.

Recoveries for Shareholders

The possibility for a shareholder to receive a return on its investment in an insolvency case is relatively low, and it takes at least two years for the enforcement of assets under a bankruptcy process, as a company is insolvent and therefore usually has insufficient cash and assets for debt repayment or distribution to shareholders. For business reorganisation proceedings, the shareholders may be faced with a capital reduction or significant changes in the shareholding structure as a result of the business reorganisation plan – eg, in relation to the debt-to-equity conversion process as proposed in the business reorganisation plan.

A company in financial distress in Thailand can generally adopt the following measures.

Capital Injection

As a primary method of solving its financial distress, a company may consider issuing new shares to inject capital into the company, which it can allot to its existing shareholders or to strategic investors so that the company can apply the proceeds from the capital injection to repay debts and increase liquidity. The capital increase of the company requires a super-majority vote from the shareholders. It is important to note that the major concern for shareholders in relation to the capital increase is that the issuance of new shares will have a dilution effect for those shareholders who do not subscribe for the shares issued in relation to the capital increase.

Disposal of Assets/Business

As an alternative to a capital injection, a company may consider the sale of its assets or selected business to cure its financial distress. This option will add liquidity to the company's financial position while it must trade off with its assets or selected business, which may affect the company's business plan and/or income in the future. Generally, shareholders’ approval and/or creditors’ consent and/or approval may be required to dispose of material assets and/or business of the company. Although the disposal of assets/business will not have a dilution effect for shareholders, the net asset value of the company will be reduced as a result of the disposal of assets and/or business.

Out-of-Court Debt Restructuring

This is another popular option to solve a company's financial distress. The process is normally initiated by either the company or its major creditor. There will be a negotiation between the company and major creditor(s) for the agreement on debt restructuring and/or amendment and/or adjustment of certain terms and conditions in relation to outstanding debts of the company in order to restructure outstanding debts of the company (such as repayment schedule, maturity period, applicable interest rate or debt-to-equity conversion) without the involvement of the court, to ensure that the company can operate its business as usual under certain conditions and be able to service debts to creditors without default. The major creditors may hold the upper hand in the negotiation and impose tough conditions, but this option tends to be more flexible as it only involves a representative from a company, as endorsed and/or approved by shareholders, and a representative from major creditors to proceed with the negotiation and complete the debt restructuring.

Business Reorganisation by the Court

As an alternative to the debt restructuring of the company, the company and/or the company’s creditor may consider filing a petition for business reorganisation with the court if certain conditions can be met, including the company being insolvent. The main objective of a business reorganisation by the court is to enable the company to restructure its debts with all creditors and continue its business according to the business reorganisation plan, and thereby rescue the company from financial distress.

Once the court accepts the petition for business reorganisation, the company will be subject to an automatic stay, with all creditors barred from taking legal action against it. The planner will be appointed by the court to prepare a business reorganisation plan, which will outline how and when the debts will be repaid to each type of creditor of the company. This may involve a debt haircut for certain creditors and a capital reduction or debt-to-equity conversion process, which will have a dilution effect for shareholders and position the creditors as shareholders.

An equity shareholder of an insolvent company is exposed to risks from the loss of all or part of the return of investment, which shall be distributed after repayments to all other creditors of the company. In addition, in certain circumstances, the shareholder may be subject to potential liability, which may arise if they have been involved in fraud or the mismanagement of the company, and may encounter a loss of business opportunity due to the insolvent company's loss of reputation.

Shareholders may be sued by an official receiver (in a bankruptcy case) or a plan administrator (in a business reorganisation case) if is evident that they have been involved in fraud or misconduct that led to the company’s bankruptcy or business reorganisation. Certain transactions conducted by the shareholders in connection with the company’s assets prior to insolvent proceedings may be investigated and reversed – eg, the distribution of dividends not in accordance with the laws or the transfer of the company’s assets for shareholders' personal benefit or in favour of any creditors in particular.