1. Regulatory Framework for the Commercial Enterprise
The “Law Bearing upon Commercial Regulations and the Commercial Register” was first enacted in May 1995 and modified in November 1999. This law defines the meaning of “Merchant”, “Trade”, “Trading Activities”, etc. and stipulates the obligation of the companies, including the foreign business, to register and the procedures of commercial registration.
The “Law on Commercial Enterprise” was adopted by the National Assembly on April 26, 2005, and promulgated on May 19, 2005, as the first comprehensive company law in Cambodia. This Law applies to the “Partnership,” which falls into the category of a General Partnership or a Limited Partnership; “Limited Company,” which is either a Private Limited Company or a Public Limited Company; and “Foreign Business” as well.
A partnership or company shall continuously maintain a registered office and a registered agent, who is a legally competent natural person in Cambodia; register with the Registrar the specific location of the office and the name of the agent (Article3); and display its name in the Khmer language, which shall be placed above and shall be larger than the name in another language (Article 5).
2. Limited Company
The “Law on Commercial Enterprise” authorizes the formation of a “limited company,” either in a form of “private limited companies” or “public limited companies,” to carry on business in Cambodia (Article 85).
Type of Limited Company
・ Private Limited Company:
A private limited company is a form of limited company with characteristics as follows (Article 86):
- The company may have from 2 to 30 shareholders.
- When a private limited company is established by one person, it shall be called a “Single Member Limited Company.”
- The company may not offer its shares to the public.
- The company has one or more restrictions on the transfer of each class of its shares.
- The company shall be considered as a private limited company once registered in compliance with prescribed forms determined by a Prakas of the Ministry of Commerce.
・ Public Limited Company:
A public limited company is a form of a limited company that is authorized by this law (Law on Commercial Enterprise) to issue securities to the public (Article 87).
Creation of a Limited Company
One or more competent natural persons or legal persons may create a limited company by filing an Article of Incorporation with officials at the Ministry of Commerce (Article 91), and a “Certificate of Incorporation” shall be issued by the Ministry of Commerce after filing (Article 97). A company comes into existence and acquires a legal personality on the date when the company is registered (Article 98).
The company shall issue a minimum of 1,000 shares with a par value of not less than 4,000 Riels (approximately 1 US dollar) per share and has only one class of shares and the right of the holders of these shares is equal, unless otherwise provided in the Articles (Article 144). The shareholder’s liability to the company is limited to the price of the shareholder’s subscription (Article 147). When there is unanimous shareholder agreement, the existence of such agreement has to be written on the share certificate (Article 223).
A company shall be deemed to be of Khmer nationality if the company has a place of business and a registered office in Cambodia and more than 51% of the voting shares of the company are held by a natural or legal person of Khmer nationality (Article 101).
Requirement for Records:
A company shall prepare and maintain, at its registered office, records containing (Article 109):
・ The articles and by-laws and all amendments thereto
・ Minutes of meeting and resolutions of shareholders
・ Copies of all notices required to be sent or filed in accordance with the law
・ Securities register
In addition to the above records, a company shall prepare and maintain adequate accounting records for a period of ten years after the end of the fiscal year to which the records relate (Article 113).
A private limited company shall have one or more directors, while a public limited company shall have at least three directors. Shareholders shall elect directors by ordinary resolution (Article 118) and the board of directors shall elect a chairman from among its members by a majority vote of the directors (Article 127). Each director shall be elected for a term of two years and may be re-elected (Article 121.) Any legally competent natural person over 18 years old may serve as a director (Article 120).
Board of Directors
The Board of Directors shall manage the business and affairs of a company. Subject to the articles, the directors may exercise the following powers (Article 119).
・ Appoint and remove all officers, determine the specific powers and set the salaries and other compensation for such officers
・ Issue notes, bonds and other evidence of debt of the company
・ Propose to shareholders amendment to, or removal of the articles of incorporation, or an agreement of merger or consolidation between the company and any other person
・ Propose to shareholders a dissolution or liquidation of the company, etc.
