Introduction
Acquiring an existing business in Thailand can provide a faster route to market than establishing a new company. A buyer may gain access to an established customer base, employees, operating facilities, supplier relationships, licences, and commercial contracts. However, an acquisition can also expose the buyer to liabilities and restrictions that are not apparent from the purchase price or the seller's financial statements.
The legal risks depend heavily on the transaction structure. In a share acquisition, the buyer acquires ownership of the target company, which generally continues to hold its assets, contracts, obligations, and liabilities. In an asset acquisition, the buyer purchases specified assets or business operations, but the transfer of contracts, employees, licences, permits, and other rights must be assessed individually.
Neither structure automatically eliminates risk. The buyer must investigate the target's legal position, determine which obligations will remain with the target or transfer to the buyer, and negotiate appropriate protections before signing and completing the transaction.
This article examines the legal risks that buyers should assess when acquiring a business in Thailand.
1. Choosing the Wrong Transaction Structure
One of the most consequential decisions is whether to acquire shares or assets.
Share acquisition
In a share acquisition, the buyer purchases shares from the existing shareholders. The target company remains the same legal entity and generally continues to own its assets and remain responsible for its liabilities.
This structure may preserve existing commercial relationships and operational continuity. However, the buyer also acquires an interest in a company that may have undisclosed debts, contractual disputes, regulatory non-compliance, or historical liabilities.
A share acquisition is particularly sensitive where the target has a long operating history, multiple business locations, foreign shareholders, regulated activities, or substantial employment and tax obligations.
Asset acquisition
In an asset acquisition, the buyer purchases specified assets, such as equipment, inventory, intellectual property, or other business property. The transaction documents should identify the assets, liabilities, and business operations included in the transfer.
An asset purchase may allow the buyer to exclude certain liabilities contractually. However, it does not automatically transfer every contract, licence, permit, employee relationship, or intellectual property right associated with the business.
Some transfers require third-party consent, regulatory approval, registration, or compliance with specific statutory procedures. Certain liabilities may also arise independently of the parties' contractual allocation.
The correct structure should therefore be selected after reviewing the target's assets, obligations, regulatory position, and commercial requirements, rather than simply choosing the structure with the lower apparent transaction cost.
2. Hidden Liabilities and Inadequate Legal Due Diligence
A buyer may receive financial statements showing that a company is profitable while remaining unaware of material legal problems. Financial due diligence and legal due diligence serve different purposes and should be conducted together.
A legal review should examine, among other matters:
- Corporate registration, constitutional documents, shareholder records, directors, and signing authority.
- Existing loans, guarantees, security interests, and other financing obligations.
- Material customer, supplier, distribution, service, and lease agreements.
- Pending or threatened litigation, arbitration, regulatory investigations, and disputes.
- Tax compliance, employment obligations, social security contributions, and statutory filings.
- Intellectual property ownership, software licences, and rights to use third-party materials.
- Business licences, operating permits, environmental requirements, and sector-specific approvals.
- Related-party transactions and arrangements with shareholders, directors, or affiliated entities.
The buyer should also investigate whether the company has complied with its contractual and regulatory obligations in practice. A valid-looking licence does not necessarily establish that all operational conditions have been satisfied.
Where the seller provides incomplete records, unexplained transactions, or inconsistent information, the buyer should not treat the absence of documentary evidence as proof that no liability exists.
The scope of the investigation should reflect the transaction's size, the target's industry, and the consequences of a potential breach. Material issues should be resolved, priced into the transaction, or addressed through specific contractual protections before completion.
3. Tax Exposure That May Survive the Acquisition
Tax liabilities are among the risks that can materially affect the value of an acquired business.
A target company may have unreported income, incorrectly claimed deductions, unsupported expenses, unpaid withholding tax, VAT discrepancies, or other tax compliance issues. These matters may arise from earlier financial periods even when the company appears compliant at the time of acquisition.
In a share acquisition, the target company remains the same taxpayer. Its historical tax position therefore remains relevant after the change in ownership. The buyer indirectly bears the economic consequences of liabilities that reduce the company's value or require additional funding.
In an asset acquisition, the tax consequences depend on the assets transferred, the transaction structure, the applicable tax rules, and whether the transaction involves a transfer of a business or only selected assets. VAT, specific business tax, stamp duty, withholding tax, and other taxes should be assessed where relevant.
The buyer should review tax returns, audited financial statements, tax payment records, VAT filings, withholding tax certificates, tax assessments, correspondence with the Revenue Department, and the supporting documentation for significant transactions.
The sale and purchase agreement should address responsibility for historical taxes, cooperation with tax audits, access to records, and the allocation of any liabilities discovered after completion. Contractual indemnities can provide a recovery mechanism, but they do not prevent the relevant authority from pursuing the taxpayer where the law permits it.
