Essential Legal and Business Issues for Startups (Chapter 1)
Success as an entrepreneur largely depends on your ability to multitask. There will always be a need to develop core ideas while focusing on growth, marketing and staffing issues – as well as additional efforts to attract investors. In many cases, however, this busy schedule can often cause entrepreneurs to overlook some key considerations which – if left unaddressed – may lead to severe consequences in the future.
This article is part of a series intended to help startups address some of these concerns. Thank you to law firm Kudun & Partners, which helped assemble this list of suggested actions.
Tying up loose ends
In the rush to move forward, founders are often eager to agree to hassle-free investment contracts. Yet these often lack proper arrangements for tax and legal matters, choosing to delay these issues for a later date. Often, when the time comes to resolve these issues, they will be handled in a way that might be disadvantageous for the founder.
To avoid these and other mishaps, owners of startups should have a plan in place to address potential concerns before they become bigger issues. We recommend the following:
1. Open the door to easy investment
Almost all businesses need capital to start. Initial funding can often be obtained with the help of family and friends, but greater levels of funding will soon be needed from external parties. Investors, understandably enough, prefer to invest in a legal entity rather than an individual – and so a formal structure must be created.
This step typically involves establishing your business as an LLC (limited liability company) from the start, so that potential investors can become shareholders. In such an arrangement, the LLC is typically split into shares of equal value and must have a minimum of three shareholders.
2. Know industry-specific laws that affect your business
Each major business sector has specific laws to govern their activity. Each startup should be aware of and comply with these specific laws, including necessary licenses, certificates and approvals. There are also new laws that pertain to all businesses in Thailand, such as the PDPA (Personal Data Protection Act), which sets out strict rules for online data collection.
The PDPA is particularly important to understand, as its restrictions on digital cookies have significant implications for marketing strategy. Starting in June 2021, startups will need to gain permission from their customers regarding all personal information which is collected, used or disclosed by these web-based tools. Potentially heavy fines are in store for businesses that overlook this requirement.
3. Follow tax obligations and incentives
Founders must set up their taxes properly to avoid unnecessary penalties. In Thailand, 20% of net profits is considered the maximum rate for CIT (corporate income tax), and special exemptions apply for businesses in lower revenue categories. Companies with an annual revenue above THB 1.8 million are required to register for VAT with the Revenue Department.
Startups can also receive tax grants from the Revenue Department, as part of the government’s support for research, development, and IT-related activities. Both domestic and foreign startups involved in IT-related technology such as e-commerce, digital platforms and software development can receive both tax and non-tax incentives, as well as exemptions from some CIT obligations.
It pays to become familiar with the laws and incentives in place for startups – in terms of the direct financial benefits, as well as the positive impression in the minds of potential investors.
Startups should consult with a legal firm to find out if they are eligible to receive support from the BOI. It is essential to stay on the right side of tax and legal issues to ensure smooth and frictionless growth through the years ahead. In Part 2 of this article, we’ll dive into some other frequently overlooked elements of a successful startup business in Thailand.
This article was written in collaboration with Kudun & Partners law firm. To read the original, please visit https://www.kap.co.th/news-and-insights/
- Troy Schooneman, partner and head of Startup Practice
- Kongkoch Yongsavasdikul, partner
- Suchaya Tangsiri, associate and legal counsel for startups
- Nichapat Anantaseriwittaya, associate