Cambodian Business Law Textbook PDF 2025

CAMBODIAN BUSINESS LAW STUDENT STUDY TEXT EXAMS ACCREDITED BY THE ACCA FOR EXAMS UP TO AND PREPARED BY LEGAL EXPERTS JANUARY - JUNE 2025 LECTURE NOTES CAMBODIAN BUSINESS LAW JANUARY JUNE 2025 ISBN 9789924923565 9 789924 923565 FOR...

CAMBODIAN BUSINESS LAW STUDENT STUDY TEXT EXAMS ACCREDITED BY THE ACCA FOR EXAMS UP TO AND PREPARED BY LEGAL EXPERTS JANUARY - JUNE 2025 LECTURE NOTES CAMBODIAN BUSINESS LAW JANUARY JUNE 2025 ISBN 9789924923565 9 789924 923565 FOR MORE INFORMATION: 64 Street 108, Phnom Penh 070 673 673 / 010 986 523 | Telegram: 078 588 886 [email protected] | www.cam-ed.edu.kh Cambodian Business Law COPYRIGHT © 2024 BY CAMED BUSINESS SCHOOL ALL RIGHTS RESERVED. NO PART OF THIS PUBLICATION MAY BE REPRODUCED, DISTRIBUTED, OR TRANSMITTED IN ANY FORM OR BY ANY MEANS, INCLUDING PHOTOCOPYING, RECORDING, OR OTHER ELECTRONIC OR MECHANICAL METHODS, WITHOUT THE PRIOR WRITTEN PERMISSION OF THE PUBLISHER, EXCEPT IN THE CASE OF BRIEF QUOTATIONS EMBODIED IN CRITICAL REVIEWS AND CERTAIN OTHER NONCOMMERCIAL USES PERMITTED BY COPYRIGHT LAW. FOR PERMISSION REQUESTS, WRITE TO THE PUBLISHER, AT THE ADDRESS BELOW. CAMED BUSINESS SCHOOL 64 STREET 108 PHNOM PENH CAMBODIA WWW.CAM-ED.COM [email protected] CamEd Business School i  Cambodian Business Law ii CamEd Business School Cambodian Business Law CONTENTS Chapter 1 - Essential Elements of the Cambodian Legal System............................ 3 Chapter 2 - The Formation and Constitution of Companies................................... 17 Chapter 3 - Legal Personality of Companies........................................................... 34 Chapter 4 - Labour Law........................................................................................... 50 Chapter 5 - Contract Law........................................................................................ 101 Chapter 6 - The Law on Commercial Enterprises, and other related laws............. 119 Chapter 7 - Identifying the Different Forms of Companies, Associations and Non-Governmental Organizations...................................................... 129 Chapter 8 - Property............................................................................................... 149 Chapter 9 - Management, Capital, and Financing of Companies........................... 163 Chapter 10 - Corporate Governance and Ethics....................................................... 177 Chapter 11 - Dispute Resolution and Insolvency...................................................... 185 Chapter 12 - Other Relevant Laws............................................................................ 207 CamEd Business School 11  Cambodian Business Law 2 CamEd Business School Cambodian Business Law Chapter 1 Essential Elements of the Cambodian Legal System Topic List 1. Law and its Sources 2. Types of Law (or Classifications of Law) 3. The System of Courts Introduction In this chapter, we set the scene and framework of the Cambodian legal system, notably an overview of Cambodian law and legal system. We start by discussing what law is and why it is important to society. Our study continues by considering the different types of law that exist in the Kingdom of Cambodia and how they have developed over time. Just as an understanding of the profit motive in our competitive economic system is essential for an educated businessperson, so is knowledge of the law, its processes, our legal system, and the legal environment. This chapter deals with those essential principles and procedures of the general Cambodian legal system that underpin more specialized study of particular topics. It is necessary to understand where the law comes from and how, where and by whom it is applied. In relation to domestic sources of law, attention can be divided between statutory law and international treaties and conventions. 1. Law and its Sources Under Cambodian jurisdiction, law, in its generic sense, is a body of rules of action or conduct prescribed by controlling authorities, and having binding legal force. Law is in theory made up of four elements: - Formal legislation, including the Constitution, laws, and treaties/conventions; - Rules of law announced by the courts in deciding cases (precedents set by high courts); - Customary practice well established in certain industry; and - Legal concepts (doctrine) which forms the basis of judicial interpretation and action. The study of law essentially concerns “rules of law.” A rule of law is a statement that if certain facts exist, the courts will take action or refuse to take action at the request of someone involved. Facts create legal issues that are resolved by using rules of law. 2 CamEd Business School 3  Cambodian Business Law 1.1 Overview of the Cambodian Legal System The current legal system of Cambodia is based on the 1993 Constitution (with numerous subsequent amendments) which adopted a free market economy model and a version of liberal democracy in which the King does not hold powers and basically holds ceremonial roles as the Head of State. Although Parliament consists of two houses-- the National Assembly and the Senate--it is the National Assembly that elects and dismisses the Prime Minister. Historically, Cambodia was under French colonial rules for almost a century beginning in 1863 when France became the Protectorate. A strong version of colonization started in 1884 and continued until late 1953 when the French colonization officially ended. Obviously, during those years, France would have introduced various regulations to modernize the state machinery. French influences are still present in many fundamental laws today. For instance, the 2007 Criminal Procedure Code and the 2009 Criminal Code were drafted with the assistance of French legal experts. Much earlier, the draft of the 1997 Labour Law was fully written in French language. Cambodia has been receiving legal assistance from many countries over the years. The 2006 Civil Procedure Code and the 2007 Civil Code were drafted by Japanese legal experts. Immediately after Cambodia had become a member to the World Trade Organization (WTO) in 2004, legal experts versed in American legal tradition hurriedly helped to finalize the 2005 Law on Commercial Enterprises. The current Rules applicable to the proceedings used at the Cambodian National Commercial Arbitration Center are a perfect representation of those used by the Singapore International Arbitration Centre. Thus, in a nutshell, the Cambodian legal system includes elements from the Civil Law tradition (where most legal rules are codified in advance) and the Common Law tradition (where judges can make many legal rules out of cases). Legal System in Transition Cambodia’s legal system and legal institutions currently present a somewhat complex labyrinth. However, the situation has become less confusing following the accession of Cambodia to the World Trade Organization (WTO) and the passing of several key commercial laws. Cambodia’s ongoing transformation into a democratic and capitalist free market system has resulted in many new laws and regulations being passed, new policies being implemented, and the modification of the judicial institutions. 