Chapter 6 : Company Law and Commercial Registration
The initial issue faced by most investors is whether their business objectives will be best served by a direct equity investment through a locally-registered business enterprise, or by entering into distribution, franchising, management, financing, leasing, technical assistance, or other contractual arrangements with existing registered Cambodian legal entities.
This chapter addresses the permitted legal forms of business entity and their registration procedures at the Ministry of Commerce (“MOC”). Business and commercial enterprises in Cambodia must be registered at the MOC at least 15 days prior to the commencement of business activities. A business entity is deemed to exist on the date a certificate of incorporation is issued by the MOC.
The incorporation of a company is governed by: the Law on Commercial Rules and Commercial Register, promulgated on 19 June 1995 (“LCRCR”); the Law on the Amendment of the Law on Commercial Rules and Commercial Register, promulgated on 18 November 1999 (“LACRCR”); and the Law on Commercial Enterprises promulgated on 19 June 2005 (“LCE”).
The MOC issued Announcement No. 0052 PNRB, dated 4 January 2013, stating that eﬀective from 8 January 2013, all payments for public services of the MOC shall comply with the Joint Prakas on Public Service Provision of the MOC.
The above legislation replaced the former practice of business structures operating on the basis of contractual arrangements. The LCRCR, LACRCR, and LCE provide a comprehensive framework to establish and operate various types of business organization forms.
At present, the available forms of business entities in Cambodia are;
- A limited liability company;
- A branch oﬃce;
- A representative oﬃce;
- A partnership; and
- A sole proprietorship.
The three types of limited liability company available are:
- A single-member private limited company;
- A private limited company; and
- A public limited company.
A partnership may take the form of a general or limited partnership.
1. Commercial Registration under the LCRCR and LACRCR
The LCRCR and LACRCR provide extensive procedures for registering an enterprise at the MOC. They set out the necessary documents required for the registration of a company or business and determine the circumstances whereby any changes in a company must be notified to the MOC.
According to the LCRCR and LACRCR, the commercial register lists basic information on all registered business entities, including the company name, objectives, form of company, location of the registered oﬃce, capital, certificate of capital deposit issued by a bank, names of directors and shareholders, equity held by each shareholder, and authorized signatories. Also listed are any patents, trademarks, and copyrights owned by the business, and any judgments or judicial orders pronouncing the dissolution or nullity of the company, declaring the company bankrupt or court-ordered liquidation.
2. The Law on Commercial Enterprises
Under the Law on Commercial Enterprises, enterprises must comply with several requirements, including;
A partnership or company must continuously maintain a registered agent that must be a legally competent natural person in the Kingdom of Cambodia.
2.2 Registered Oﬃce
At all times, a company must have a registered oﬃce in the Kingdom of Cambodia.
2.3 Issuance of Shares
The company must issue a minimum of 1,000 shares with a par value of not less than KHR 4,000 per share (approximately one US Dollar).
2.4 Share Certiﬁcates
Each shareholder is entitled to a share certificate, for shares fully paid-up.
Companies must prepare and maintain corporate records at the registered oﬃce, including:
- articles of incorporation and bylaws;
- minutes of meetings and directors’ resolutions ;
- copies of all notices;
- securities register;
- director records (including minutes of meetings);
- resolutions of shareholders; and
- accounting records.
2.6 Meetings of the Board of Directors
Board of directors’ meetings must be held at least once every three months.
2.7 Annual Declaration
All enterprises must file an annual declaration detailing the status of the enterprise to the MOC at the end of each year. Any company that fails to submit a declaration for three consecutive years shall be considered an illegal company and may be de-registered.
2.8 Annual Financial Statement
Twenty-one days before each annual shareholders’ meeting, an annual financial statement must be sent to all shareholders (unless a shareholder has informed the company in writing that it does not wish to receive a copy). Before being issued, published, and circulated, annual financial statements shall be approved by the board of directors, and, unless certain conditions are met by the company and the shareholders have waived the requirement to appoint an auditor, such approval shall have a copy of an auditor’s report attached.