Two or more companies may merge into one company or may consolidate to form a new company. The legal personality of a constituent company (a dissolving company) ceases from the date the Ministry of Commerce issues a Certificate of Merger to the surviving company (a company that continues the business) (Article 241). The board of directors of each company that proposes to merge shall adopt a resolution approving an agreement for merger. Such resolution shall be approved by a majority of all directors (Article 242). Detailed procedures for effecting the merger are stipulated in Articles 243 to 250.
Dissolution and Liquidation
A company that has not issued any shares may be dissolved at any time by resolution of all the directors. A company that has no property and no liabilities may be dissolved by special resolution of the shareholders. The company shall send the articles of dissolution to the office in charge of company administration of the Ministry of Commerce and, upon receipt of such articles of dissolution, the Ministry of Commerce shall issue a certificate of dissolution (Article 251).
A director or a shareholder who is entitled to vote at an annual meeting of shareholders may propose the voluntary liquidation and dissolution of a company (Article 252). The procedures for the voluntary liquidation and dissolution are defined in the articles from 252 to 257. The dissolution and liquidation provisions shall not be applied to any company that has applied for bankruptcy to the court (Article 258).
A partnership is a contract between two or more persons (Article 8) and the contract of partnership may be verbal or in writing (Article 9).
A general partnership shall acquire a legal personality when it registers and have the following rights (Article 12):
・ to own movable and immovable property in its own name
・ to carry on business in its own name
・ to contract in its own name
・ to sue and be sued in its own name
Each partner shares in the profits and losses of the partnership (Article 23) and all partners are jointly and severally liable for obligations. A third party shall seek enforcement of obligations against the partnership and partnership assets prior to seeking enforcement against the partners (Article 42).
A limited partnership is a contract of partnership between one or more general partners who are the sole persons authorized to administer and bind the partnership, and one or more limited partners, who are bound to contribute to the capital of the partnership (Article 64).
Each limited partner is entitled to receive his share of the profits and liable only to the extent of the sum of money or value of the property he agrees to contribute (Article 71 and 72). The general partners are jointly and severally liable for the debts of the partnership to third parties (Article 75).
4. Foreign business
Definition of Foreign Business
A foreign business is a legal person formed under the laws of a foreign country where it has a place of business and doing business in Cambodia (Article 270). It may conduct business in Cambodia in the following forms (Article 271):
・ Commercial representative office, commercial relations office or agency (“representative office”)
A representative office and a branch are agents of their principals and do not have a legal personality separate from their principals.
A foreign business shall be considered to be “doing business” if the foreign business performs any of the following (Article 272):
・ Rents office or any other space for manufacturing, processing or performing services for more than one month
・ Employs any person for more than one month
・ Performs any other act permitted for a foreign physical and legal person by Cambodian law
A commercial representative office or commercial relations office may perform the following acts in Cambodia (Article 274):
・ Contact customers for the purpose of introducing customers to its principal
・ Research commercial information and provide the information to its principal
・ Conduct market research
・ Market goods at trade fairs and exhibit samples and goods in its office or at trade fairs
・ Buy and keep a quantity of goods for the purpose of trade fairs
・ Rent an office and employ local staff
・ Enter into contracts with local customers on behalf of the principal
However, a representative office may not regularly buy and sell goods, perform services or engage in manufacturing, processing or construction in Cambodia. A commercial representative office may be closed by a decision of its principal (Article 277).
A branch may perform the same acts as a representative office and, in addition, may regularly buy and sell goods and services and engage in manufacturing, processing and construction as a local enterprise as long as it does not perform acts prohibited by law to a foreign physical or legal person (Article 278). The assets of the branch shall be the assets of the principal. The principal shall be liable for any obligation of the branch (Article 279), and a branch may be closed by a decision of its principal (Article 282).
A subsidiary is a company that is incorporated by a foreign company in Cambodia with at least 51% of its capital held by the foreign company (Article 283) and has a legal personality separate from the principal (Article 284).
A subsidiary may be incorporated in the form of a partnership or limited company (Article 285) and may carry on business the same as a local company except for any act that is prohibited for foreign natural or legal person by laws of Cambodian law (Article 286).