1993-Present: Constitutional Monarchy The Kingdom of Cambodia and the Royal Government of Cambodia came into being in 1993 in the form of a constitutional monarchy. The constitution, adopted on September 21, 1993 as the supreme law of the land, establishes a judiciary separate and independent from the executive and legislative branches of government. The executive branch, called the Royal Government of Cambodia, is comprised of a prime minister, the Council of Ministers, the ministries, provincial and municipal authorities, and various other government agencies. The legislative branch is comprised of a National Assembly and a Senate (created under 1999 amendments to the constitution). The judicial branch is composed of municipal and provincial courts, Courts of Appeal (three new Courts of Appeal have recently been established, in TbaungKhmum, Battambang and Sihanouk Ville, thereby bringing the total number of Courts 3 4 CamEd Business School Cambodian Business Law of Appeal to four) and the Supreme Court. The constitution requires elections for National Assembly members at least once every five years. The National Assembly then chooses the prime minister and all other ministers by an absolute majority vote (Constitution, Art 90). Current Status of Legal Reform and Future Trends With the impetus of WTO accession, the government has been steadily preparing and submitting to the National Assembly various laws that have been transforming Cambodia’s legislative and regulatory infrastructure. The new laws and regulations combine aspects of the pre-1975 French Civil Code system with legal principles from common law systems. Cambodia is particularly interested in ensuring that its legal system integrates successfully with those of the other members of the Association of Southeast Asian Nations (ASEAN). The current National Assembly has adopted over 550 laws (amendment laws included) since it was formed in 1993. Some significant examples include the Law on Commercial Enterprises (equivalent to a “companies law” or “corporations law” in other jurisdictions), as well as the Law on Negotiable Instruments and Payment Transactions, the Secured Transactions Law, the Civil Code, the Customs Law, the Law on Standards, the Insolvency Law, the Anti-Corruption Law, and the Law on Anti-Money Laundering and Combating the Financing of Terrorism. Other important laws have also been enacted recently, such as the Foreign Ownership Law, Expropriation Law, Financial Leasing Law, Trust Law, E-Commerce Law, Consumer Protection Law and Social Security Law. Further laws are expected soon, including the Notary Public Law and the new Commercial Contract Law, as well as many other laws touching on nearly all aspects of business activity, which are being drafted by various ministries with the technical assistance of several donor countries. The Law on Competition was adopted in 2021 and its enforcement mechanism is being put in place. 1.2 Legal Hierarchy In the current legal system of Cambodia, the hierarchy of laws and regulations may be understood as shown in Table (below): Table of Hierarchy of Legal Norms in Cambodia 1) The Constitution: The Supreme Law of the Kingdom of Cambodia. 2) Treaties and Conventions: According to Article 26 of the Constitution, the King shall sign and ratify international treaties, both multilateral and bilateral, and conventions, following the approval of the National Assembly and Senate. After such ratification, international treaties and conventions shall become laws and may be used as the basis for judicial decisions. 4 CamEd Business School 5  Cambodian Business Law 3) Laws (Chhbab): Laws are adopted by the National Assembly and the Senate. The King then signs Preah Reach Kram to promulgate an enacted law. 4) Royal Decree (Preah Reach Kret): To be issued under the name of the King for executing his constitutional powers. Since the King does not govern (Constitution, Art.7), most Royal Decrees are indeed formulated by the Executive. 5) Sub-Decree (Anu-Kret): To be signed by the Prime Minister after adoption by the Council of Ministers. In case the sub-decree has not been adopted by the Council of Ministers (such cases are rare), countersignature by the Minister(s) in charge shall be required. The so-called Executive Power is most evidently expressed in Sub-Decrees (Anu-Kret). The Prime Minister also exercises his power via Decisions and Circulars (‘circular’ is to provide clarity on certain measures or give relevant instructions). 6) Ministerial Order (Prakas): To be issued by members of the government in exercising their own regulatory powers. Ministers also exercise their powers via Decisions and Circulars. 7) Deika or Decisions: At province and district levels, both Deika (normative) and Decisions (executive) are issued (Law in 2008). At commune level, Deika is used. Of all the three local levels, only communes are decentralized in the sense of ‘local government’ (Law in 2001) as understood in the west. 1.3 Legislative Process The process of legislation-making at the National Assembly is shown in the flow chart below. After the adoption by the National Assembly, the Senate reviews the bill, if approved, followed by the Royal Kram of the King to promulgate the bill into Law. Often, a preliminary review of proposed law is undertaken by the Private Sector Working Group, the Judicial Council and the Economic, Social and Cultural Council before the draft law is sent to Council of Ministers (Cabinet) for examination. 5 6 CamEd Business School Cambodian Business Law Submission of draft law to Decision by the Vote on the Law drafting Examination inter- Cabinet adoption ministerial meeting Reviewing Commission National Assembly Submission of Submission of Examination Vote on the draft law to law to the King the Senate ratification for signature Senate Figure 1 Legislative Process 2. Types of Law (or Classifications of Law) The overall body of laws can be overwhelming. To study it, one must break it down by classification. No single classification system can cover such as large mass of information; consequently, those systems that have been devised tend to overlap. Moreover, they are, of necessary, arbitrary in some aspects. A discussion of the best-known systems follows. 2.1 There are several ways in which legal subjects can be classified. 