The third form of partnership under Thai law is the limited partnership. The limited partnership is – as the registered ordinary partnership – a juristic person.
The limited partnership has two different kind of partners. These different partners are subject to different liabilities:
1. One or more partners are liable only to the amount they contributed to the partnership; and
2. One or more partners are jointly and unlimited liable for all obligations of the partnership.
The difference between the partners is not only in relation to their respective liability. The different partners are also subject to different restrictions:
- the firm name cannot contain any of the names of the partners with limited liability;
- partners with limited liability cannot contribute services to the partnership. Their contribution is restricted to money and other properties;
- partners with limited liability are entitled to transfer their shares without consent of the other partners; and
- creditors of a limited partnership have no action against the partners with limited liability prior to dissolution of the partnership.
The partners with unlimited liability manage the limited partnership. In case a partner with limited liability interferes in the management of the Limited Partnership, he we will become jointly and unlimited liable for all obligations of the partnership.
A limited partnership, as a juristic person, is subject to corporate income tax. The partners of such limited partnership are subject to personal income tax on the share of profits received from such limited partnership.
Thai law distinguishes between unregistered partnerships and partnerships which are registered with the government. The relevant difference is the legal status of those partnerships. Whereas an unregistered partnership does not have the status as a “juristic person”/an entity that the law gives most of the same rights and obligations as a natural person, a registered partnership does (but note, an unregistered partnership is considered a juristic person for tax law purposes—see below). In both an unregistered and a registered partnership:
- the individual partners are jointly and unlimitedly liable for the obligations of the partnership;
- the partnership is established through a contribution of money, other properties or service to the partnership by the partners; and
- the share of each partner in the profit and losses is determined by the amount of such contribution
Since an unregistered partnership is not considered to be a juristic person, all partners are jointly and unlimitedly liable for the performance of the obligation incurred. However, an unregistered partnership is taxed as if it were a “person”/personal taxpayer and separately from its partners. In other words, the partners of an unregistered partnership are not then further taxed on the profit that they receive from it.
On the other hand, a registered partnership is considered a juristic person, similar to a company. Thus, a creditor of a registered partnership is required to initially pursue his claim against the registered partnership itself. Only upon default of the registered partnership has such creditor the right to claim settlement from any one partner for any debts incurred on behalf of the entire registered partnership. And the liability of a partner in a registered partnership continues for two years after such ceasing to be a partner, with respect to debts incurred by the registered partnership.
A registered partnership is also treated like a company with respect to tax and as such is subject to Thai corporate income tax. And the partners of such registered partnership are subject to personal income tax on the share of profits received from such registered partnership.
The sole proprietorship is the most commonly used form of engaging in business in Thailand. It is an unincorporated commercial business, which is owned and operated by a single natural person, the proprietor.
All of the sole proprietor’s assets, both those used in the business as well as those used only for personal purposes, are subject to unlimited liability for any business transaction in which the proprietor engages. In other words, the creditors of a sole proprietor will be able to enforce their claims against everything owned by such an individual. In this regard, there is no distinction between the private individual and his business operations.
A sole proprietor’s income is taxed at the personal income tax rates with exemptions and deductions applicable to all individuals. Furthermore, a sole proprietor is required to collect “value added tax” on the sale of goods or provision of services, but will be exempted from this requirement if the annual income from the business does not exceed THB 1,800,000.
A non-Thai individual is basically not prohibited from engaging in business as a sole proprietor. However, other legal issues under immigration and labor law, which generally require that a non-Thai obtain a particular visa and work permit in order to work in Thailand, may make such an endeavor impossible as a practical matter. The sole proprietorship is, therefore, not a popular way for non-Thais to do business in Thailand, but represents a popular choice for Thais in engaging in businesses in Thailand.