In 2021, we dispelled one of the common myths circulating among investors and even some consultants in Thailand—that of the so-called “dormant company” or inactive company status. Contrary to what many believed, we demonstrated that dormant companies do not legally exist in Thailand once a VAT registration is activated. Such companies remain fully subject to all statutory obligations, including monthly VAT filings and annual audited financial statements. Our detailed analysis was published here: Inactive Company in Thailand: Legend or Reality?.
Over the last few years, many new clients have unfortunately fallen into this trap, incurring significant fines and penalties. We have assisted them in navigating these challenges and coming into compliance.
Today, we want to clarify another critical issue that puts many foreign investors at risk—this time stemming from a common misinterpretation of Thai law, sometimes amplified by AI-based legal text generators that “creatively” interpret regulations.
Is Sole Proprietorship Possible in Thailand?
The short answer is: theoretically yes, but legally, no—at least not in the form many foreign investors expect.
The Department of Business Development (DBD) in Thailand allows for modification of a company’s shareholder structure, including the scenario where a limited company ends up having a single shareholder. However, such a structure is not sustainable from a legal standpoint.
Legal Framework
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Under the Thai Civil and Commercial Code (CCC), Section 1012, a limited company (บริษัทจำกัด) must have at least two shareholders at all times.
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The DBD’s corporate registry system may temporarily allow a company to exist with a single shareholder (due to administrative delays or corporate restructuring), but the company is at risk of compulsory dissolution by the registrar if it continues to operate with only one shareholder.
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The registrar has discretionary power to dissolve companies that violate this rule and related company regulations.
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The exact timing of such dissolution is unpredictable, but it is inevitable if the company remains with only one shareholder.
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Additionally, unlike sole proprietorships in other jurisdictions, Thailand does not recognize a sole proprietorship in the form of a limited liability company owned by a single individual.
What About Sole Proprietorship as a Business Entity?
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Sole proprietorships in Thailand exist only as unregistered businesses run by individuals without forming a company, which implies unlimited personal liability.
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Foreigners face significant restrictions owning and operating sole proprietorship businesses, especially in sectors restricted by the Foreign Business Act B.E. 2542.
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Limited companies provide limited liability protection but require compliance with the two-shareholder minimum.
The Risks of Misunderstanding
Investors who operate or register companies with a single shareholder under the assumption that it is legally acceptable expose themselves to:
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Forced company dissolution by the DBD, risking loss of business continuity.
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Potential financial and legal penalties.
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Challenges with banking, contracts, and government permits that expect valid company status.
Conclusion
At Siam Trade Development, we emphasize the importance of clear, up-to-date legal knowledge to avoid costly misunderstandings. The “single shareholder limited company” and “sole proprietorship” myths can lead investors into serious legal risks in Thailand.
If you are considering company formation or restructuring in Thailand, ensure your corporate structure complies with Section 1012 of the Thai Civil and Commercial Code and related laws, maintaining at least two shareholders for limited companies.
For professional advice tailored to your investment needs, contact us at [email protected].
