The National Assembly has passed the Law on Commercial Enterprises, seen by the business
community as a key piece of legislation to improve Cambodia's appeal to investors.
The new law gives a clear legal definition for a company, outlines the role of directors
and shareholders, and even opens the door to a future stock exchange in Cambodia.
Approved May 17, the law is the first major piece of legislation the government has
passed that further accedes Cambodia's membership to the World Trade Organisation
"This is a good image that the WTO agenda is being taken seriously [by the government],"
said Brett Sciaroni, chairman of the International Business Club.
"It gives definition, a greater understanding of what a company is - the responsibilities
and liabilities of shareholders and directors," Sciaroni said.
Up to this point, corporate governance has been limited to the policies of the Ministry
of Commerce, but this is too risky for some foreign investors.
"Investors want to see on paper what the law says before they create a company
here," Sciaroni said.
The new law will also address dispute resolution.
"When there is a dispute in a company, the [Ministry of] Commerce officials
are reluctant to act because they are only covered by policies, not law," Sciaroni
said. "This will give them guidelines."
Sok Siphana, secretary of state for the Ministry of Commerce, said it was a positive
step that the National Assembly approved the draft, which has been a decade in the
Siphana said his ministry is now following through with formalities to obtain the
further approval from the Senate and King Sihamoni before the implementation process
The new legislation is fundamental to any modern market economy, say those in the
It will bring laws dealing with Cambodia's corporate governance closer in line with
developed nations, and at the same time meet the requirements of WTO membership.
Cambodia became a member of the WTO in October 2004, but is required to show a continued
commitment to economic reform and implementation.
Diep Leng, deputy director-general of the Cambodia Chamber of Commerce, said the
law will encourage potential investors.
"If we have a commercial law all investment companies can come here and feel
secure," Leng said.
He said one article of the new law outlines the possibility of a future Cambodian
stock exchange, which could be operational by around 2010.
"We are having a meeting next week to prepare for a stock exchange in the future,"
he said. "But we have to make sure Cambodian business people understand what
they are jumping in to."
Sciaroni said that while many people in Phnom Penh are pessimistic about the idea
of a stock exchange, it could spur the government into further action.
"Some will say we are so far away from having the standards of public disclosure
and transparency in publicly listed companies [needed for a stock exchange], but
I see it as a vehicle to propel forward the other laws we need."
"It will put additional pressure on the government to put more laws in place,"
But there are still important laws waiting to be drafted or passed, said Sciaroni,
including legislation dealing with bankruptcy.
While the new company law fills a gap in the regulatory needs of the private sector,
it also fills a gap in the national budget.
Passing the Law on Commercial Enterprises was a condition set for the release of
two Asian Development Bank (ADB) loans.
The Financial Sector Program loan, worth $10 million, can now be dispersed to the
Ministry of Finance (MoF) in June after a little more paperwork is completed, according
to Vanndy Hem, an ADB economics and finance sector officer.
The loan is classified as "budget support" received by the MoF as the representative
of the government, said Hem.
A further $7 million, the first tranche in a $20 million Small and Medium Enterprises
Development Program loan, will be immediately dispersed to the MoF once the formalities
of the law have been completed.
King Sihamoni is expected to sign off on the law by the end of May, and the process
of implementation can then begin.