2.2 Public Law and Private Law. (a) Public law includes, to cite a few, constitutional law, administrative law, and criminal law. In public law the interests of society are represented by the state/government. (b) Private law involves those legal relationships which exist between private parties. Private law is divided into the law of contracts, the law of torts, the law of property, family law...etc. 2.3 Substantive Law and Procedural Law. (a) Substantive law includes all laws that define, describe, regulate, and create legal right rights and obligations. For example, a rule stating that promises are enforced only when each party has received something of value from the other party is part of substantive law. So, too, is a rule stating that a person who has injured another through negligence must pay damages. (b) Procedural law deals with the means by which substantive law is made and administrated, notably procedural law establishes the methods of enforcing the rights established by substantive law. Questions about how a lawsuit should begin, what papers need to be filed, which court will hear the suit, which witnesses can be called, and so on are all questions of procedural law. Rules involving the process of 6 CamEd Business School 7  Cambodian Business Law conducting trials, appeals, and enforcement of judgments are examples of procedural law. For instances, recent adoptions of civil procedure code and criminal procedure code, Law on the Organization of the Courts, Law on the Statute of Judges and Prosecutors and Law on Organization and Functioning of the Supreme Council of the Magistracy are examples of procedural laws. Illustration In brief, substantive law tells us our rights; procedural law tells us how to exercise them. 2.4 Civil Code and Criminal Code Civil Code (enacted in 2007, became effective in late 2011) is concerned with the duties that exist between persons or between citizens and their governments, excluding the duty not to commit crimes. Contract law, for example, is part of the civil code. Criminal Code, in contrast to civil code, is concerned with wrongs committed against the public as a whole. Criminal acts are prohibited by state/government. Illustration The term Civil Law, does not refer to civil as opposed to criminal law, but to a codified set of laws – an ordered grouping of legal principles enacted into law by a legislature. In a Civil Law tradition system, the statutory code is the primary sources of law, and case precedents are not automatically judicially binding as they are in a common law tradition system. This is not to say that precedents are unimportant in a civil law system. On the contrary, judges in such systems commonly refer to previous decisions as sources of legal guidance. The difference is that judges in a civil law system are not bound by precedent, the doctrine of stare decisis (Latin means “to stand on decided cases”) does not apply. Note that the recent Law on Court Organization in 2014 in Cambodia makes interpretations by Supreme Court settling disputes over competence and legal interpretations binding upon all chambers of the Supreme Court and all other courts (Art 63), thereby potentially leading gradually toward the doctrine of stare decisis to some extent. Illustration In brief, Criminal law is always public law, whereas, civil law is sometimes public and sometimes private. In criminal case, the government seeks to impose a penalty on an allegedly guilty person. In a civil case, one party (sometimes the government) tries to make the other party comply with a duty or pay the damage caused by failure to so comply. 7 8 CamEd Business School Cambodian Business Law Exam Guide - Explain the difference between public law and private Law. - Explain the difference between substantive law and procedural law - Explain the difference between civil law and criminal law. 3. The System of Courts 3.1 Overview of Cambodian Judicial System and Structure of the Court System The current Law on Court Organization was enacted in 2014. At present, the Cambodian judiciary consists of one Supreme Court, four Court of Appeals, twenty-five Provincial/Municipal Courts, notably a number of courts of first instance located in each province and municipality, and the Military Court as well as the specially created hybrid court which is known as the Extraordinary Chambers in the Courts of Cambodia (ECCC). (a) The Court of Appeals and the Supreme Court The Court of Appeal reviews both questions/matters of law (Ang Chbab) and fact (Ang Het), while the Supreme Court only hears questions/matters of law (Ang Chbab), with some exceptions in the case of a joint trial of the second grievance complaint the Supreme Court may render a final decision on both law and facts. As of June 2022, there are 4 Courts of Appeals (Phnom Penh, Battambang, Sihanouk Ville, and TbaungKhmum). (b) The Phnom Penh Municipal Court of First Instance The Phnom Penh Municipal Court of First Instance is the court most frequently used by commercial litigants. This court is generally regarded as being overburdened, and at times suffers from a lack of clerks, prosecutors, and magistrates with substantial knowledge and experience in adjudicating commercial matters. Other courts are similarly overburdened and understaffed. The lower courts preside over all types of legal matters, including civil, criminal, insolvency, and commercial disputes. A dissatisfied litigant may appeal a municipal court’s decision to the Court of Appeals, which will review both questions of law and fact. A final appeal may be taken to the Supreme Court, but generally only on questions of law. The Supreme Court will review questions of both law and fact only in exceptional and rare circumstances. Such a rare circumstance may occur when the Supreme Court sends a case back to the Court of Appeals for further action, and the ensuing decision of the Court of Appeals is subsequently re-appealed to the Supreme Court. A significant development that has provided much greater certainty as to civil proceedings in the courts of Cambodia was the adoption of the Code of Civil Procedures on July 6, 2006. Among other things, the Code of Civil Procedures contains provisions for the recovery of certain legal costs incurred during litigation, and provides greater certainty on the rules of evidence including specific provisions relating to oral and documentary evidence, expert evidence, and the discovery of evidence prior to trial. 8 CamEd Business School 9  Cambodian Business Law Significantly, the Code of Civil Procedures also provides for legal recognition of sales in execution, enabling successful litigants to proceed against the assets of another party in settlement of the disputed claim. Furthermore, rules relating to appeals are more specifically addressed. The Code of Civil Procedures provides for appeals from judgments of the court of first instance (uttor appeal), appeals from decisions of a court of appeals (satuk appeal), and appeals from court rulings (chomtoah appeal). Court rulings are distinguished from judgments in that they are made by courts without reference to oral argument. The Code of Civil Procedures remains a relatively new body of legislation and the courts have yet to fully implement and interpret all of its provisions. Nonetheless, it represents a significant step forward in the development of Cambodia’s civil litigation procedures. (c) The Military Court The Military Court has jurisdiction only over military offenses. Military offenses are those involving military personnel, whether enlisted or conscripted, and which concern discipline within the armed forces or harm to military property. All ordinary offenses committed by military personnel are tried in ordinary courts (provincial/municipal courts). (d) The Commercial Court and Labor Court The Commercial Court and Labor Court have not yet been established as separate bodies. However, at each court of first instance, the 