4. Foreign Business Restrictions and Ownership Compliance
Foreign investors acquiring a Thai business must assess whether the proposed ownership structure and the target's actual activities comply with the Foreign Business Act B.E. 2542 (1999) and other applicable restrictions.
A target may have operated for years without apparent difficulty but still require a Foreign Business License (FBL), a Foreign Business Certificate (FBC), or another applicable authorisation. The acquisition may also change the company's foreign status or affect the legal basis on which it conducts business.
The analysis should consider the statutory definition of a foreigner, the direct and indirect ownership structure, the target's activities, and any applicable exemption, treaty entitlement, or investment promotion.
A buyer should not assume that a company's existing registration or its seller's assurance that the business is “Thai-owned” establishes compliance. The actual capital contributions, shareholder rights, and ownership arrangements may require investigation, particularly where there are concerns about nominee shareholding.
Where the acquisition will result in foreign ownership or control, the buyer should determine whether the transaction can proceed under the existing legal framework or whether additional authorisation, restructuring, or a different transaction structure is required.
These issues should be addressed before completion. A transaction that closes before the ownership and licensing position is resolved can leave the buyer with a business that cannot lawfully continue all its intended activities.
5. Licences, Permits, and Regulatory Approvals
An existing business may hold licences and permits that are essential to its value. These may include factory licences, tourism-related licences, food or product approvals, environmental permits, professional registrations, or other sector-specific authorisations.
However, licences do not necessarily transfer automatically in an asset acquisition. Some are personal to the licensee, linked to a particular legal entity, or subject to conditions concerning ownership, management, premises, or operational activities.
A share acquisition may preserve the identity of the licensed company, but that does not mean the transaction is free from regulatory requirements. The applicable law or licence conditions may require notification, approval, or compliance with change-of-control requirements.
The buyer should prepare an approval matrix identifying each relevant licence, its holder, the permitted activity, the issuing authority, any transfer restrictions, and the steps required before or after completion.
The transaction documents should also allocate responsibility for obtaining approvals and specify what happens if an essential approval is refused or delayed. Where an approval is a condition to lawful operation, it should not be treated as a minor post-completion administrative task.
6. Contracts That May Be Terminated or Require Consent
A target's commercial value may depend on contracts with major customers, suppliers, landlords, distributors, technology providers, or lenders.
Those agreements may contain provisions dealing with a change of control, assignment, subcontracting, or a transfer of assets. A share acquisition may trigger a change-of-control clause even though the contracting company remains unchanged. An asset acquisition may require an assignment or novation because the buyer is a different legal entity.
The buyer should identify contracts that are essential to the business and determine whether consent, notice, renegotiation, or other action is required.
Particular attention should be given to contracts with significant revenue, exclusive distribution rights, long-term supply arrangements, intellectual property licences, leases, and financing agreements.
A seller's statement that “all contracts will continue” is not sufficient if the contractual terms provide otherwise. The buyer should confirm the legal position and, where necessary, obtain written consent before completion.
The purchase agreement should establish which consents are conditions to closing and which may be obtained later, together with the consequences of a failure to obtain them.
7. Employee Liabilities and Workforce Changes
Employees are often central to the value of an acquisition, particularly where the target depends on specialist knowledge, established teams, or customer relationships.
In a share acquisition, the employer generally remains the same company. Existing employment relationships continue, and the company remains responsible for its employment obligations.
In an asset acquisition, the buyer must assess whether the proposed transaction involves a transfer of employees and whether employee consent is required under Thai labour law. Section 13 of the Labour Protection Act B.E. 2541 (1998), as amended, addresses certain transfers of an employer's business or employment relationships and requires the relevant employee's consent for a transfer of employment to another employer under the provision.
The buyer should review employment contracts, work rules, wages, bonuses, unused leave, overtime, social security contributions, provident fund arrangements, disciplinary matters, pending claims, and any accrued severance exposure.
The parties should also consider whether the acquisition will lead to restructuring or redundancies. A change in ownership does not, by itself, eliminate statutory employee rights. Termination and redundancy decisions must comply with applicable labour law, including any severance, notice, or other payment obligations.
The purchase agreement should allocate responsibility for pre-completion employment liabilities and establish procedures for handling employee claims that arise after completion but relate to earlier events.
8. Intellectual Property and Ownership of Key Assets
A buyer may believe it is acquiring a brand, software platform, customer database, or proprietary business process without verifying who legally owns the relevant rights.
The target may use intellectual property registered in the name of a founder, shareholder, former employee, affiliate, or third-party supplier. It may also lack written assignments from developers or employees who created important materials.
The buyer should verify ownership and registration of trademarks, patents, designs, copyright-related assets, domain names, and other relevant rights. For software and technology businesses, the review should include third-party software licences, open-source obligations, source-code access, hosting arrangements, and restrictions on transferring or continuing to use the technology.
Customer databases and other personal data require separate review under applicable data protection law. An acquisition does not automatically remove obligations relating to lawful processing, data security, transparency, or the transfer of personal data.
