When starting a business, choosing the right legal structure is just as important as the product or service itself. The legal entity you register directly impacts management, legal risks, and future growth potential. For new entrepreneurs in particular, understanding what a company is and how a limited partnership (known in Thai as "Hor Jor Kor" or หจก.) differs from a company before registering as a legal entity is essential. Making the right choice will help reduce long-term problems and increase the chances of stable business expansion.
What Do "Company" and "Partnership" Actually Mean?
Before diving into the differences between a limited partnership and a company, let's first explore the definition of each term.
What Is a Company?
A company is a legal entity established under the law for the purpose of conducting business and generating profit. It requires a minimum of two shareholders as co-owners, with ownership divided into shares of equal value. Shareholders' liability is limited to no more than the amount of their unpaid share capital. Companies in Thailand can be categorized into several types:
- Private Limited Company (Ltd. / Co., Ltd.): The most common form for small and medium-sized enterprises (SMEs).
- Public Company Limited (PCL): Suitable for larger businesses that can offer shares to the general public through an Initial Public Offering (IPO).
What Is a Partnership?
A partnership is formed when two or more individuals agree to enter into a contract to operate a business together with the objective of sharing the profits derived from the joint venture. In Thailand, the types of partnerships include:
- Ordinary Partnership: All partners bear unlimited joint liability for all debts without limit.
- Limited Partnership (หจก.): Consists of two types of partners:
- Limited liability partners, whose liability is limited to the amount of their investment.
- Unlimited liability partners, who are responsible for all debts of the partnership without limit.
How Do a Limited Partnership and a Company Differ?
Although both a limited partnership and a company are established for the purpose of doing business, their structures and management frameworks differ significantly. Understanding these differences are key factors in an entrepreneur's decision for which type of entity to register.
1. Structure and Management
- Company: The structure is more formal and complex structure. It is managed by a board of directors with legal authority to act and sign on behalf of the company. Major decisions must be passed through a systematic and transparent resolution of a shareholder or board meeting.
- Partnership: The structure is much simpler. In an ordinary partnership, Partners typically manage the business jointly. In a limited partnership, one or more managing partners serves as the primary executive. Management and the relationships between partners depend on the specified agreement, allowing for high flexibility in decision-making.
2. Legal Liability
- Company: The legal liability of a private limited company is based on the principle that shareholders are responsible for the company's debts only up to the value of the shares they have purchased. Therefore, personal assets are clearly separated from business risks, resulting in lower personal risk.
- Partnership: In an ordinary partnership, all partners must be liable for the partnership's debts without limit. In a limited partnership (หจก.), the managing partner has unlimited liability, while limited liability partners are responsible only for the amount they invested.
3. Capital and Scalability
- Company: A company has much higher potential for fundraising and expansion. It can attract outside investors and financial institutions more easily because it can conveniently issue shares or increase registered capital. This is ideal for businesses planning rapid growth or seeking to work with large organizations.
- Partnership: Partnerships often starts with the partners' personal capital, with lower fees and setup costs. However, there are more constraints on expansion and raising external capital due to a less formal structure.
4. Taxation and Accounting
- Company: Companies must pay corporate income tax calculated on net profit and has an accounting system that must follow legally prescribed standards. Financial statements must be certified by a Certified Public Accountant (CPA), which may make administrative costs higher and more complex.
- Partnership: Partnerships has the same tax and accounting requirements as a company (subject to corporate income tax), but the system may not be as complex. In some cases, a limited partnership may use a Tax Auditor (TA) to certify financial statements, which may suit a small startup business.
Pros and Cons of Each Structure
Both companies and partnerships have different strengths and limitations, depending on the needs and goals of the business.
Advantages of a Company
- Strong credibility: Projects a professional image that builds confidence among clients, business partners, and financial institutions.
- Limited liability: The risk of debt is limited to the company's assets; shareholders are only liable for the amount of their investment.
- Ease of expansion: The corporate structure supports capital increases, share sales, and access to capital markets.
- Suitable for large-scale collaboration/joint ventures: Highly recognized and formal.
Disadvantages of a Company
- Extensive documentation: A company must comply with numerous legal regulations and procedural requirements to follow.
- Higher administrative costs: Including setup fees and accounting/audit costs.
- Strict regulatory oversight: Accounting and tax management are strictly scrutinized.
Advantages of a Partnership
- Easy to set up: The registration process is less complex and faster.
- Lower costs: Registration and setup fees are lower than those of a company.
- Flexible management: Decisions can be made quickly based on the partners' agreement.
Disadvantages of a Partnership
- Higher personal risk: Especially for ordinary partnerships and managing partners in a limited partnership, who face unlimited liability.
- Less formal image: May lack credibility when dealing with large organizations or international partners.
- Harder to scale: Greater constraints on fundraising and capital increases.
Company vs. Partnership: Which One Is Right for You?
| Factor | Private Limited Company | Limited Partnership |
|---|---|---|
| Liability | Shareholders' liability is limited to the unpaid portion of shares. | Managing partner has unlimited liability; others have limited liability. |
| Structure | Directors, shareholders, and formal meetings. | Simpler and more flexible; partners manage jointly. |
| Credibility | Suited for dealing with large-scale businesses. | Suited for local or small businesses. |
| Fundraising | Easier via capital increases or selling shares. | More limited; relies primarily on partners' investment. |
| Taxation | Subject to corporate tax; must use a CPA. | Subject to corporate tax; may use a TA (based on criteria). |
| Best Suited For | Businesses with rapid growth plans, needing high credibility, or seeking loans and investors. | Small startups or family businesses valuing flexible management. |
Now that you understand what a company is, what a limited partnership is, and how they differ, you are better equipped to choose the structure that best fits your needs. Making the right decision is a critical first step toward success, ensuring the company operates in alignment with the goals you have set.
Beyond choosing the right legal entity, another factor not to be overlooked is the corporate image, which includes selecting an office location to be used as the registered address. A prominent and professional location builds confidence among clients,
partners, and investors. Choosing a standard office building is therefore an important factor in creating a good image and promoting business opportunities. If you are looking for the ideal office space, JLL Thailand a leading expert in real estate and investment services can help you select the most suitable office location to enhance your image and support business growth in any form. Entrepreneurs seeking office space
can contact JLL today at Tel. 02 624 6471.
Reference:
https://chobaccountingonline.co.th/what-is-company/
https://www.investopedia.com/terms/c/company.asp
https://www.peakaccount.com/blog/business/smes/limited-company-or-juristic-partnership
https://www.narinthong.com/law/หจก-กับ-บริษัท/
https://www.accountingpk.com/blog/post/20/หจก-กับ-บริษัท-ต่างกันอย่างไร-สิ่งที่ควรรู้ก่อนจัดตั้ง/
