T HE proposed company law is now in the final stages of passage through the

National Assembly.

As this column previously set out, the enactment of a

company law is an essential component in the creation of the legal

infrastructure necessary for the operation of a market economy in Cambodia.

Together with the commercial register law, the draft contract law and a law

establishing a Cambodian commercial tribunal, the promulgation of a company law

will go a long way towards establishing a comprehensive legal framework within

which local and foreign investment companies may operate.

Drawing greatly

from the pre-1975 company law, the draft now being debated sets out the kinds of

business organizations which may be established in Cambodia and the basis

requirements which each form must meet. In its 224 articles, the draft company

law provides for the formation and regulation of sole proprietorship, general

partnerships, state companies, civil companies (non-commercial companies),

limited liability companies and sociétiés anonymes. The bulk of the draft

company law is applicable to each of these forms of enterprise. General

provisions which shall apply to all companies governed by the draft law include

the following:

• the company must have a stated purpose which is not contrary to public order

  or good morals and which is not prohibited by law.

• the losses and profits of the company must be shared by all participants.

  The draft law suggests that such division of profits and losses should be in

  proportion to the parties' capital contributions. If the losses of the company

  are made to be borne entirely by one party, the incorporation will be considered

  null and void.

• all shareholders in a company must make a contribution of capital, such

  capital contributions may be unequal but must always be valued in legal

  currency. Capital contributions may be made in the form of cash, contribution

  in-kind (generally being the contribution of real or personal property) or

  contribution by the service. If contributions by service are to be made, these

  may not be valued at greater than ten percent of the registered capital of the

  company. Influence derived from a shareholder holding an official position shall

  not be considered valid for the purposes of calculating contribution by

  service.

• Government employees and representatives of public authorities may not act

  in their personal capacity as directors of commercial companies. Nor may they

  serve as promoters for the incorporation of a commercial company in which they

  will participate in their own name.

• Upon registration a company acquires the status of a "moral person". This

  gives the company the right to participate as a party to legal actions and to

  enter into binding agreements on its own behalf and not through its

  shareholders.

• Companies shall only be deemed to have Cambodian nationality if their head

  office is located in Cambodia and greater than fifty percent of the company's

  capital is in the hands of Cambodian nationals. Similarly, only companies with

  Cambodian nationality shall be permitted to register corporate names that imply

  such nationality.

• The different forms of companies that are anticipated and governed by the

  draft companies law, and a number of the provisions which apply specifically to

  each, are set out below:

Sociétiés Anonymes

The draft law devotes 115 of its 224

articles to the treatment of sociétés anonymes. The société anonyme is a form of

limited liability company which is most commonly found in France and French

based corporate systems such as that of Cambodia. The provisions governing

sociétiés anonymes in the draft company law are quite detailed and include

regulations on company formation, the composition and function of the Board of

Directors, the role and responsibilities of the company's auditors, the

procedures to be followed at shareholders' meetings and the methods of corporate

dissolution among other things. Provisions specific to the société anonyme

include the following:

• The company must have at least seven shareholders
• The registered capital of the company must be at least one hundred million

  riel, divided into shares having a par value of not less than ten thousand riel

  each.

• For capital contributions in cash, the par value of the shares must be at

  least twenty-five percent paid-in upon incorporation with the shares having been

  fully paid-up within a period of three years. Capital contributions in forms

  other than cash must be fully paid-in upon incorporation of the company.

• The Board of Directors must be comprised of at least three directors who

  must be chosen from among the shareholders of the company.

Limited Liability Companies

Limited liability companies are

largely governed by the same regulations applicable to sociétiés anonymes. They

are more restrictive, however, in permitted number of shareholders and in the

transfer of shares to third parties. In this way they are best suited to closely

held corporations as seen in British based corporate systems. Provisions in the

draft law specific to limited liability companies include:

• Limited liability companies must have a minimum of two shareholders and are

  limited to a maximum of thirty shareholders.

• They must have a registered capital of at least twenty million riel, divided

  into shares having a par value of not less than twenty thousand riel

  each.

• One-twentieth of the annual profits of the company must be placed into

  reserve funds until such times as the reserve funds amount to ten percent of the

  registered capital of the company.

• The transfer of shares in a limited liability company to third parties must

  have the prior written consent of a majority of the shareholders representing at

  least three-quarters of the capital of the company.

Sole Proprietorships

Limited liability companies may be formed

by a single individual under the form of a sole proprietorship. The conditions

governing sole proprietorship are substantially the same as those governing

limited liability companies with the exception that the sole shareholder must be

a natural person and may not be another company. The management of the sole

proprietorship must be performed by the shareholder or by an individual

appointed by the shareholder.

General Partnerships

The draft law defines general partnership

as the joining of two or more parties for the purpose of conducting commercial

activities under the same name. The partnership contract and corporate documents

must be registered in accordance with the requirements set out for companies

limited by shares. The major distinctions between partnerships and limited

liability companies ore sociétiés anonymes are as follow:

• In a general partnership each partner is personally jointly and severally

  liable for the debts of the partnership as a whole.

• Partnership interests are not transferable or divisible without the consent

  of all partners.

• The name of the general partnership must be that of one or several of the

  partners.

• Unless otherwise provided in the partnership contract, the general

  partnership is automatically dissolved upon the death, legal incapacity or

  personal bankruptcy of any partner.

State Companies

State companies are defined as those commercial

companies which are created by the state. They are formed and governed under

public law but are subject to commercial regulations.

Companies that are

formed as cooperations between the state and private parties are considered

"mixed companies". These are formed in the same manner as sociétiés anonymes if

the private interest is in the majority. If not, they are formed by royal

degree. In companies that have majority state participation, the chairman must

be appointed from a among the state directors. All directors must receive the

same remuneration, whether they represent the state or the private concern.

Civil Companies

Civil companies are defined as those whose

stated purpose is not commercial but civil in nature. They are governed by civil

law rather than by commercial law. They take the form of a company limited by

shares and limit the liability of the shareholders to the amount of their

capital contribution. Shares in civil companies are transferable only with the

consent of all other shareholders.

- Michael Popkin is a lawyer in the Phnom Penh office of Dirksen Flipse Doran

& Le.