2014 Law provides that there are specialized chambers in criminal, civil, labor and commercial matters. (e) The Constitutional Council and Supreme Council of the Magistracy In addition to these courts, there is a Constitutional Council (CC), which is not part of the judiciary, established to decide on the constitutionality of laws and regulations. The CC was established in April 1998 under the Law on the Organization and Functioning of the Constitutional Council. The main responsibilities of the CC are to ensure respect for the constitution, interpret the constitution, determine whether laws and regulations comply with the constitution, review judicial rulings dealing with constitutional issues, and rule on specific election-related disputes. The CC has a duty to safeguard respect for the Constitution, interpret the Constitution and laws adopted by the National Assembly (and reviewed completely by the Senate), and has the right to receive and decide on disputes concerning the election of members of the National Assembly and election of members of the Senate. There is also a Supreme Council of the Magistracy, which was established in December 1994 under the Law on the Organization and Functioning of the Supreme Council of the Magistracy. This body is established to help guarantee the independence of the judiciary, to discipline bad judges, and to ensure the proper functioning of the court system. 9 10 CamEd Business School Cambodian Business Law The Supreme Council of the Magistracy has a duty to decide and make proposals to the King on the appointment, transfer, leave of absence, delineation of duties, promotion and dismissal of judges and prosecutors at all courts and takes disciplinary action against delinquent judges. Despite having different responsibilities, Cambodian judges and public prosecutors are both categorized as Chaokrom (magistrates). Chaokrom in its general sense is a title in the Cambodian judicial system that refers not only to judges who sit at trial but also to those who hold the position of public prosecutors. A judge involved in a trial or investigation is called Chaokrom Angkuy (sitting judge). A judge holding a position in the prosecutor department (Ayakar) is called Chaokrom Chhor (standing judge). Exam Guide - The municipal and provincial courts hear all types of matter, civil, criminal, insolvency, etc. - The Phnom Penh Municipal Court of First Instance is the most frequently used court for hearing commercial disputes. 3.2 Mediation and Commercial Arbitration in Cambodia Historically, the courts were the only judicial, or quasi-judicial, means available in Cambodia for the resolution of commercial disputes. Certain ministries will act as a mediator on a case- by-case basis, but such mediation lacks judicial, and therefore execution, authority, and becomes binding only if accepted contractually by the disputing parties. Even when a ministry has the legal authority to mediate a dispute – such as the Ministry of Labor and Vocational Training (MLVT) in individual employment disputes, or the Ministry of Land Management, Urban Planning, and Construction (MLMUPC) through different cadastral commissions in relation to unregistered land disputes – a party dissatisfied with the result may bring the matter to court. Please refer to Chapter 11 – Dispute Resolution and Insolvency, for a thorough discussion on resolution of commercial disputes in Cambodia. 3.3 Foreign Arbitration Cambodia is a signatory to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Under the New York Convention, generally, arbitral awards properly issued by reputable arbitral tribunals in jurisdictions which are also parties to the New York Convention, can be enforced in Cambodia. Prior to 2014, however, there had not been a successful attempt to enforce a foreign arbitral award in Cambodia. In 2014, the Supreme Court of Cambodia confirmed a decision of the Cambodian Court of Appeal which ruled in favor of recognition and enforcement of an arbitral award issued by the Korean Commercial Arbitration Board (“KCAB”) of Seoul, South Korea, marking the first successful attempt to enforce a foreign arbitral award in Cambodia. 3.4 Investor-State Arbitration under the ASEAN Comprehensive Investment Agreement Globally, under investment law, arbitration is often considered the primary option for foreign investors wishing to pursue claims against a host State. Provisions on investor-State dispute 10 CamEd Business School 11  Cambodian Business Law settlement mechanisms are incorporated within most international investment treaties and bilateral investment agreements. The ASEAN member states have adopted the ASEAN Comprehensive Investment Agreement (ACIA) as part of the region’s ASEAN Economic Community (AEC), having a goal to transform ASEAN into a single market, highly competitive economic region and achieve regional economic integration by 2015. The ACIA offers a range of protections for entitled investments which are ensured by a number of obligations imposed on member states. These include the obligation to provide fair and equitable treatment, national and most-favored nation treatment, as well as full protection and security and the obligation to offer protection from expropriation. In order to benefit from the protections set out in the ACIA, an investment must be a “Covered Investment” as defined in Article 4 (a) of the ACIA. Specifically, a Covered Investment is an investment made by an investor of one member state in the territory of another member state which have been admitted to its laws, regulations, and national policies, and where applicable, specifically approved in writing by the competent authority of the member state. To qualify as a “Covered Investment”, the investment must fall under the definition provided in Article 4 (c) of the ACIA which states: “every kind of asset, owned or controlled by an investor”, including but not limited to: movable and immovable property, shares, stocks, intellectual property rights, claims of money, etc. ACIA benefits apply to investors from member states, including both natural and juridical persons, and extends its protection to investors from outside ASEAN who set up a juridical entity in any of the member states, provided, however, that such entity must carry out substantial business activities in the ASEAN member state. A juridical entity which is established in a member state, but does not carry out substantial business activities in that member state, can be denied the protections of the ACIA in the event that such juridical entity invests in another member state (Article 19 of the ACIA). Benefits of the ACIA can also be denied if the investor is a juridical person of a member state but is controlled by an investor of a non-member state. According to Article 19 (3) of the ACIA,”a juridical person is “controlled” by an investor if the investor has the power to name a majority of its directors or otherwise to legally direct its actions.” These measures exist to deter the use of mere shell companies and to deter “Treaty Shopping” which consists of the use of a treaty contrary to its object or purpose. The ACIA requires parties to an investment dispute to try to resolve the dispute by consultation and negotiation, prior to initiating a claim whether under local courts or arbitration. If the dispute has not been resolved within 180 days of the receipt by the member state of a request for consultations, the investor may submit their claim under host state courts or under arbitration. Under the ACIA, an investor may submit a dispute against a member state to the International Center for Settlement of Investment Disputes Convention (ICSID Convention), or in accordance with the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, or with the Regional Center for Arbitration at Kuala Lumpur, or to any other arbitration institutions agreed to by the parties. 