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Beginning a business enterprise in Cambodia

Beginning a business enterprise in Cambodia

W HEN considering an investment in the Kingdom of Cambodia an investor must make

a number of structural decisions which will determine the form that the

investment will take.

This will most often involve the establishment of

some kind of Cambodian business enterprise.

Three options for

establishment are set out below and the basic requirements for setting them up

are touched upon.

In some cases, however, the interest of the potential

investor would be best served by not creating their own Cambodian business

enterprise at all but rather by entering into distribution, franchising or other

kinds of contractual arrangements with existing



For those investors who decide that their business objectives will be best

met by the formation of a new legal entity, its nature must then be


The major forms of Cambodian business enterprise available to

investors under the current draft Company Law were considered in this column in

early July.

By far the most popular form of business entity for foreign

investors in Cambodia is the limited liability company.

Unlike many

regional countries, Cambodia does not place formal restrictions on the sectors

of the economy in which foreign investment is permitted or the level of foreign

participation in Cambodian limited companies (the major exception being

import-export companies which must be majority Khmer-owned). As a result you

tend to see a greater proportion of investors choosing to establish 100%

foreign-owned limited companies in Cambodia than in many other developing


The once ubiquitous (and often mandatory) joint venture form of

investment that still has a dominant role in the business environment of many

neighboring countries seems to be waning in Cambodia.

Depending on the

nature of the business to be conducted by the subsidiary, investors will need to

register their Cambodian company with different government bodies.


companies that plan to engage in certain sectors of the economy, such as

tourism, some form of registration with the relevant government ministry is

often required.

Most investors will be looking at two specific

registration bodies however: the Cambodian Investment Board (part of the Council

for the Development of Cambodia) and the Ministry of Commerce.


majority of foreign-owned companies will apply first to the Cambodian Investment

Board (CIB) for registration. The CIB once claimed the right to approve or

reject all applications for the registration of companies in which more than

half of the capital would be held by non-Cambodian interests.

However, it

seems to have recently reduced its role in company registration and would appear

to be restricting its role more and more to that of a body which considers only

major investment projects and those which request investment incentives. This

would bring it much closer in form to other investment boards in the region such

as Thailand's Board of Investment than had originally been indicated. Presently,

the CIB has the ability to register companies after completing an assessment of

the investment project that the company proposes to undertake. If the project is

approved, even if no investment incentives are offered, the CIB will issue an

investment license and will stamp their authorization on the registration


This license and the stamped documentation must then be

submitted to the Ministry of Commerce for formal incorporation as required by

the Company Registration Law.

Those subsidiaries of foreign companies

which will be formed with local partners holding a majority of the shares, or

those which will be operating in certain sectors of the economy (including

restaurants, small hotels and other industries not considered by the CIB) may

register their company directly with the Ministry of Commerce.

The major

disadvantage that now exists with proceeding directly to the Ministry of

Commerce is the limitation on an investor's ability to draft its own corporate


The Ministry expects its standard form of corporate statute to

be used by companies that register directly with them.

This form may not

suit the needs of investors, especially those who have entered into joint

venture arrangements with local partners, and should be considered carefully

before registration.

Those companies that have first registered with the

CIB are accorded much greater freedom in this regard as they are permitted to

maintain the corporate statute that has been approved by that body, whatever

form that may have taken.

Both registration bodies require that a range

of documentation be submitted, including the corporate statute, information on

the directors, proof that a minimum percentage of the proposed registered

capital of the new company has been remitted into Cambodia, and a lease

agreement or title deed for the proposed registered office that has been

registered with the relevant Sangkat authorities.

In all, assuming that

all documentation is in order, the registration process should take

approximately two to three months if registering with both the CIB and the

Ministry of Commerce, or approximately two to four weeks if registering with the

Ministry of Commerce alone.

Representative Office

For some investors, the need to establish a subsidiary of their home company,

while foreseeable in the longer term, may not be immediately necessary.


more appropriate form for them may be that of the representative


Representative offices are primarily designed to facilitate the

sourcing of local goods and services, and the collection of local information

for the home company.

They also serve as a method of promoting and

marketing the home company's products and services in the host


They are therefore best suited to international trading

businesses interested in gaining entry into the Cambodian


Strictly speaking, representative offices are not meant to

engage in active trading or the provision of services within Cambodia.


the moment, however, the status of the representative office and the scope of

its permitted activities is less than clear. This will likely remain the

situation for the foreseeable future until such time as detailed regulations

governing their activities are formalized.

The process of establishing a

representative office is fairly straight forward.

As with other forms of

Cambodian business enterprise, representative offices are registered and

supervised by the Ministry of Commerce.

Representative offices are not

considered to be separate legal entities from the parent company and therefore

much of the documentation required is specifically related to the status of the


Certified copies of the registration certificate and corporate

statute (often called Memorandum and Articles of Association but varying from

one jurisdiction to another) of the parent company must be submitted to the

Ministry together with information on the proposed director or directors of the

office and the proposed location of the office.

Proof of internal

corporate authorization to establish the representative office must also be

provided and a standard application form completed. Once these have been

compiled and submitted, and the official registration fee has been paid, there

must be publication of the registration in a local newspaper.



A final alternative for some investors to consider would be the establishment

of a branch office of their home company.

The Ministry of Commerce

currently imposes strict limitations on the formation of branches of foreign

companies and the form is therefore the least common among existing


Although relatively common in the banking community, it now

appears that only those foreign investors that have executed contracts with the

Royal Government will be able to establish themselves in this


Again, until the enactment of specific regulations governing the

establishment and operation of branch offices in Cambodia, investors are faced

with a gray area in the law that may be a disincentive to the consideration of

this form of establishment.

Branch offices, like representative offices,

are considered to remain part of the parent company for the purposes of

registered capital and corporate liability.

They are therefore registered

in much the same way as representative offices with the same basic requirements

for documentation.

Branch offices currently also have to provide the

Ministry of Commerce with a copy of the contract that they have entered into

with the Royal Government and list the specific activities in which they are

authorized to engage.

(This column is meant to be informative only, it

should not be relied upon as legal advice. Each investor faces different

circumstances and concerns and should rely on qualified legal, business and

financial counsel for specialized assistance in establishing any new enterprise.

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

& Le.)


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