COMMON LEGAL PITFALLS

FOR START UPS AND

HOW TO AVOID THEM

PRESENTED BY

MICHAEL DOYLE

MARCH 25, 2015

I will discuss common mistakes concerning

1) Company capitalization

2) Leasing space

3) Implications of not having a shareholders agreement

Seri Manop & Doyle Ltd. Frame 1

American Company Example:

1) Foreign-held company in office supply

business

2) Set registered capital at 10 mil. baht and

funded working capital, as needed, through

shareholder loans.

3) Over the years, company become very successful

and its book value increased to 500 mil. baht.

4) Offer made to purchase 100% of shares for

550 mil. baht.

Seri Manop & Doyle Ltd. Frame 2

Applicable tax rate on sale of shares is 35% of 540 mil. baht (189 mil. baht)

German Company Example:

1) Company in home decoration business invests

to fit out building on Soi Ekamai as office and

show room and enters into a lease agreement

for the term of 20 years.

2) Lease not registered on the land title

(owner did not want to pay the tax).

3) In Year 7 owner dies and heirs to building

force German company to vacate.

Seri Manop & Doyle Ltd. Frame 3

Rule: Leases for longer than three years must be registered on the land title in order to be enforceable.

Dutch Company Example:

1) Two individuals from logistics business but do not

enter into a shareholders agreement.

2) Company becomes very successful and after

a number of years one of the founders dies.

3) Son who inherits 50% shareholding becomes

active in the business.

4) Within two years, business ends up closing down

and all staff laid off.

Seri Manop & Doyle Ltd. Frame 4

Absent a shareholder agreement stating otherwise, upon the death of a shareholder, shares automatically become a part of the estate and are distributed according to will or applicable law.

1. US company example

2. German company example:

3. Dutch company example:

For private start ups, registered capital will be used as the basis to calculate tax and tax rate on gain realized on sale of shares will be taxed at 35% (max).

Leases for longer the 3 years must be registered on the land title in order to be enforceable.

Absent a shareholder agreement stating otherwise, upon the death of a shareholder, shares will automatically become a part of his estate and distributed to heirs according to the law.

Seri Manop & Doyle Ltd. Frame 5

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