Thailand Factory Acquisition, Land & Factory Transaction Due Diligence

The Thai Land Code imposes strict restrictions on foreigners' acquisition of land ownership. However, under BOI investment promotion, within IEAT industrial estates, or through specific legal arrangements, enterprises with foreign background may acquire land interests under certain conditions. Additionally, long-term lease or usufruct arrangements may serve as alternative solutions for certain projects. It is advisable to conduct land due diligence before transacting to confirm holding qualifications, land use, restrictive registrations, and transfer pathways, and to examine whether the proposed land use complies with industrial use conditions. Specific solutions must be assessed on a case-by-case basis in light of the company's investment structure and project circumstances.

A red title deed (Chanote / Nor Sor 4 Jor) is the highest-grade land title in Thailand and can indicate the land's boundary extent, but it is not a sufficient condition for factory construction. Building a factory also requires consideration of: whether the plot is located in an industrial planning zone or an area permitting industrial use, development control regulations for the estate or plot, the industry access requirements for factory permits, environmental impact assessment requirements, setback and building plot ratio restrictions, as well as infrastructure and road conditions. Some plots may have clear titles but are designated for agricultural, residential, or ecological protection purposes, potentially making it impossible to obtain a factory permit. It is advisable to conduct both title searches and land use compliance reviews simultaneously.

The main differences between the two transaction structures include: risk scope (share acquisition inherits the company's overall historical risks; asset acquisition typically involves only specific assets and agreed matters), tax treatment (transfer fees, withholding tax, VAT, stamp duty, etc. apply under different rules for different structures), permit continuity (under share acquisition the company continues to exist and permits can typically continue; asset acquisition may require re-application or change of licensee), employee treatment (under share acquisition employment relationships generally continue with the company; asset acquisition may involve employee transfer or arrangement issues), and closing complexity. Hybrid structures or phased transactions are common in practice. It is advisable to have legal counsel assist in designing the transaction structure based on due diligence findings and transaction objectives.

In Thailand factory acquisition practice, a common approach is to complete basic ownership verification before signing a letter of intent (at a minimum including land registration status, mortgage and encumbrance status, and basic company information), and to include in the letter of intent: a reasonable due diligence period and document access rights, trigger conditions for deposit refund (such as discovery of material issues during due diligence), a reasonable exclusivity period, and exit mechanisms for terminating the transaction. For situations involving direct payment of substantial deposits to the seller, consideration may be given to using third-party escrow or joint bank account arrangements to mitigate unilateral fund risks. The degree of legal binding force of the letter of intent also needs to be clearly addressed at the drafting stage.

The core issues regarding employees are: whether original employment contracts continue after the acquisition, whether employees are entitled to severance or transfer compensation, whether seniority is recognized, and whether social security and provident fund contributions are continuous. A share acquisition typically does not automatically trigger termination of employment relationships, but employees may be resistant to the acquisition or may depart due to corporate governance changes. Employee arrangements involved in an asset acquisition are more complex, particularly in cases of partial employee transfer, partial retention at the original company, or partial termination. It is advisable to review the employee roster, employment contracts, social security contributions, collective agreements, labor disputes, and potential arbitration or litigation records during the due diligence stage, and to include representations and warranties, specific indemnities, and post-closing assistance provisions in the acquisition agreement. Specific arrangements should be handled with legal counsel assistance.

A comprehensive factory acquisition due diligence checklist typically includes the following sections: (1) Corporate: DBD documents, articles of association, shareholder register, historical capital increase and amendment records, and board resolutions; (2) Land and Assets: land ownership, title deeds, mortgages, encumbrances, easements, factory buildings, and machinery/equipment list; (3) Permits: factory permits, building permits, environmental and fire safety approvals, BOI or IEAT approvals; (4) Finance and Tax: audited reports for the last 3-5 years, tax filings, tax payment records, and customs documentation; (5) Employees and Labor: employee roster, contracts, social security, compensation, and labor disputes; (6) Contracts: material customer, supplier, loan, and guarantee contracts; (7) Disputes: litigation, arbitration, administrative penalties, and potential claims. The due diligence scope should not be mechanically based on a template but should be determined by legal counsel based on the transaction structure and industry characteristics.