Establishing a Business In Cambodia

January 2009

CONTENTS:
Basic Requirements Sole Proprietorship Partnership

Basic Requirements for Establishing a Business in Cambodia

The companies law regime in Cambodia is governed by the Law on Commercial Enterprises, which was promulgated on 19th June, 2005. Allowable business forms under this law include sole proprietorships, partnerships and limited liability companies. Foreign investors usually choose to register a limited liability company as a subsidiary of the parent company to do business in Cambodia. If their activities in Cambodia are more limited, a foreign investor may prefer to open a Branch or Representative Office of the parent company. Under the Law on Commercial Enterprises, the investor must register one of the allowable business forms at the Ministry of Commerce (MOC) and file an annual declaration the status of the enterprise, also at the MOC. In addition a company must have a legally competent natural person as a registered agent continually maintained in the Kingdom of Cambodia. There are also a number of corporate records that must be maintained at the companys registered office. These are: the articles and by-laws; minutes of meetings and resolutions of directors; copies of all notices; securities register; shareholders agreements and resolutions and accounting records.

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Corporate Company
Foreign Business in Cambodia

Registration Procedure Company Obligations

Relevant Law Regulations

and

Law on Commercial Enterprises 2005 Prakas on Liability of Directors, Managers or Owners of an Enterprise for Tax Due, Additional Tax and Interest to be Paid 2005 WTO Accession Law 2004 Amendment to the Law on Commercial Rules and Registration 1999

Sole Proprietorship
A sole proprietorship has only one shareholder and is an enterprise which is established and operated by a single natural person who is the owner of all its capital. The obligations and liabilities incurred in the operation of the business are thus his/her sole and exclusive responsibility. A Sole Proprietorship which is subject to taxation of its profits must be registered at the Ministry of Commerce. A Sole Proprietor may, at any time, subject to the applicable laws, terminate the operation of the Sole Proprietorship. A sole proprietorship is subject to the same requirements as a limited liability company with the exception that the sole shareholder must be a natural person and may not be another company. The management of the sole proprietorship is performed by the shareholder or by an individual appointed by the shareholder.

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Establishing a Business

In Cambodia

Partnership: General
A General Partnership is a contract between two or more persons to combine their property, knowledge or activities to carry on business in common with a view to profit. The members of the General Partnership are known as a Partner or General Partner. All General Partners must be merchants and the liabilities of Partners with respect to the partnerships debts are joint and unlimited on their personal property. A general partnership acquires legal personality when it registers in accordance with the Law on Commercial Rules and Register.

Partnership: Limited
A limited partnership is a contract 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. The term of the contract may not be in excess 99 years but may be extended. The limited partnership is formed on the date on which it is registered in accordance with the Law on Commercial Rules and Register. If a limited partnership is not registered, it is deemed to be a general partnership. A person may at the same time be both a general partner and a limited partner in the same limited partnership and such person has the rights and obligations of a general partner. A limited partner is liable only to the extent of the sum of money or value of the property he agreed to contribute, while the general partners are jointly and severally liable for the debts of the partnership to third parties.

If a limited partnership is not registered, it is deemed to be a general partnership.

Private Limited Company

A Private Limited Company is a form of limited company that may have 2 to 30 shareholders. One person may form a company called single member limited company, having the same form and regulations as a private limited company excepting the relationship between shareholders is different. A company is treated as a private limited company from the date of registration by the Ministry of Commerce. A private limited company requires a minimum capital of US $1000. A Private Limited company is the most common form of commercial entity currently used in Cambodia.

Public Limited Company

A Public Limited Company is a contract between one or more entities who agree to conduct any commercial activity. It is a form of limited company that is authorized under the law to issue securities to the public. Currently, due to the lack of a stock exchange in Cambodia, only banks and other financial institutions are permitted to incorporate public limited companies.

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Foreign Business in Cambodia: Subsidiary

According to the Law on Commercial Enterprises, a foreign business is a legal person formed under the laws of a foreign country having place of business in and doing business in the Kingdom of Cambodia. It is a subject to registration at the Ministry of Commerce and the three main forms are representative office, branch and subsidiary. A subsidiary is a company that is incorporated in the Kingdom of Cambodia and has at least 51% percent of its capital held by a foreign company. Its formation, management, right and other obligations must be provided for in the memorandum and articles of association of the limited company. Each Subsidiary is subject to commercial registration requirement, which is handled by the Ministry of Commerce.

Foreign Business in Cambodia: Representative Office

A Representative Office (RO) may be established by an eligible foreign investor to facilitate the sourcing of local goods and services and to collect information for its parent company. They also serve as a channel for promoting and marketing the home companys products and services in the host country. An RO is regarded as a cost center and accordingly should derive no income from its activities and thus is not generally subject to Cambodian tax laws. However, the representative office is subject to tax requirements with regard to the withholding tax on salaries paid to employees in Cambodia, a patent tax and an annual business operation tax. The RO-Agent is under the management of one or more directors who may be appointed and removed by the principle enterprise. The Representative Office may lease premises for its office, employ local staff, advertise its products, and organize trade fair to introduce their commercial products. It can also undertake commercial relations for the purpose of introducing itself to prospective clientele. The RO-Agent can enter into contracts with local enterprises in Cambodia if the principal enterprise so usual business nor can it conduct any production or construction activities within the country. The RO -Agent is subject to a commercial registration requirement, which is handled by the Ministry of Commerce. The words Representative Office Agent must be placed before or after the name of the principal enterprise.