2.9 Disclosure of Interests
Directors and oﬃcers must disclose in writing their interests in relation to any contracts with the company, or any material interest in relation to such a contract.
2.10 Procedures for Shareholders’ Meetings and Board of Directors Meetings
The LCE provides for specific procedures (including quorum requirements and secret ballots), notification periods and information disclosure in relation to shareholders’ meetings and directors’ meetings.
2.11 Corporate Secretary
The LCE refers, in several provisions, to the use of a company secretary responsible for taking and keeping the minutes of the board of directors’ meetings and sending copies of the minutes to all directors. In addition, the company secretary shall prepare a written report of the written communications of the board and shall distribute this report to the directors.
2.12 Use of Khmer Name
All enterprises must display their name in the Khmer language. If the name is displayed in another language, the Khmer name must be placed above and be larger than the name in the other language. The Khmer name must appear on all seals, signs, letterhead, and all documents used for public purposes.
Other key issues covered by the LCE include:
- appointment of auditors;
- provisions in relation to liquidation of a business; and
- penalties applicable for breaches of the law.
3. Available Business Organization Forms
All types of business organization forms are summarized in the chart below, followed by a more detailed examination of each form.
|Limited Liability Company||
Company in which liability of share-holders is limited to capital contribution.
Includes single-member private limited liability company.
Minimum capital at KHR 4 million (about USD 1,000).
Accepted for CDC approved investment project.
Taxable activities in Cambodia.
Higher reporting and administration burden.
Approvals required for share transfers and changes of directors (amongst other amendments to the company).
|Branch Oﬃce||Division of oﬀshore parent company.||Simplifies internal, legal, and accounting structure.||
Not acceptable for CDC investment project.
Exposes parent to liabilities of branch.
Taxable activities in Cambodia.
No separate legal personality from its principal.
|Local representative of parent company.||
Rapid approval with minimum legal documentation.
No taxable activities in Cambodia.
Not acceptable for CDC investment project.
Scope of permissible activities limited.
Cannot engage in business activities in Cambodia in its own capacity.
No separate legal personality from its principal.
4. Limited Liability Company
The limited liability company is the most common form of investment vehicle in Cambodia. It is usually established as a subsidiary of an investor’s oﬀshore holding company. The limited liability company can be 100 percent Cambodian-owned, 100 percent foreign-owned, or have any combination of Cambodian or foreign shareholdings, subject to certain restrictions.
A limited liability company is formed with registration of its articles of incorporation (Articles) at the MOC, and receipt of a certificate of incorporation from the MOC. Any changes to the Articles and other corporate documents must also be registered in a timely manner at the MOC to be valid.
After establishment, a limited liability company must prepare and maintain, at its registered oﬃce, the following records:
- the Articles and the bylaws and all amendments thereto;
- minutes of meetings and shareholders’ resolutions;
- copies of all notices to be sent or filed in accordance with the LCE;
- a securities register; and
- accounting records.
A limited liability company must issue a minimum of 1,000 shares with a par value of not less than KHR 4,000 per share (approximately one US dollar). The company has only one class of share unless the Articles specify other classes. Subject to differing class rights, shareholders have the right to vote at any meeting of the shareholders, receive any dividends declared by the company, and receive the remaining property of the company upon dissolution. If the Articles provide for more than one class of share, the rights of each class of share may be absolute, relative, or contingent, and the rights, privileges, restrictions, and conditions attaching to the shares of each class must be detailed in the Articles.
The board of directors has broad powers to manage the business and aﬀairs of the company,
Including the powers to;
- appoint and remove oﬃcers and fix their salaries;
- issue, reissue or sell securities of the companies;
- adopt resolutions; and
- provide guarantees on behalf of the company.