11 12 CamEd Business School Cambodian Business Law Chapter Roundup – Historically, the system of laws in Cambodia has been influenced by the French system, the Vietnamese-based communist system, the United Nations Transitional Authority, among others. – The system of government of Cambodia is a constitutional monarchy, having separate judiciary, executive, and legislative branches. – The Constitution is the supreme law of the Kingdom of Cambodia. – Civil Law is law that is codified (Civil Code), meaning written law. – Public Law is law whereby the interests of society are represented by the state/government, including criminal law, constitutional law, and administrative law. – Private Law involves legal relations between private parties, such as contract law, tort law, and property law. – For commercial disputes, such as those arising from a breach of a commercial contract, the parties to the dispute may choose to submit the matter to arbitration rather than to courts. 12 CamEd Business School 13  Cambodian Business Law Quick Quiz 1. Fill in the blanks in the statement below: 1.1 In terms of the legal hierarchy in Cambodia (1) ……………… are adopted by the National Assembly, (2) ……………………..…… and (3)…………………………………… are issued under the name of the King, (4) ………………………………….. are signed by the Prime Minister after adoption during a Cabinet Meeting, and (5) …………………………………… are individual decisions of the Prime Minister, Minister, or Governor, used in exercising their own regulatory powers. 1.2 The legislative branch of government is made up of the (6) ……………………………………. and the (7) ………………………………………… 1.3 The judicial branch is made up of the (8) …………………………………………………… courts, a court of (9) …………………………………………., and (3) the (10) ……………………………………… court. 2. Treaties and conventions must be ratified by the King in order to become law. True  False  3. After a law is adopted by the Senate, it then goes to the National Assembly for examination. True  False  4. In a civil law system, statutory code is the primary source of law. True  False  5. Explain the difference between public law private law. 6. Describe the three levels of courts and the function of each. 7. What options are available for dispute resolution of commercial / contract disputes? 13 14 CamEd Business School Cambodian Business Law Answers to Quick Quiz 1. 1.1 (1) Laws, (2) Royal Krams, (3) Royal Decrees, (4) Sub-Decrees, (5) Decisions. 1.2 (6) National Assembly, (7) Senate. 1.3 (8) Municipal and Provincial, (9) Appeal, (10) Supreme. 2. True 3. False 4. True 5. Public law is law where the interests of society are represented by the state/government, and includes such laws as constitutional law, administrative law, and criminal law. Private law is law that involves relationships between private parties, including contract law, torts law, and property law. 6. The three levels of the courts are the municipal and provincial courts, the Court of Appeal, and the Supreme Court. The municipal and provincial courts are the courts of first instance. They hear all kinds of legal matters including civil claims (such as breach of contract), criminal matter, insolvency cases, etc. The Court of Appeal reviews questions of law and fact on appeal from the municipal and provincial courts. The Supreme Court is the highest court in Cambodia, and hears appeals based on questions of law only, with certain exceptions in which it will hear questions of fact. 7. For resolving commercial / contract disputes in Cambodia, parties may file a claim with the courts, or the parties may agree to submit the dispute to mediation in Cambodia, arbitration in Cambodia, or arbitration outside Cambodia (foreign arbitration). 14 CamEd Business School 15  Cambodian Business Law 16 CamEd Business School Cambodian Business Law Chapter 2 The Formation and Constitution of Companies Topic list 1. Fundamental Conditions for Company Formation 2. Key Characteristics Related to Company Formation 3. Primary Documents for Establishing a Company 4. Formalities of Establishing a Company 5. Sanctions for Non-Compliance 1. Fundamental Conditions for Company Formation The Law on Commercial Enterprises (LCE) was adopted in 2005. In January 2022, the LCE was amended affecting numerous Articles. Likewise, the Law on Commercial Rules and Commercial Registration was adopted in 1995, amended once in 1999 and again in 2022. Important changes brought about by these amendments will be noted wherever appropriate. A company comes into existence at the date shown in the Certificate of Incorporation issued by the Ministry of Commerce (“MOC”). The company has the capacity, rights, powers and privileges of a natural person and the capacity to carry on its business in Cambodia or in any other jurisdiction to the extent the laws of such jurisdiction permit. The legal effects of the Certificate of Incorporation delivered to the company are as follows: - The company becomes a legal entity, independent from its shareholders and directors; - The articles of incorporation of the company are binding on the company and its shareholders and directors; and - The liability of the shareholders of the company becomes limited if the company is registered as a limited liability company. For a more thorough discussion of the legal personality of companies, their duration, and dissolution, please refer to Chapter 3 – Legal Personality of Companies. 