The National Assembly has passed the Law on Commercial Enterprises, seen by the business

community as a key piece of legislation to improve Cambodia's appeal to investors.

The new law gives a clear legal definition for a company, outlines the role of directors

and shareholders, and even opens the door to a future stock exchange in Cambodia.

Approved May 17, the law is the first major piece of legislation the government has

passed that further accedes Cambodia's membership to the World Trade Organisation

(WTO).

"This is a good image that the WTO agenda is being taken seriously [by the government],"

said Brett Sciaroni, chairman of the International Business Club.

"It gives definition, a greater understanding of what a company is - the responsibilities

and liabilities of shareholders and directors," Sciaroni said.

Up to this point, corporate governance has been limited to the policies of the Ministry

of Commerce, but this is too risky for some foreign investors.

"Investors want to see on paper what the law says before they create a company

here," Sciaroni said.

The new law will also address dispute resolution.

"When there is a dispute in a company, the [Ministry of] Commerce officials

are reluctant to act because they are only covered by policies, not law," Sciaroni

said. "This will give them guidelines."

Sok Siphana, secretary of state for the Ministry of Commerce, said it was a positive

step that the National Assembly approved the draft, which has been a decade in the

making.

Siphana said his ministry is now following through with formalities to obtain the

further approval from the Senate and King Sihamoni before the implementation process

begins.

The new legislation is fundamental to any modern market economy, say those in the

business sector.

It will bring laws dealing with Cambodia's corporate governance closer in line with

developed nations, and at the same time meet the requirements of WTO membership.

Cambodia became a member of the WTO in October 2004, but is required to show a continued

commitment to economic reform and implementation.

Diep Leng, deputy director-general of the Cambodia Chamber of Commerce, said the

law will encourage potential investors.

"If we have a commercial law all investment companies can come here and feel

secure," Leng said.

He said one article of the new law outlines the possibility of a future Cambodian

stock exchange, which could be operational by around 2010.

"We are having a meeting next week to prepare for a stock exchange in the future,"

he said. "But we have to make sure Cambodian business people understand what

they are jumping in to."

Sciaroni said that while many people in Phnom Penh are pessimistic about the idea

of a stock exchange, it could spur the government into further action.

"Some will say we are so far away from having the standards of public disclosure

and transparency in publicly listed companies [needed for a stock exchange], but

I see it as a vehicle to propel forward the other laws we need."

"It will put additional pressure on the government to put more laws in place,"

he said.

But there are still important laws waiting to be drafted or passed, said Sciaroni,

including legislation dealing with bankruptcy.

While the new company law fills a gap in the regulatory needs of the private sector,

it also fills a gap in the national budget.

Passing the Law on Commercial Enterprises was a condition set for the release of

two Asian Development Bank (ADB) loans.

The Financial Sector Program loan, worth $10 million, can now be dispersed to the

Ministry of Finance (MoF) in June after a little more paperwork is completed, according

to Vanndy Hem, an ADB economics and finance sector officer.

The loan is classified as "budget support" received by the MoF as the representative

of the government, said Hem.

A further $7 million, the first tranche in a $20 million Small and Medium Enterprises

Development Program loan, will be immediately dispersed to the MoF once the formalities

of the law have been completed.

King Sihamoni is expected to sign off on the law by the end of May, and the process

of implementation can then begin.