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
By far the most popular form of business entity for foreign
investors in Cambodia is the limited liability company.
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
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.
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.
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
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.
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
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