Piloting a Business Model Change Without Breaching Existing Contracts or the Law

A business that wants to change its model, for example from one-off sales to monthly billing, from selling through agents to selling direct, or by adding a new service, should rarely change the whole organisation in one day. Piloting with a few customers or one branch gives you real numbers before you commit to an investment. But a pilot with no legal frame tends to create new problems: a customer assumes the trial price is the permanent price, an existing counterparty says you breached exclusivity, employees argue that terms changed without agreement, or the new activity falls outside the company's objects.

This guide covers what to put in place before a pilot starts and what to check so that the trial does not turn into a dispute. For choosing a business structure to fit the model, read Business models and legal structure for Thai SMEs.

The core answer

Before the pilot, write down the goals, the measures and the stop conditions. Use a pilot contract with a fixed term and no automatic renewal. Check existing contracts that could collide with the trial, get consent from affected employees, and check that the new activity is within the company's objects, amending them by the proper procedure if it is not.

The rule (Thai law). A company's objects are an item in its memorandum of association. Amending them needs a special resolution of the shareholders' meeting under Section 1145 of the Civil and Commercial Code, and an application to register the amendment must be made within 14 days of the resolution under Section 1146. A change in employment terms that is to the employee's disadvantage must take account of the employee's consent and the Labour Protection Act B.E. 2541. Existing contracts with customers or partners bind as agreed, whether or not the conduct is called a trial.

Our practical view. Most pilot problems do not come from the new model failing. They come from an unclear frame for the trial. Writing the stop conditions and the end date at the start tells both sides what counts as success and when to finish.

1. Design the pilot and the stop conditions in advance

A good pilot starts from one question that needs an answer, for example whether this customer group will really pay monthly, rather than opening every aspect of the new model at once. Put it in an internal document of at least one page.

• The question to answer, and the hypothesis to test
• Scope: which customer group, which area, which channel, how many
• A fixed period: start date and end date
• Measures of success and failure: set as numbers or checkable events, and written before the start so the criteria are not adjusted to fit the results
• Early stop conditions: for example customer complaints, legal risk, costs exceeding the set limit, or a data leak
• Decision-maker: who decides whether to stop, extend or end
• Loss limit: the maximum spend that management approves

The document need not be formal, but management or the directors should approve it in writing, because it is evidence that the decision was made on information and in good faith if a dispute arises inside the company later.

2. The pilot contract with the customer

Calling something a pilot or a trial does not mean there is no contract. A verbal agreement or a short message can still be a contract and may be read differently by each side. Use a short contract with these headings.

• Purpose and scope: what the customer gets to use and what the company will test
• A fixed term with no automatic renewal: when it ends, the contract ends by itself, and moving to a permanent contract requires a new written agreement
• Fees for the trial period: state clearly that this is a price for the pilot only and does not bind the price afterwards
• Data: who owns the data produced during the trial, what it may be used for, who is the personal data controller, and how it is deleted or returned at the end. Check against the PDPA compliance checklist
• Intellectual property: who owns the work, feedback and anything developed during the trial, and whether the customer grants a right to use its feedback
• Confidentiality: the information each side discloses to the other during the trial
• Right to end: either side may end early by notice, or on the stated events
• Liability: limit liability to match the risk of a trial, and state that the trial service may not yet meet full standards

If the new model eventually becomes a monthly service contract, use the framework in MSA and SLA for monthly service contracts when you convert to a permanent contract. If you are trialling a new way of pricing services, see Pricing a service business: fixed, hourly or monthly.

3. Do not let the trial collide with existing agreements

Before starting the pilot, go through the contracts you already have and ask whether the trial falls under any restriction.

Not every term is in every contract, so read the real documents. If a term applies, choose one of these routes: ask the existing counterparty for written consent before you start, adjust the trial so it sits outside the restriction, or postpone it until the existing contract ends.

For contracts with large customers, which often contain these terms, see Checking a large customer's contract before signing. If you are unsure which contracts need internal approval, see A contract review and approval process when you have no legal department.

4. Employees: you can trial, but you need consent

A new model often affects the people who work in it, for example by moving their duties, changing how their pay is calculated or asking them to work in a different way. The key points:

• Changes to employment terms that are to the employee's disadvantage, such as lower pay, reduced benefits or a less favourable position, generally need the employee's consent and must not fall below the minimum rights under labour protection law.
• Trialling a new pay system, such as commission or targets, should be set out in a written agreement stating the trial period and what happens when it ends. If the employer does not say, the employee may argue that the trial terms became permanent terms of employment. See Designing sales KPIs and commission schemes.
• Deducting wages to make up for trial results is not allowed unless an exception in the law applies. See Deducting an employee's wages: limits on the employer.
• Bringing in outsiders for the project requires you to separate clearly whether they are employees or independent contractors, according to the real nature of the relationship. See Long-term freelancer or employee?.
• Employees' personal data: if the pilot uses tools that track performance, you must state the purposes and scope under the PDPA principles.

