A joint venture is a common type of business operation in Thailand whereby a single operator does not need to have all know-how and tools to work on a project but can work with a partner(s) to have all necessary know-how and tools to complete the project. There are two types of joint venture that is suitable in different situations depending on the nature and requirement of the project and/or the investor. We summarized below the key differences between those two types of the joint venture and hope our summary may be of your interest.
The following table:
| Feature | Unincorporated Joint Venture (“UJV”) | Incorporated Joint Venture (“IJV”) |
|---|---|---|
| Legal Status | The UJV has no legal entitlement under the Thai Civil and Commercial Code but is a taxable entity under the Revenue Code. All contractual terms and arrangements are specified in a joint venture agreement (“JV Agreement”) involving investors which are not publicly accessible. | The IJV has a legal entitlement under the Thai Civil and Commercial Code, commonly a private limited liability company. All significant agreements and arrangements are normally specified in the IJV’s articles of association (“AOA”) which is required to be registered with the Ministry of Commerce. Investors of the IJV may or may not enter into a separated JV Agreement in addition to the AOA. |
| Profit Sharing | A profit-sharing rate among partners is specified in the JV Agreement. | Each of the investors of the IJV is regarded as a shareholder and entitled to a dividend paid to it as per its shareholding ratio. |
| Reserve Fund | Unlike the IJV, the UJV is not mandatorily required to remit 5% from each of its dividend payments declared to its reserve fund. | The IJV must remit 5% from each of its dividend payments declared to its reserve fund until the amount of the reserve fund reaches 10% of the IJV’s registered capital. |
| Liability for Damages | Partners in the UJV must be liable for damages caused to a third party without limitation (like a co-debtor). Whilst liabilities of each partner may be specified differently under the JV Agreement, it is considered an internal arrangement, and the third party can still claim any partner, or all partners, anyway. | The IJV’s liabilities for damaged caused to a third party are limited to its registered capital. |
| Reporting Requirements | The UJV is required to submit and pay corporate income tax and file a tax filing form annually to the Revenue Department. | In each fiscal year, the IJV is required to prepare and submit (1) a financial statement, audited by a local licensed auditor and approved by its shareholders’ meeting to the Ministry of Commerce, and (2) a corporate income tax form and pay its corporate income tax (if any) to the Revenue Department. |
| Note: | ||
| Dissolution | Once the project is completed, the UJV can be dissolved easily as the UJV does not have a legal entitlement. Therefore, partners can remit capital and profit to their head office almost immediately after the project is completed. | The IJV can be dissolved through a decision adopted at its shareholders’ meeting and it normally takes 1.5 years to complete all liquidation processes. |
Each investor should consider the above carefully as to which type of joint venture would be suitable because each joint venture type has different pros and cons as preliminary explained above.