15 CamEd Business School 17  Cambodian Business Law 2. Key Characteristics Related to Company Formation Here, we dicuss different forms of companies available under Cambodian law and certain key charateristics and registration requirements of each. For a more detailed discusson of the characteristics and formalities of each type of business entity, see Chapter 7 – Identifying the Different Forms of Companies based on Cambodian law. 2.1. Sole Proprietorship By virtue of amendments in January 2022 to the Law on Commercial Enterprises, a sole proprietorship is an enterprise which is established and operated by a single natural person who is the owner of all of its capital. The operator of the sole proprietorship is called a sole proprietor. Before the amendments in 2022, the Law on Commercial Enterprises (LCE 2005) did not have specific provisions on Sole Proprietorship but The MoC architect of the business online registration had to recognize this fact and made an entry available for sole proprietorship anyway (alongside other forms duly recognized by LCE 2005). Introduced by the amendments in 2022, Sole Proprietorship has finally been incorporated in the LCE. The obligations and liabilities incurred in the operation of the sole proprietorship are the obligations and liabilities of the sole proprietor and thus are his or her sole and exclusive responsibility. The sole proprietorship is not required to have articles of incorporation and bylaws for its existence. In a sole proprietorship, all accounts, contracts, property, and licenses are taken in the name of the owner (the sole proprietor/entrepreneur). The sole proprietor has independent control of the business and rights to all profits. Profits of sole proprietorship are taxable under the Law on Taxation. He or she is also personally liable for all debts and obligations of the business. The sole proprietor provides all the start-up capital - sometimes this may involve a bank loan secured by a mortgage on the sole proprietor’s assets or an unsecured loan. The business does not continue after the proprietor has become incapacitated (i.e. death, insanity…etc.). There is no requirement for a Sole Proprietorship to have a company secretary. Registration A sole proprietorship must register with the Commercial Registration Bureau of the Ministry of Commerce through the automated (online) registration system, currently at: registrationservices.gov.kh/ From a tax perspective, a sole proprietorship that meets the following conditions must register with the General Department of Taxation as a self-assessment taxpayer based on Prakas 025 dated 24 January 2018: having an annual turnover from KHR250 million to KHR700 million; having a turnover of three consecutive months which ends in the current calendar year from KHR60 million; expecting to have a turnover in three consecutive months from KHR60 million; OR 16 18 CamEd Business School Cambodian Business Law participating in bidding, pricing consultation or price survey in supplying goods or service including tax on goods sale. 2.2. Partnerships Partnerships are a common form of business entity for many professionals like doctors, lawyers, auditors and accountants. They often share facilities, where a sole proprietor may be unable to. It is also very common for small businesses to operate as partnership, as it enables startup capital and expertise to be drawn from a number of partners. Partners, like sole traders, often raise their contributions through a bank loan and are also personally liable for business debts. Under the Law on Commercial Enterprises 2005, there are two types of partnerships: (1) general partnerships; and (2) limited partnerships. General Partnership. A General Partnership is created any time by two or more persons associated to carry on a business as co-owners to share profits and control. Partners may combine their property, knowledge or activities (in cash, in kind or past/future services. LCE Art.16). When a partner contributes a property, he shall transfer ownership or enjoyment over that property to the general partnership. When a partner contributes his knowledge or activities, the books and records shall indicate so. When a partner contributes cash but has not done so, he shall owe interest to the general partnership (LCE, Art.18, 19, 20). Contributions in cash and in kind form the capital of the general partnership. In-kind contributions shall be valued, and all partners shall agree to this valuation. Contributions in knowledge, activities, services are, however, not included in the computation of the capital (LCE, Art. 21). In principle, partnership property shall be used solely for the benefits of the general partnership but each general partner may use that property for personal matters if the other general partners all agree. The name of a general partnership shall include the name of one general partner at least, and the words “general partnership” shall be placed at the end or below that name. Its creation requires no complicated legal documentation. Indeed, a simple partnership contract could be all that is needed and may be verbal or in writing (often called Shareholders Agreement). If there is a written partnership contract, all partners must sign it. Unless agreed otherwise, a general partnership dissolves upon the death, bankruptcy, or withdrawal of any partner. General Partners are placed in a position of trust with each other and have the following duties: (1) to make full disclosure to each other of all issues relevant to the business; (2) to declare any personal financial benefit received by a partner in carrying out the firm’s business; and (3) not to compete with the Partnership without the consent of the other partners. Partnership has no legal existence distinct from its members in the sense that all the general partners are personally liable for its debts and other legal obligations. Legal action can be taken against a partnership in the name of the partnership, but the partners each remain jointly or severally liable for the obligations and debts of the partnership (LCE Art.42). The phrase “jointly and severally liable” means a partner is jointly liable with the other partners (he cannot say that he is not liable), and he is also severally liable for everything for which the 17 CamEd Business School 19  Cambodian Business Law firm becomes liable. By virtue of being “severally liable”, a partner may be forced to pay all the debts the partnership owes (of course, he will, later on, claim repayment from his partners, LCE Art.28). A general partner cannot be banned from taking profits but may be exempted from losses (such exemption is not effective against third parties, however. LCE Art. 23). Unless otherwise specified in the partnership contract, the partners’ interest in the assets, profits and losses are assumed to be equal. This legal assumption should make partners be more self-conscious and act more carefully because an act by a partner or the manager (chosen by the partners) in the ordinary course of the partnership business automatically binds the whole partnership; partners may not make any exception to this (LCE Art. 35, 37, 40). Contractual obligations taken by a general partner even in his own name still bind the partnership if such contracts are within the scope of the partnership business. Note that general partners cannot earn wages from employment in the general partnership (LCE Art. 26). The general partners may determine their respective powers in the management of the general partnership. They usually do so via specific provisions in the partnership contract. While a general partnership comes into existence on the day the partnership contract becomes effective, in order for the partnership to acquire a separate legal personality from the partners, it shall be registered with the Ministry of Commerce. There are benefits for registering it because upon such registration, it will officially have the following rights: a) right to own movable and immovable property in its own name, b) right to carry on business in its own name (i.e., using a stamp), c) right to contract in its own name, and d) right to sue or be sued in its own name. Such registration