If the trial changes working conditions set out in the work rules, check whether the work rules must be amended and announced to employees.

5. When the new activity falls outside the company's objects (Sections 1145 and 1146)

A limited company has objects registered in its memorandum of association. In practice, an activity outside the objects does not always make the company's acts void, but you should amend them to match so as to reduce risk with shareholders, government agencies, financial institutions and counterparties who check company documents. The steps in outline:

1. The directors call a shareholders' meeting and send the notice as the law and the articles require.
2. The shareholders pass a special resolution to amend the objects, under Section 1145, which needs the majority that the law sets for a special resolution.
3. Register the amendment within 14 days of the resolution, under Section 1146.
4. If it affects tax, licences or other registered items, amend those to match.

For what to change after registration, see Changing company details after registration. Allow enough time, because the meeting must be called in advance. If you want to start the trial at once, you can begin with activities that are already within the existing objects and expand once the amendment is complete.

One caution: some kinds of activity need a specific licence, for example businesses under a regulator, even where the objects in the memorandum already cover them. Check before opening the trial.

6. Foreign shareholders and the Foreign Business Act

If the new model is a service, trade or other activity listed in the schedules to the Foreign Business Act B.E. 2542, then having foreign shareholders, or being a company counted as a foreigner, may mean you need a licence before carrying on that activity, even for a trial. Points to check:

• Which schedule of the law the new activity falls under, and what exemptions or conditions apply
• Whether the foreign shareholding makes the company a foreigner
• Nominee shareholding, or using Thai shareholders who are not genuine, is a high risk and should not be used to get around the law

For details, see Foreign business licence for service companies and 100% foreign ownership in Thailand.

7. VAT and tax status

A new model may change the structure of your income and its tax consequences. Check with your accountant before you open the trial, rather than waiting for the result.

• VAT registration: does income from the new model reach the threshold the law sets, and is the company already registered?
• Type of income: income from services provided abroad may qualify for the zero rate. See Exporting services and zero-rated VAT.
• Withholding tax: fees for the pilot period paid by a corporate customer may be subject to withholding, so keep the certificate.
• Project expenses: keep documents that match the activity being trialled, so that the expenses can be recognised under the rules.

This guide gives no rates or amounts because they change. Check the latest Revenue Department announcements.

8. A hypothetical example

Suppose an equipment distributor wants to trial a switch from outright sale to monthly rental with 5 customers. Before starting it should do the following.

1. Write the goals and stop conditions in advance, for example stopping if more than a set number of customers cancel.
2. Check the existing distributor agreement to see whether it bans renting the same equipment model in an exclusive territory.
3. Sign a three-month pilot contract with each customer, with no automatic renewal.
4. Put in writing the agreement with sales staff whose pay method is changed for the trial.
5. Check whether the company's objects cover rental. If not, hold a meeting to amend them and register the amendment.
6. Consult the accountant on revenue recognition and VAT for the rental income.

This example is hypothetical, to show the order of thinking. It is not advice on a specific matter.

9. Checklist before starting a pilot

• The question to answer, the measures of success and failure and the stop conditions are written before the start
• Management or the directors have approved the goals and the loss limit in writing
• There is a pilot contract with a fixed term and no automatic renewal
• The pilot contract covers data, intellectual property and confidentiality
• You have gone through existing contracts for exclusivity, area, most-favoured-customer terms and other bans
• You have written consent from employees who are affected to their disadvantage
• You have checked that the activity is within the company's objects and, if not, amended them by special resolution and registered
• You have checked specific licences and the limits under the foreign business law where relevant
• You have checked VAT status and withholding tax with your accountant
• You have set a review date and a decision-maker for the end of the pilot

Further reading

• Business models and legal structure for Thai SMEs — overview of structure
• Changing company details after registration — when the objects must be amended
• Checking a large customer's contract before signing — when the contract has exclusivity terms
• Pricing a service business: fixed, hourly or monthly — when trialling a new price model
• Foreign business licence for service companies — when there are foreign shareholders
• PDPA compliance checklist — when the project uses personal data

A good pilot has an end date, stop conditions and a contract that does not collide with existing agreements, all written before the trial begins, so that you can change model without taking on unnecessary dispute risk.

We help draft pilot contracts, review existing contracts that may collide with a trial, and carry out amendments to company objects. For an initial consultation, call +66 92 254 2045 or send us the details. See also contracts and documents and company registration and changes.

This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.