T HE National Assembly of the Kingdom of Cambodia is scheduled to debate two
important commercial laws in its upcoming session. At the top of its list is the
draft Company law, followed by the Commercial Register law. The approval of
these two laws would be a giant leap toward the establishment of the Rule of Law
in Cambodia in the commercial arena.
Both laws are vital to the operation
of business entities in any free market system, including Cambodia's fledgling
The new daft Company Law is an essential component in the
legal infrastructure necessary for the operation of a market economy in
Cambodia. It would establish a comprehensive system for the formation, operation
and liquidation of a company and other business entities in Cambodia. It would
authorize and regulate Limited Liability Companies, Corporations (Societes
Anonymes), partnerships, sole proprietorships, state companies and
Actually, the draft company law is not new at all, but
rather an adaptation of the pre-1975 Company Law to modern business operations.
Historically, Cambodia's commercial and company laws have been modeled after the
French system, and the draft company law does not deviate from this
The draft law would fill a large hole in Cambodia's current
legal infrastructure. At present business entities are regulated by a number of
different laws, including the 1989 and 1994m investment laws, and the 1989
But none of these laws clearly recognize and
authorize the forms of company organization common in other market economies.
The investment law and sub decree of 1989, for example, provide for the
establishment of joint venture or foreign-owned "enterprises" (as opposed to
companies) on which "members" (i.e.shareholders) make capital contributions. The
rights and obligations of persons contributing capital, directors and other
interested parties is not clearly spelled out.
An essential issue to the
operation of companies in any market oriented legal system is the scope of
liability of company owners, directors, and managers for claims against the
company. One of the main reasons for which a group of investors will form a
company is to protect them and other interested parties from having to pay for
claims against the company.
In light of this desire for protection from
liability, nearly all companies in Cambodia are established as "limited
liability" companies. However, the legal rights and obligations usually
associated with this phrase are not clarified, protected or regulated in any
Cambodian law. In fact the form "Limited Liability Company" is not authorized by
any law or regulation: which is why the new company law is so needed.
The present situation, however, is not quite as vague and ambiguous as
it may seem. In practice, while these and other aspects of company operation are
not regulated by Cambodian law, Cambodia currently adheres to generally accepted
principals of company formation and operation - with special emphasis on
recognition of the pre-1975 company law.
A second vital commercial law
on the agenda of the National Assembly is the draft Commercial Register
The importance of a Commercial Register to the establishment of a
free market economy and the Rule of Law in Cambodia may not be readily apparent
to many. Even so, implementation of a Commercial Register in Cambodia would do
more to establish the Rule of Law in the commercial arena here than perhaps any
other commercial law.
Why is this law so important? Primarily because it
would require the transparent, consistent, and comprehensive registration of all
business entities in Cambodia at one central location, and would permit public
access to this information. Making such information available to the public
would allow business persons to verify the status of the company, who are the
shareholders, authorized directors, the amount of the registered capital, what
debts the company owes, and what liens and security interests are on assents
owned by the company. This information would be a great benefit to banks and
other financial institutions, who cannot lend money without being able to
investigate such information.
While some companies may not like having to
reveal certain, company "internal" details most will welcome these regulations
as an important and refreshing move towards the Rule of Law.
important commercial laws that are currently working their way up through the
law drafting and review committees in other departments of the Kingdom of
Cambodia government would establish a commercial tribunal, and a contract
- David Doran is the resident director of the Phnom Penh office
of Dirksen Flipse Doran and Le. He has been writing about Cambodian legal issues