Hong Kong: Cambodia - Opportunities For Investment - Business Entities

Last Updated: 20 November 1995
Most Read Contributor in Hong Kong, October 2018
Company law in Cambodia is confused at present as a result of uncertainty as to the legal force and relevance of law enacted before the establishment of the Kingdom of Cambodia in 1993. In practice, even though certain business vehicles are not recognised by the present law per s', reliance on pre-1975 legislation is often accepted, as well as generally accepted principles pertaining to business formation and operation.

The Limited Liability Company (by far the most popular), the Joint Venture Company (usually in the form of a limited liability company), and arrangements concluded by way of Business Co-operation Contracts (a "partnership" with a government entity) are the most common forms of entity recognised in practice by the authorities in Cambodia. The establishment of branches and representative offices are also permitted.

A new Company Law has been drafted and is about to be passed by the General Assembly. It is very much based on the pre-1975, French-orientated contract law with elements from common law jurisdictions blended in. The Government hopes this will form a detailed framework for the establishment, operation and liquidation of commercial enterprises. It will supersede amongst others the 1989 and 1994 investment laws. The general provisions include:

1. A company is required to have a purpose statement which is not contrary to public order or good morals and must not be contrary to the law;

2. Gains and losses are to be shared by the participants, according to the draft law proportionately to the capital contribution;

3. All shareholders are required to make a capital contribution, valued in a legal currency. The capital contribution may be made in cash, in kind, or by the provision of service although contributions by service must be limited to no more than 10 percent of the total registered capital;

4. Government employees and public authority representatives are barred from the directorship of commercial companies. It will also not be permitted for such persons to act as a promoter for the incorporation of a commercial company if there is to be personal participation;

5. Registration of the company gives the entity corporate status, i.e. a legal entity separate from legal person status of the individual shareholders;

6. Nationality of the company is determined by the location of the head office and the source of the company capital. Only if the head office is situated in Cambodia and Cambodian nationals contribute at least 50 percent of the capital will a company be considered to have the Cambodian nationality. Names implying Cambodian origin are reserved for Cambodian companies.

The new Company Law proposes the following vehicles for doing business.

(i) General Partnership. As in most other jurisdictions a general partnership will automatically exist when two or more members act together to pursue the same commercial interest. The law however will require that there be a partnership contract and corporate documents which must be registered in accordance with the requirements set out for companies limited by shares. Liability by each partner will be personal, both jointly and severally for the debts of the partnership as a whole. The name of Partnerships will be restricted to one or several of the partners. Partnership interests will be neither transferable nor divisible without the full consent of the other partners. Unless the partnership contract states otherwise, the Partnership will be automatically dissolved upon the death, legal incapacity or bankruptcy of any one of the partners.

(ii) Societe Anonymes

The Societe Anonyme will be recognisable for those having experience with the French legal system, and systems derived therefrom. It is in essence a limited liability company for which a detailed regulatory regime has been drafted.

- Minimum capital requirement will be 100 million riel;
- The minimum par share value will be set at 10000 riel each;
- The minimum number of shareholders will be seven, and they will be required to pay up at least 25 percent of their cash capital contribution before incorporation. The balance will be payable within three months;
- Non-cash capital contributions must be delivered in full upon incorporation of the company;
- The Board of Directors is to be made up of a minimum of three natural persons chosen from the company's shareholders;
- The liability of the company is limited to the registered capital.

(iii) Limited Liability Company

Under the draft legislation, this type of company will be guided substantially by the regulations pertaining to the Societes't's Anonymes.

- There is a stricter regime as to how many shareholders are allowed. The parameters are set at 2 to 30 shareholders.
- The minimum capital requirement is 20 million riel with a minimum share par value of 20000 riel.
- Five percent of profits must be added to the company's reserve funds per annum until the size of the fund equals at least ten percent of the registered capital.
- Shareholder liability will be limited to the shareholder's capital contribution to the company.
- In order to transfer company shares to third parties, a shareholder must obtain written consent in advance from the majority of the shareholders representing at least 75 percent of the company capital.

(iv) Sole proprietorship

This is defined in the draft law as a limited liability company where one individual owns all the shares. Terms and conditions governing the sole proprietorship are in essence identical to those pertaining to the limited liability company, there is however a requirement that the sole shareholder be a natural person. The shareholder may either manage the sole proprietorship in person or appoint a third party to perform the task.

(v) State Company

A company in which a government entity is the sole shareholder. Formed and governed under public law, these entities are to be formed to manage public activities and will be bound to observe commercial regulations.

(vi) State - Private Joint Venture Company

This is a company in which the state as well as a private company holds shares. These are also known as mixed companies.

- If the private stake in the company outweighs that of the state, formation is governed by the provisions for the Societes't' Anonyme.

- If the state is the majority shareholder, formation will take place by royal decree. In this situation, the chairman will be appointed from the state directors.

- Directors are to receive the same wages, irrespective of their origin, be they from the state or private sector.

(vii) Civil Company

A Civil Company will be a company whose stated objective is not a commercial one, and is as such subject to civil rather than commercial law. A Civil Company is nevertheless a company limited by shares,

- Liability is restricted to the amount of the capital contribution by the shareholders.

- The transfer of shares is only permitted after the express consent of all other shareholders.

Alternative: The Representation Office

In many circumstances a foreign investor may not have an immediate need for a business vehicle as outlined above. For many preliminary activities, a Representative Office may be adequate. Representative offices are in essence an information gathering tool, and a vehicle for promotion and marketing. In most jurisdictions they do not engage in active trade or the provision of services.

The situation in Cambodia at present is such that representative offices are neither regulated nor limited in scope. Representative offices are supervised by the Ministry of Commerce (the "Ministry") with whom they must be registered.

To accomplish this, certified copies of the registration document and constitutional documents of the company as well as information on the proposed representatives, proposed office site and verification of corporate authorisation are to be presented to the Ministry. After submission and the payment of a fee, the registration must be announced in the local press.

3. Registration

In May of 1995, the National Assembly passed the Law on Commercial Regulations and the Company Register. This law requires all business entities operating in Cambodia, both foreign and local, to register with the Commercial Tribunal. Because the Tribunal has yet to be set up, either the CIB or the Ministry of Commerce handles the formal corporation of business entities at present.

The register is to be open to public inspection and will assist foreign investors to obtain reliable detail on potential business partners. Available information will for instance include who has authority to act on behalf of the company, shareholder's names, registered capital and basic information on assets and debt.

To this end, all business entities will be required to submit a "declaration" containing basic information about their business, including, inter alia, the business name, stated purpose, location, capital, names of directors, names of shareholders, capital contribution of the shareholders and authorised signatories. The Register will also list the patents and trademarks and owned by the business, mortgages and liens on business assets and judgements for and against the registered business.

After the declaration is handed to the Clerk of the Commercial Court the information will be verified and a "certificate" with a registration number will be issued. The law also specifies that requests for information from the register are to be forwarded within one month or damages will be awarded. The Register will comprise of two parts, one chronological, one analytical in the form of a chart, to be kept in one folio. The law does not impose penalties for late submission of pertinent Register information, although it is expected that this will be introduced shortly.

Also imposed by the law are a number of accounting obligations, and the law cites the applicability of a number of directives on that subject.

When the register turns fully functional and its provisions are consistently applied, the translucency thus created will make it a useful tool to assist investors attempting general evaluation of business opportunities and risk assessment.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".

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