has an additional significance in litigation because third parties must first try to enforce against the partnership assets prior to going after the partner’s own assets (LCE Art. 42). Under the 2022 amendments, there is no requirement for a general partnership to have a company secretary. Normally, a general partnership makes decisions based on majority. However, key decisions such as admitting a new partner or allowing a partner to pledge his share as guarantee in his personal obligation or allowing him to transfer his interest in the general partnership requires unanimous agreement from all general partners (LCE Art 31,32, 33). A new partner is liable for the existing debt of the general partnership prior to his admission as if he had been general partner at the time the debt was incurred. However, the creditors of the prior debt may not seek enforcement against the new partner’s personal assets unless he agrees in writing (LCE Art. 43). A general partner ceases to be such in any of the following manners: withdrawal, expulsion, under supervised bankruptcy process, transfer of all his interests, or death (LCE Art. 48). A general partnership may be dissolved in any of the following manners: termination of the partnership’s object (business objective); impossibility in accomplishing the object; unanimous consent of all partners; court decision (LCE Art. 53). The 2022 amendments require appointment of a licensed auditing firm or a licensed accounting firm (licensed by the ACAR-Accounting and Auditing Regulator) as the liquidator in the liquidation process. The 18 20 CamEd Business School Cambodian Business Law liquidator must keep books and records of the liquidation for five years following the closing of the process (LCE, Art. 59, 62). Limited Partnership. In a Limited Partnership, there always is a combination of one (or more) person who is general partner and one (or more) limited partner who only contributes to the capital of the partnership. Although the limited partners are bound to contribute to the capital of the partnership, the general partners are the only persons authorized to manage and bind the partnership. The contract to form a limited partnership can be verbal or in writing. If made in writing, all the general partners and at least one limited partner must sign it. It is worth noting that a limited partnership is born only upon registration with the ministry of commerce; failure to do so will make it become a general partnership without a legal personality status (LCE Art. 67). The name shall include at least one name of a general partner, followed by the words “limited partnership”. A limited partner may contribute cash or property only. A general partner’s contribution to the capital may be in cash, in-kind, in services actually rendered or future services. Unlike the general partners whose liability is unlimited (jointly and severally), the limited partner’s liability is only up to the amount of his contribution to the capital (LCE Art. 82). However, if the name of a limited partner also appears in the name of the firm, he will be treated in the same manner as a general partner unless his status as a limited partner is so clearly indicated (LCE Art. 73). Moreover, if a limited partner action amounts to some importance such as negotiating on behalf of the firm or lending his name to the name of the firm or being as an agent of the firm or other comparable actions, that limited partner may be held in the same manner as a general partner, thereby, becoming liable for the debt of the firm (LCE, Art. 79). A limited partner who works for the firm may receive wages for his employment. In order to commit limited partners to the firm, a limited partner may not withdraw any part of his contribution unless the majority of other partners agree and if the remaining property after withdrawal is sufficient for the firm to discharge its debt. Moreover, the limited partner who has transferred (sold) his interest remains liable for the obligation to third parties up until the time he was still a partner (LCE Art. 78) In practice, to avoid future uncertainty, when a limited partner leaves the firm for good, proper legal arrangements must be made to clarify the debt of the departing limited partner. In the event general partners can no longer act, the limited partner may administer the partnership. If, after 120 days, new general partners have not been installed, the limited partnership is dissolved (LCE, Art. 80). In case of liquidation, a limited partner may make a claim only after claims by other creditors have been satisfied. Other rules governing general partnerships also apply to limited partnerships. 19 CamEd Business School 21  Cambodian Business Law It is not uncommon that partners often enter into the so-called Shareholders Agreement (also known as Partners Agreement) which specifies important areas such as how major decisions are taken, how contributions are made and how dividends are declared (see more below 3.2). Registration All registrations now are done through the automated (online) registration system, currently at: registrationservices.gov.kh/ 2.3. Limited Liabiltiy Company A limited liability company (“LLC”, more commonly known here as “Co., Ltd”) is managed by officers and directors and funded by capital provided by shareholders. It can have as few as one (1) shareholder or can have many shareholders. The company provides a framework for a business to own property, enter into contracts, and engage in legal action without putting the assets of its shareholders at risk, other than to the extent of their shareholding in the company. Companies are constituted through a process that leads to the filing of articles of incorporation (“AoI”) at the MOC, now via the online registration at: registrationservices.gov.kh/. An LLC is the most common legal business form. When a LLC is created, it has a distinct legal identity and exists independently of its shareholders and it continues to exist despite the death, withdrawal or retirement of the shareholders, until it is wound up in accordance with the Law on Commercial Enterprises 2005 (LCE 2005). The 2022 amendments require appointment of a licensed auditing firm or a licensed accounting firm (licensed by the ACAR-Accounting and Auditing Regulator) as the liquidator in the liquidation process. 2.4. Private Limited Company Under Article 86 of the LCE 2005, a private limited company must follow the following requirements: (a) The company may have up to 30 shareholders. If only one person holds shares, he or she may register a “single member private limited company” (b) The company may not offer its shares or other securities to the public generally, but may offer them to shareholders, family members and managers. This helps to ensure the meaning of being “private”. (c) The company may have one or more restrictions on the transfer of each class of shares. Forming a LLC is more complicated than forming a sole proprietorship or partnership. The control of a company lies with its board of directors, and the LCE 2005 and the LLC’s articles of incorporation limit the precise nature of the control. The LCE 2005 also controls most aspects of a LLC’s formation, how business is conducted and winding up. The 2022 amendments re-iterate the requirement that limited liability companies must have a company secretary to maintain and keep track of all corporate documents, books and records. The secretary must be a permanent resident in Cambodia. Moreover, wherever the term “agent” is used in the LCE, this has mostly been replaced with the company secretary. 