Hong Kong: Laos - Legal System and Investment - Business Vehicles

Last Updated: 20 November 1995
Most Read Contributor in Hong Kong, October 2018
The Business Law stipulates that there are four types of enterprises in the Lao People's Democratic Republic: private enterprises, state owned enterprises, collective enterprises and joint enterprises. In addition, enterprises may be established in two forms : sole-trader enterprises and companies. The formation of company in the Lao PDR was not clearly defined under Lao Law until the President of the Lao PDR promulgated the Business Law Act on the 13th of August, 1994.

With regards to the Business Law, there are three types of companies, as follows:-

- Partnership company;
- Limited company; and
- Public company.

(A) Sole Trader Enterprise

Sole trader enterprises are business units with a minimum registered capital of 1,000,000 kips, created by one person who has the sole responsibility for the company's total liabilities. The manager of a sole trader enterprise may be the owner of the enterprise or another person who is assigned to manage the enterprise. However, The owner of a sole trader enterprise is the only person who can decide the use of the profits made and all other issues.

(B) Partnership Company

A partnership company is an enterprise formed by at least two persons and based mainly on trust given to each other by the partners. The Business Law states that the partners of the partnership company shall be business persons, including agents and brokers, and are jointly liable for all debts of the company.

1. Capital

The capital contributions may be made in cash, kind, labour or intellectual property, which shall be evaluated in terms of money. Moreover, shares of the partnership company are not transferable.

2. Management

Generally, the partners of the partnership company are co-managers unless the Articles of Association of the company otherwise stipulate. However, if the manager is not a partner, his appointment must have the unanimous approval of all partners, unless the Articles of Association of the company otherwise stipulate.

3. Rights and Obligations of the Partners

A partner has the right to:-
- Receive dividends;
- Be informed of all company activities;
- Receive reports from the auditor;
-Receive notice of the company's Annual General Meeting at least fifteen days in advance;
- Raise questions and make written comments on the management of the company concerning the manager;
- Attend meetings of the company and vote thereat; and
- Participate in the management of the company.

All partners are jointly and unlimitedly liable for all the debts and obligations of a partnership company. A new partner shall be liable for any company debts previously incurred and the leaving partner shall still be liable for any company debts incurred before he/she withdrew from the company.

4. General Meeting

The General Meeting shall be held as business requires, but at least once a year. The manager shall give notice of a General Meeting at least fifteen (15) days before the opening date and such notice shall include the agenda of the meeting. Decisions of the meeting are taken by unanimous decision from all partners, unless otherwise provided for in the Articles of Association.

Issues which shall have unanimous votes at a meeting are as follows:-

- Dismissal of the manager who is also a partner and who cannot vote concerning this matter;

- Consideration of the continuation or the dissolution of the company when the manager who is also a partner ceases to be a business person;

- Transfer of shares to a person who is not a partner; and

- Modification of the Articles of Association.

(C) Limited Company

A limited company is an enterprise created by at least two (2) persons or legal entities and does not have more than twenty (20) shareholders, and which shall have a minimum registered capital of five million (5,000,000) kips. The shareholders of the limited company may not be business persons by profession and shall be liable for the debts of the company, up to the portion of unpaid shares which they hold.

1. Capital

The capital of a limited company which is contributed to by the Shareholders shall be publicised. It may not be used until it is officially registered. The capital will be divided into shares of equal value. The share contribution may be made in cash or in kind. The share contribution in kind shall be disbursed immediately on the day of creation of the company and shall be evaluated in terms of money by the committee in charge of the shareholders contributions or by the Shareholders' Meeting, where there is no such committee. At least fifty percent (50%) of the total value of the share contributions paid in cash shall be paid on the day of creation of the company. The remainder may be paid within two (2) years from the registration date of the company.

Shares of a limited company may either be transferred to existing shareholders or any person outside the company. However, the transfer of shares to a person outside the company must have the approval of a majority of the shareholders representing at least two third of the company's capital.

2. Management

The management of a limited company will be carried out by one or more managers who shall be appointed by the General Meeting of the Shareholders or in accordance with the Articles of Association of the company. The manager may be selected from the shareholders or from outside.

3. Auditors

If a limited company has capital of a hundred million (100,000,000) kips or more, it shall have an auditor who is appointed by the General Meeting of the Shareholders from the registered list of professional accounting organisations. The auditor's term of office is three (3) years and may be renewed.

4. Rights and Obligations of a Shareholder

A shareholder has the right to:-

- Receive dividends in proportion to the shares that it holds;

- Be informed of matters relating to the operation of the company;

- Receive documents at least fifteen (15) days prior to the Annual General Meeting of the company.

- Raise questions and make written comments on the performance of the company's manager;

- Attend the General Meetings of the Shareholders and cast votes on the basis of one share representing one vote; and.

- Shareholders representing at least fifty (50%) per cent of the company's capital may call for a General Meeting of the Shareholders if the manager or the auditor fails to do so.

A shareholder has the following obligations:-

- Not to redeem his shares but to only transfer them to another person;

- To pay for his shares in due time;

- Responsibility for the debts of the company up to the unpaid proportion of his shares.

