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As the ASEAN integration deadline of 2015 approaches, Cambodia’s attractiveness as an investment destination is increasing apace. As your company assesses investment opportunities around the globe, our newly-updated Guide to Doing Business in Cambodia provides a valuable overview of the legal and regulatory climate in the Kingdom. If you would like further information regarding any of the topics presented in the Guide, please don’t hesitate to contact our legal professionals at: BNG Legal Cambodia.
Properly setting up a company is only the beginning of its legal obligations. Once registered to operate, a business must follow periodically:
- Submit annual declarations to the relevant authorities
- Maintain proper accounting
- Pay taxes
- Renew licenses
- Authenticate corporate structural changes
Failure to do so can lead to fines, penalties, and trouble in selling or closing the business. For further information, please refer to our new report.
Closing a company in Cambodia can be much longer and expensive than opening one, but needs to be done properly nonetheless. The Council for the Development of Cambodia recently warned companies to formally close down according to the law, if they’re no longer doing business.
Rather than declaring bankruptcy or dissolving, owners of failed companies too often simply take what they can and walk away. This leaves behind the legal entity, which still must file taxes and make the annual declaration to the Ministry of Commerce. The ghost company can also be sued, even though it probably won’t have any assets remaining. The real danger is that directors and shareholders be held personally liable for the unpaid taxes, and fines, for the ghost company.
So how to close a company? Chapter L of the Law on Commercial Enterprises lays out the procedures:
– A director or shareholder proposes to the shareholders to voluntarily liquidate and dissolve the company.
– If the resolution passes (requiring a two-thirds majority), the company must send a statement of intent to dissolve to the Director of Companies, which would then issue a Certificate of Intent to Dissolve.
– At that point the company must stop carrying on all business, except for actions necessary to the closure.
– The company must immediately send notice of its intent to dissolve to all its known creditors, and publish a statement for two consecutive weeks in a newspaper.
– It then must collect its property, dispose of its properties, discharge its obligations, distribute its assets to shareholders, and anything necessary to liquidate the business
The legal personality continues until the Ministry of Commerce issues the Certificate of Dissolution, which means it can be sued and still has ongoing obligations. The company will also need to have an official audit performed by the Department of Taxation, which can be somewhat costly. Hopefully the company still has some assets that can be set-aside for these expenses.
It’s tempting to just flee into the night, rather than take the time and expense to properly close down. But it’s really not a good idea, and the government is clearly on the watch-out.
Aside from setting up a private limited company, foreign investors have two other options for entering the Cambodian market – a Branch Office or a Representative Office. Both are registered through the Ministry of Commerce, through similar procedures, and cost about the same in official fees.
So what’s the difference?
Branches are allowed to conduct a much broader range of activity than representative offices. Branches can buy and sell goods, sign contracts, build things, render services, and generally everything that a regular Khmer business can do.
A representative office, on the other hand, cannot regularly buy and sell goods or offer services. As its name says, a representative office represents its foreign parent in Cambodia. So for example, the office can contact customers and enter into contracts on behalf of its foreign parent, but can’t sell the goods itself. A representative office is a more tentative step into the Cambodian market, often used by investors to test the waters or for promotional purposes when the business distributes its goods by other means.
Here is how the Law on Commercial Enterprises (2005) treats the matter:
Article 274: Authorized activities [Representative Office]
A commercial representative office or commercial relations office may perform the following acts in the Kingdom of Cambodia:
(a) Contact customers for the purpose of introducing customers to its principal.
(b) Research commercial information and provide the information to its principal.
(c) Conduct market research.
(d) Market goods at trade fairs, and exhibit samples and goods in its office or at trade fairs.
(e) Purchase and keep a quantity of goods for the purpose of trade fairs.
(f) Rent an office and employ local staff.
(g) Enter into contracts with local customers on behalf of its principal.
However, a commercial representative office or commercial relations office may not regularly buy or sell goods, perform services, or engage in manufacturing, processing or construction.
Article 278: Authorized activities [Branch Office]
A branch may perform the same acts as a commercial representative office.
In addition, a branch may regularly buy and sell goods and services and engage in
manufacturing, processing and construction same as the local company except any acts that prohibited for natural or legal person who is foreigner.
For more on establishing a business in Cambodia, see our publication.
The Post reports on the latest government statistics, showing a 49% increase in company registrations this quarter compared to a year ago:
A total 663 businesses registered this quarter, compared with 445 in the same period of 2009. Of those, 373 were local companies, an increase of 44 percent over 2009’s first quarter, but a smaller jump than the 56 percent increase in foreign companies.