Directors must act; in good faith, within the scope of the company’s business objectives, within the framework of the company’s Articles and in compliance with applicable laws. Additionally, directors must comply with relevant registration, filing, and publication requirements of the company. Accounting books and records of the relevant financial year must be duly maintained at the registered oﬃce for 10 more years.
At every annual shareholders’ meeting, the directors must present an annual financial statement to the shareholders. Annual financial statements must be approved by the board of directors and be accompanied by the auditor’s report (subject to limited circumstances whereby appointment of an auditor may be waived by shareholder resolution) before being issued, published and circulated.
5. Types of Limited Liability Company
Under the LCE, the types of limited liability companies permitted are listed below. The LCE describes in detail the distinction between these forms.
|Single-Member Private Limited Company||A private limited company with one physical or legal person as the shareholder. Requires a minimum of one director.|
|Private Limited Company||A limited liability company with two to 30 shareholders. Requires a minimum of one director. May have restrictions on the transfer of each class of shares as provided for by the Articles.|
|Public Limited Company||A limited liability company authorized by the Law on Commercial Enterprises to issue securities to the public. Requires a minimum of three directors.|
6. Branch Oﬃce
A foreign or local entity may operate its business in Cambodia through a branch oﬃce. Although relatively common in the banking community, the government’s policy, historically, was to limit branches to foreign investors that have executed contracts with the government.
Such a limitation is not present under the current law. One notable consideration for branches is that the foreign parent company may be liable for the losses and debts of the branch. Branches cannot hold qualified investment projects (“QIPs”) and do not have separate legal personality from their principal parent company.
7. Representative Oﬃce
For some investors, the need to establish a subsidiary or branch of their oﬀshore company, while foreseeable in the longer term, may not immediately be necessary. A more appropriate form may be that of the representative oﬃce. Representative oﬃces are primarily concerned with sourcing local goods and services, and garnering local information for the parent company. They also serve as a vehicle for promoting and marketing the oﬀshore parent’s products and services in Cambodia. They are thus best suited in assisting foreign investors wishing to gain entry to the Cambodian marketplace.
A representative oﬃce is not allowed to engage in active trading or provide services in Cambodia. It may not purchase, sell, or conduct any service or activity considered to be within the usual scope of the parent company’s business. It also may not engage in manufacturing, processing, or construction. Permitted activities include the right to employ local workers, and to market products and services at trade fairs. The representative oﬃce may negotiate commercial contracts on its parent company’s behalf, but the contract may only be entered into by the parent company.
The representative oﬃce is a non-taxable legal entity precisely because it is not permitted to engage in any sort of taxable activity. Doing so would expose the representative oﬃce to tax liability. The representative oﬃce, however, is required to withhold salary tax for salaries paid to employees and pay patent tax (an annual business operation tax). Representative oﬃces cannot register for QIP status.
A “general partnership” is a contract between one or more persons to combine their property, knowledge or activities to carry on business in with a common view to profit. They are jointly and severally liable for the obligations of the partnership to third parties.
A “limited partnership” is a contract of partnership between one or more general partners who are the sole persons authorized to administer and bind the partnership, and one or more limited partners, who are bound to contribute to the capital of the partnership. The general partners are jointly and severally liable for the debts of the partnership to third parties, whereas the limited partners are liable only to the extent of the sum of money or value of the property they agreed to contribute.
While this form is common for local and small businesses it is less so for larger investments as the processes used by the MOC for registering this business form are unclear given the lack of precedent to date.
9. Restrictions on Foreign Shareholdings
Cambodia places very few restrictions on the level of foreign participation in investments. As a result, a substantial proportion of investors choose to establish 100 percent foreign-owned limited companies. However, it should be noted that only a Cambodian company or citizen may own land and foreign ownership restrictions apply to certain sectors.
10. Required Government Approvals, Permits, and Licenses
Certain business sectors, such as; banking, construction and real estate, financial leasing, insurance, medical, mining, oil and gas, telecommunications, and advising on investment require special licenses from various government entities.
Chapter 7 : Taxation
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