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Corporate procedures in Cambodia

Corporate procedures in Cambodia

A LL entities doing business in the Kingdom of Cambodia must register with the Ministry

of Commerce as a company (or sole proprietorship).

This is true whether or not the company has received an investment license from the

Council for the Development of Cambodia (CDC).

If a company has received such a license, it must still formally register with the

Ministry of Commerce in order to be a legally licensed business.

One primary difference between a CDC-approved investor and a business registering

without such approval is that the CDC investor is allowed to use its own Memorandum

and Articles of Association (the documents that establish the company's structure

and its by-laws).

All others must use the standard Ministry of Commerce statutes which cannot be changed.

A draft companies law does allow for individualized drafting of these documents with

only a minimum number of requirements that must be stated.

However, it is unknown when this law might be enacted and until then, the Ministry's

statutes are the sole document setting out how the company must be managed.

The statutes require various majorities, either simple majority, three-fourths or

unanimous, for various types of corporate decisions.

These votes are taken during meetings of the shareholders which must be held on a

periodic basis. These meetings are subject to various requirements as stated in the

statutes, i.e., notice, a pre-arranged agenda and shareholder signatures among others.

The company's director or directors are named in the statutes and generally, the

director has quite broad powers.

As might be expected, the director has full authority to bind the company with regard

to third parties and can sign company documents if they are within the scope of the

company's business objectives.

In the past, a director of one company could not be the director of any other company.

This has been eased to allow a person to be the director of a maximum of three companies,

provided that none of the companies have the same business objectives.

This limitation may be eased in the future but it is currently enforced.

The company's business objectives must be stated in the statutes although the Ministry

allows quite broad objectives to be listed.

However, only a majority Cambodian owned company can list import and export, and

land ownership as an objective. Import and export includes importing items for re-sale

in Cambodia.

The statutes also contain various restrictions on share transfers and unless the

transfer is to a relative, these restrictions can be onerous.

In addition, the Ministry requires that all share transfers be recorded at the Ministry,

using its standardized format and requiring signature by all shareholders.

The Ministry essentially treats the process of a share transfer as the formation

of a new company, and will issue new statutes with the new shareholders inscribed

in them, although it does not form a new company with the duration of the company

beginning anew.

The Ministry will also issue a new license to the company which requires return of

the original license granted to the company.

Any company registered in Cambodia, whether or not it has investor status at the

CDC, should be careful to retain the original Ministry of Commerce license and certificate

of registration issued to it.

If the company changes its name, its shareholders or directors, increases its capitalization,

or the nationality of new shareholders results in a change in the nationality of

the company (from majority Cambodian owned to majority foreign owned or vice versa),

it must register these changes with the Ministry of Commerce as an amendment to its

statutes under the same procedure as used for share transfers.

The return of either one or both of these original documents will be required (the

type of change dictates whether both must be returned or only the license) and the

Ministry will not accept a photocopy.

The Ministry's statutes do contemplate some mechanisms by which a shareholder can

transfer rights in his or her shares to another party.

This can assist, in a practical sense, in altering the effect of the statutes of

the company.

For a business that does not qualify for CIB investment status, some changes to Ministry

of Commerce statutes may be accomplished through shareholder agreements.

These agreements can alter the terms of the relationship among shareholders and call

for different voting requirements than those in the statutes.

These types of agreements do not change the statutes but rather serve as an internal

agreement among the parties to have a different arrangement than that stated in the

statutes.

It must be remembered, however, that shareholder agreements or voting trusts are

not explicitly allowed in the statutes and therefore, must be treated with caution.

It is unknown how the Cambodian courts will rule if a dispute arose among the shareholders

with regard to such an agreement.

- (Roberta Thami is an attorney associated with Dirksen Flipse Doran & Le,

an international law firm with offices in Cambodia, Laos and Vietnam.)

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