Two factors are behind the numbers: 1) entrepreneurs and foreign investors setting up new businesses, and 2) existing but previously unregistered businesses finally registering. Without more data, it’s impossible to tell the relative effect of each. Both are good signs though, as it shows a rebound in the economy, as well as progress towards the rule of law. For more on registering a business, see our publication.
Strong economic growth, low startup costs, and a wealth of untapped markets make Cambodia an attractive environment for starting up a business. Many foreigners arriving with no intention of becoming an entrepreneur, find themselves opening their first business in this exciting marketplace.
Whether you are an experienced entrepreneur coming here to start another venture, or are transitioning to self-employment for the first time, properly establish your company in full compliance with the law is crucial. While many businesses operate informally, many more have been shut down or encounter ongoing problems from the authorities. Spending the time and money to do everything properly is the only way to avoid potentially insurmountable hassles in the future.
Click here to read the rest.
So you’ve set up your company and you’re ready to go, right? WRONG!
If you set up a company in Cambodia, it is a legal requirement that your business is licensed with the relevant Ministries. Unfortunately, some licenses in Cambodia are expensive – but if you don’t get them, you could face a pretty hefty fine from the Ministry concerned – especially if you are a foreigner who is running the business.
Here is a brief look at what’s involved for licensing various businesses in Cambodia. It is important to note that these prices are just quotes from the Ministry that I have received and are used to give you a general idea of the costs involved. In Cambodia, prices can fluctuate and thus the price quoted to you may be somewhat different.
If you want to set up a restaurant in Cambodia you will need a variety of licenses from different government Ministries. Firstly, you need a license from the Ministry of Commerce – this is included when the company is set up (as an export / import license) so you do not need to worry about purchasing this additionally. Secondly, a license from the Ministry of Tourism is sometimes required. The fees for such a license can alter depending on the number of chairs you have in your restaurant. For example, if you have under 100, it will cost around $150. If you have over 300 chairs, it will cost over $300. You are then required to get letters issued from the Ministry of Health and the Fire Station. Application fees for these letters will set you back around $170 each. A location certificate is required too.
Agricultural Businesses also require licenses. The fee for this is around $4000. In order to set up the business you will need to supply a certificate of incorporation from the MOC, the Patent and VAT certificate, a lease certificate, a filled in application form and various other information. For your fee, you will receive a Business license that will set you up for running a variety of agricultural related businesses in Cambodia.
Import and Export businesses are easiest in relation to licenses as all companies incorporated through the MOC come with an inbuilt import / export license. However, some items that are imported or exported do require additional licenses such as medicines and other restricted goods. If you intend to import medicines into Cambodia, you will need to pay around $600 to the Ministry of Health for a license. The conditions for obtaining are license are difficult however – not only does the person obtaining the license need to have a pharmacy degree recognized by the Ministry of Health, they also must be a Cambodian national. Such licenses take about one month to obtain once all the correct documentation in provided.
Licenses are an inevitable cost of doing business – painful, but less painful than ignoring the law. See our publication on Establishing a Business for more info on licensing.
Many of you might have the notion that incorporating a company in Cambodia is difficult, but that couldn’t be further from the truth. The Ministry of Cambodia is developing a fine tuned system for company incorporation in Cambodia and, provided you follow the rules, you could soon be on your way to making your fortune in the land of Angkor.
The first thing to do when forming a company is to decide what sort of business you want to form. Depending on the type of business you set up, the licensing requirements and amount of capital required are different. For example, a tour company requires a tourism license and at least $5000 in capital. If you’re ambitious and want to form a bank, you’ll require a banking license and a mere two million in cash as capital.
We often recommend to our clients that you set up a basic import / export company first and then add the required licensing once the company has been incorporated. The reason for this is simple; while you are waiting for the licensing to be processed you may make preparations to start your business.
In order to form a company, you need to provide the Cambodian government with certain information, such as the names of directors and shareholders, company name, address, company bank account and lease agreement.
Government fees vary depending on who you work with and the speed that you want the incorporation processed. A general import / export company can be incorporated for under $1500, including taxes, patents and the registration for an office lease agreement. Of course, solicitor’s fees and licensing fees are additional to this. From start to finish, a company can be incorporated in as little as two months provided you have all the required documents and can provide the Ministry of Commerce with these.
If you are experienced in doing business in Cambodia, then it is possible to process the application yourself, especially if you can speak Khmer and have knowledge of how the Ministry works. If not, then it is highly recommended you go through an agent or attorney. Although the process for incorporating a company isn’t difficult, you may find that there are long delays or increased costs for your lack of knowledge.
Looking around Phnom Penh, the ideas for potential income earners seem endless; entertainment for families, specialist shops, restaurants, quality media, improved construction materials, the list continues. But the first step to making your fortunes is to incorporate your company.
For more information on setting up a company, see our Guide to Business in Cambodia.