5. General Meeting

A General Meeting shall occur at least once a year. Other General Meetings may be held as the business of the company requires. A General Meeting may not transact any business unless the shareholders and the proxies represent more than one half (50%), of the total outstanding shares of the company.

A General Meeting may be convened by:-

- The auditor;

- Shareholders holding at least fifty (50%) per cent of the total shares of the company;

- A person appointed by the court as requested by shareholders of the company;

- The interim manager appointed by the court.

- A liquidator.

Any resolution shall be passed by a simple majority vote of the company's capital. However, the modification and amendment of the Articles of Association and the approval of new shareholders shall have a majority vote of two-thirds of the company's capital.

The General Meeting shall proceed with the following issues:-

- To appoint and dismiss the manager;

- To appoint the auditor;

- To approve the business performance of the company in the previous year and the action plans of the company for the following year;

- To approve the annual balance sheet;

- To approve the distribution of dividends to the shareholders.

(D) Public Company

A Public Company is an enterprise created by at least seven (7) shareholders, mainly on the basis of the financial ability to make the contributions of the shareholders, and shall have a minimum capital of at least fifty million (50,000,000) kips. The value of each share shall not be more than ten thousand (10,000) kips.

1. Capital

The capital of the public company is divided into shares of equal value. Payment for shares may be made in cash or in kind. Payment for shares made in cash shall be at lease twenty-five (25%) per cent, of the total value of the share contribution on the day of creation of the company and the remaining amount may be paid all at once or in instalments in accordance with the decision of the Executive Council, within a three year period, from the day of creation of the company.

The shares of the public company may be transferred to the existing shareholders or any person outside the company. If the shares are transferred to an outsider, this shall be reported to the Executive Council within seven (7) days.

2. Executive Council

The management of a public company is conducted by the Executive Council. The Executive Council is composed of five (5) to eleven (11) members, in which one (1) or two (2) workers representatives may be included. The term of the members of the Executive Council is three years, and any member of the Executive Council may be dismissed from office by the General Meeting of the Shareholders. Members of the Executive Council shall be shareholders, except for representatives of workers.

3. Duties of the Executive Council

The members of the Executive Council shall act on behalf of the company by having the following duties:-

- Set policies for the company;

- Select the president of the Executive Council;

- Select the directors;

- Determine the salaries of the president and the directors;

- Record the accounts of the company;

- Approve guarantees;

- Provide the shareholders with various documents;

- Convene a General Meeting of the shareholders and call other meetings for the company;

- Decide on the company's general activities.

The Executive Council may hold a meeting at any time as business requires. The Meeting of the Executive Council may be convened only if at least half of the members are present.

The Meeting of the Board of Directors may be convened by:-

- The president of the Executive Council;

- At least one-third of the members of the Executive Council.

Any resolution of the said meeting shall be adopted by a simple majority of the members and proxies present at the meeting. The president shall cast the deciding vote in the case of a tie.

The president of the Executive Council shall be elected from amongst its members. The term of the presidency shall be equal to that of other members of the Executive Council and the president may be re-elected unless the otherwise provided by the Articles of Association. The president of the Board may be dismissed by the Executive Council.

4. Directors

The Executive Council will select the director from amongst the members of the Executive Council or a private individual outside the company, at the president's proposal. However, the president may be appointed as manager and in such a case is called "Managing Director".

The term of the director, who is also member of the Executive Council, shall not be more than three (3) years. In other words, the term of office and duties of a director who is not a member of the Executive Council, is determined by the Executive Council.

5. General Meeting

There are two kinds of General Meeting:-

- Ordinary General Meeting;

- Extraordinary General Meeting.

5.1 Ordinary General Meeting

This is a meeting of shareholders that is held to examine problems relating to the activities of the company. An Ordinary General Meeting shall be held at least once a year and may be requested by:

- The Executive Council;

- The Director;

- The auditor;

- A liquidator;

- The shareholders of at least one-third of the total outstanding shares; or

- Any person who has been appointed by the court in accordance with the request of the shareholders.

A majority of those shares represented at the meeting are required for any resolution. Every shareholder shall have one vote for each share he holds.

The agenda of an Ordinary Meeting shall consist of:-

- Reviewing the reports made by the Executive Council relating to the management of the company, dividends, and proposals for sharing profits, if any;

- Reviewing the reports of the auditor;-

- Ratifying the activities that have been carried out during the last year and the plans for the coming year;

- Adapting the annual balance sheet;

- Approving the distribution of dividends;

- Electing or dismissing members of the Executive Council;

- Appointing the auditor and also specifying his salary; and

- Authorising the Executive Council to carry out specific tasks acting on behalf of the Ordinary General Meeting.

5.2 Extraordinary General Meeting

If the Executive Council wants to amend the Articles of Association of the company, such as the extension of the term of office, the increase and the decrease of the company 's capital, these procedures must be approved by a resolution of an Extraordinary General Meeting.

An Extraordinary General Meeting may be convened only when shareholders and proxies, representing at least two-thirds of the total shares, are present upon the first notification and at least half of all the shareholders upon the second notification. In case the shareholders do not participate in numbers as mentioned above, the meeting shall be postponed to another date within two months, and upon such notification, the meeting shall take place without regard to the number of participants. Any resolution of the Extraordinary Meeting requires two-thirds of the votes of the total number of shares represented at the meeting.

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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