Where an essential asset is owned by a founder or another entity, the buyer should ensure that the necessary assignment or licence is properly documented and effective as part of the transaction.
9. Real Estate, Leases, and Security Interests
Premises and property rights can be essential to a business's continuity. The buyer should verify ownership or lease rights, land title documents, registered encumbrances, access rights, building permissions, and any restrictions affecting the property's use.
For an asset acquisition involving land or buildings, the transfer may require specific documentation, registration, taxes, and fees. Foreign ownership restrictions under Thai law must also be considered where a foreign buyer or foreign-controlled entity is involved.
In a share acquisition, the target may continue to hold its land or lease, but the buyer should check whether the relevant title, lease, financing agreement, or other instrument contains restrictions triggered by a change in ownership or control.
The buyer should also investigate mortgages, pledges, registered leases, and other security interests. A seller's representation that assets are “free from encumbrances” should be supported by appropriate searches and records.
Where property is critical to the operation, the buyer should not rely solely on a site visit or copies of documents supplied by the seller. The legal status of the property and the ability to continue using it should be verified independently.
10. BOI Promotion and Other Investment Incentives
Where a target has received promotion from the Board of Investment (BOI), the buyer should examine the promotion certificate and the conditions attached to it.
A change in ownership, transfer of a promoted business, or merger may require notification, approval, or an application to transfer or obtain promotion, depending on the structure and circumstances. The buyer should not assume that every incentive automatically remains available after a transaction.
BOI guidance distinguishes between a transfer to an existing legal entity and a merger that results in a new legal entity. The applicable procedure and consequences for the promotion certificate can therefore differ.
The buyer should review the approved activities, investment conditions, machinery and asset requirements, reporting obligations, tax incentives, and any outstanding compliance issues. It should also determine whether the transaction could affect eligibility for the remaining benefits.
Where the transaction involves the transfer or merger of a promoted business, the parties should coordinate with the BOI before completion. Timing is important because the relevant procedures may impose deadlines, and failure to complete the required process may affect the continuation of incentives.
The purchase agreement should clearly allocate responsibility for BOI applications, supporting documents, cooperation, and the consequences if approval is not obtained.
11. Purchase Price, Representations, and Indemnities
A well-structured purchase agreement should translate the findings of due diligence into enforceable contractual protections.
Representations and warranties may address corporate authority, ownership of shares or assets, financial statements, tax compliance, material contracts, litigation, employees, intellectual property, licences, and regulatory compliance. The wording should be tailored to the risks identified in the investigation.
Indemnities may be appropriate for specific known risks, such as an identified tax dispute, a pending employment claim, or a particular regulatory issue. The agreement should specify the scope of the indemnity, applicable procedures, time limits, and any financial caps or exclusions.
Buyers should also consider the practical enforceability of these protections. A broad indemnity is of limited value if the seller has no assets, is difficult to pursue, or disputes the claim. Depending on the transaction, the parties may consider escrow arrangements, retention of part of the purchase price, deferred consideration, or other mechanisms to support payment of valid claims.
The agreement should define the conditions for completion, the documents and approvals required at closing, the treatment of leakage or changes in the business before closing, and the remedies available if a party fails to perform.
The purchase price should reflect the risks that remain after due diligence and negotiation, rather than relying on a general promise that the seller has disclosed everything relevant.
12. Closing Conditions and Post-Completion Obligations
Signing a purchase agreement and completing the transaction are not necessarily the same event. A transaction may require regulatory approvals, third-party consents, corporate resolutions, financing, or other conditions before completion can occur.
The buyer should prepare a closing checklist that identifies each required document, approval, payment, transfer, resignation, appointment, and filing. The process should also address the release or discharge of security interests where applicable.
After completion, the parties may need to update corporate records, register changes with the relevant authorities, notify contractual counterparties, update banking mandates, transfer assets, and complete tax or accounting steps.
Post-completion integration should not be overlooked. The buyer should confirm that key records, licences, insurance arrangements, employee documentation, and operational permissions remain in order.
For transactions involving a regulated business or BOI-promoted company, the post-completion work may be particularly important. Failure to complete a required notification or approval can create operational or financial consequences even after the purchase price has been paid.
Conclusion
An acquisition in Thailand involves more than agreeing on a valuation and signing a share or asset purchase agreement. Buyers must understand the target's legal position, identify historical and ongoing liabilities, verify the transferability of key assets and contracts, and confirm that the intended ownership and operations comply with Thai law.
The most effective approach is to conduct risk-focused legal due diligence, choose a transaction structure suited to the business, obtain necessary approvals and consents, and negotiate contractual protections that reflect the actual findings.
A transaction should proceed only when the buyer understands which liabilities it will assume, which risks can be mitigated, and which issues could prevent the business from operating as intended after completion.
This article is provided for general informational purposes only and does not constitute legal advice.