Foreign Business in Cambodia: Branch Office

A Branch Office is an office that is opened by a company of another foreign country for the purpose of conducting a particular commercial activity in Cambodia. The Branch Office is the same entity as the parent company and therefore has the same name as the parent company. Its management and control is under one or more directors who may be appointed and removed by the parent company. It can conduct the same activities as the RO-Agent. In addition, it may purchase, sell or conduct regular professional services or other operations engaged in production or construction in the country. The branch and parent company have joint liability with respect to losses and debts of a branch office and the Branch Office must also meet local taxation obligations. The Branch Office is subject to a commercial registration requirement, which is handled by the Ministry of Commerce.

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Registration of Corporate Companies

In order to setup a limited liability company, the founding members (future shareholders) or a representative/director of the Company must complete information to file a request to setup the Company with the Ministry of Commerce. The MOC, in response, prepares the relevant Official Application Forms in accordance with the provided information. The application must be signed by all relevant shareholders and directors of the Company before the MOC, Cambodian lawyer, or Notary Public (if the shareholders and directors sign the Official Application Forms outside Cambodia, which are to be delivered by courier). The Memorandum and Articles of Association (MAA) must be signed by the relevant shareholders and directors. Any substantial modification on the MOC standard MAA may be rejected when the draft MAA is submitted to the MOC. After being signed, the Official Application Forms and the MAA shall be submitted to the MOC for review and approval.

Time Frame for Company Incorporation

It takes at least 14 working days to process a new company registration at the MOC counting from when the completed application documents are submitted ton the MOC. The Memorandum and Articles of Association M&AA must be acceptable to the MOC first before counting the starting date. VAT and Patent, which are issued by the Tax Authority, take another 14 working days after the company registration is completed at the MOC.

From the date of receiving the application, it usually takes the Ministry one to two weeks to issue its approval and registration of the Branch or Representative Office.

It takes at least 14 working days to process a new company registration at the Ministry of Commerce.

Company Obligations: National and Legal Personality

A company is considered to have Cambodian nationality if it has a registered office in Cambodia, and at least 51% of its shares are owned by Cambodian nationals. Only companies with Cambodian nationality shall be permitted to register corporate names that imply such nationality. A limited liability company with Cambodian nationality is referred to as a local company. Under the Constitution of the Kingdom of Cambodia, only a local company is entitled to own land. The chairman of the Board of Directors of a local company must be a Cambodian national. Other directors can be foreigners. A general partnership has a legal personality separate from that of each of its partners. The general partnership acquires legal personality when it registers in accordance with the Law on Commercial Rules and Register, and has the rights to own movable and immovable property, to carry on business, to contract and to sue and be sued in its own name. A general partnership that has acquired legal personality is deemed to be of Khmer nationality only if the general partnership has a place of business and a registered office located in the Kingdom of Cambodia and more than 51% of the record ownership interest in such general partnership is held by natural or legal persons of Khmer nationality.

Company Obligations: Use of a Khmer Name

A partnership or company must display its name in the Khmer language on all seals, signs letterhead, and forms and documents used for public purpose, and on all public advertisements within the Kingdom of Cambodia and this must be placed above and be larger than the name in another language. The Khmer name must also sound phonetically the same as the name in the other language. The partnership or company may however use and be designated by a name in another language outside of the Kingdom of Cambodia.

Company Obligations: Labor Filing , Annual Declaration

Upon opening a business, employers must make a declaration to the Ministry of Labor. This declaration, called the Declaration of the Opening of a Business, must be made in writing and be delivered to the Ministry of Labor before the actual opening of the business. Employers must also make a declaration to the Labor Inspector each time that the business hires or dismisses a worker. This declaration must be made in writing within seven calendar days after the date of hiring or dismissal. Each partnership or company must file an annual declaration with the Ministry of Commerce concerning the status of the partnership or company.

No. 84 Monireth Blvd Phnom Penh Cambodia P.O. Box No. 172 Phone: (855-23) 217 510 Fax: (855-23) 212 840 E-mail: [email protected] Webpage: www.bngkh.com

With some of the brightest legal minds in the country, BNG offers a truly multidisciplined approach to conducting business within the Kingdom of Cambodia. BNG offers a range of services suited to the investor in Cambodia including Property Consultancy, Intellectual Property matters, Construction, Telecommunications and Energy. BNGs strength lies in our superior knowledge of local protocol, local procedure and local people. BNG helps you do business in Cambodia!