20 22 CamEd Business School  Cambodian Business Law 2.5. Single Member Private Limited Company Under Article 86 of the LCE, one person can establish a limited company as a single member private limited company. A single member private limited company is governed by the same rules as private limited companies, except for the conditions in respect of the relationship among the shareholders. A single member private limited company may change its legal form to a more regular private limited company after the shareholder’s approval to include one or more additional persons or legal entities as shareholders of the company. 2.6. Public Limited Company Under Article 87 of LCE, a public limited company is authorized by law to issue securities (including shares) to the public. The shareholders’ liability is limited to their shareholding in the company. The 2022 amendment further adds that the initial offering shall be in accordance with related regulations. Setting up and dealing with the formalities of a public limited company can be complicated, particularly for companies that intend to provide banking services (there is a separate Law on Banking and Financial Institutions 1999) or insurance products (there is a separate Law on Insurance 2000). A special requirement for a public limited company is that it must have at least three (3) directors (Article 118 of the LCE). Moreover, when a public company becomes a public listed company it must abide by certain requirements laid down in the Prakas on Corporate Governance for Public Listed Companies (2018). Registration All companies must be registered with the Commercial Registration Bureau of the MOC through the automated (online) registration system. For more discussion on shareholding, rights of shareholders, capital structure, and financing of companies, refer to Chapter 9 – Management, Capital, and Financing of Companies. 3. Primary Documents for Establishing a Company The primary documents governing the creation and management of limited liability companies are the articles of incorporation of the company and the shareholders’ agreement, which is an agreement entered into by the shareholders of the company through the automated (online) registration system. Here, we discuss both types of documents. 3.1. Articles of Incorporation (a) Purpose of Articles of Incorporation The articles of incorporation is an agreement between the shareholder(s). The articles of incorporation must comply with applicable laws and regulations. The shareholders and directors of the company must follow the obligations stated in the articles of incorporation. The articles of incorporation are the basic instrument filed with the MOC 21 CamEd Business School 23  Cambodian Business Law for the incorporation of a company. By signing the articles of incorporation, the shareholders and directors recognize their obligations provided therein. (b) Contents of Articles of Incorporation The following information must be provided in the articles of incorporation (LCE, Article 93): (i) The name of the company, to include the words, “Private Limited Company” or an appropriate abbreviation such as Co., Ltd or Company Limited, and for a public limited company the words “Public Limited Company” or an appropriate abbreviation such as Plc. (ii) The company’s registered office address in the Kingdom of Cambodia. (iii) The business objectives or the purpose for which the company is formed, setting the outer limits of the legitimate functions of the company. The objectives of the company and any restrictions on the business that the company may carry on. Company objectives may include one or more types of business activities not contrary to any provision of law. The MOC requires all companies to register their business objectives by the automated (online) system, selecting their business objectives from a list provided by the MOC. Approval of the business objectives by the registrar does not constitute an approval for the company to engage in the types of business stated in its business objectives, since certain business activities may be subject to licenses or regulations falling outside the registrar’s jurisdiction (certain business activities require specific licenses/permits from relevant ministries; i.e. Obviously​ to build and sell houses/condos, the business must apply for a specific type of Housing Development License at the ministry of economy and finance). (iv) The authorized capital of the company to be stated in national currency. Each share has a par value and the company may not issue any share at a price which is less than the par value. The rights, privileges, restrictions and conditions attaching to the shares of each class must be stated. By virtue of the 2022 amendment to Article 144, the previous provision “If the articles of incorporation fail to provide the number and price attached to the shares, the company must issue a minimum of 1,000 shares with a par value of not less than KHR 4,000 per share” has been deleted, meaning such mandatory minimum requirement no longer exists. If the articles of incorporation fail to specify classes of shares, the company will then have only one class of shares and the rights of the holders of such shares will be equal in all respects, including the rights to vote at any meeting of the shareholders of the company, the right to receive any dividend declared by the company, and the right to receive the remaining property of the company on dissolution. (v) The classes and any maximum number of shares and the par value per share that the company is authorized to issue. 22 24 CamEd Business School Cambodian Business Law (vi) If the company is authorized to issue more than one class of shares, the articles of incorporation must state the maximum number of shares and the par value per share and must describe the rights, privileges, restrictions and conditions attached to each class of shares. (vii) If the issuance, transfer or ownership of shares of the company is to be restricted, a statement to that effect and a statement as to the nature of such restrictions. (viii) The name and complete address of each shareholder. Under the 2022 amendment, shareholders of a limited company who do not wish to be mentioned in the articles of incorporation may use representatives instead. They shall sign “shareholder representative agreement”, which must be submitted to the ministry of commerce. (ix) The number of directors or the maximum and minimum number of directors of the company. 3.2. Shareholders’ Agreeement (a) Purpose of Shareholders’ Agreement A shareholders’ agreement is an agreement among the shareholders of a company which defines certain rights and obligations of the shareholders. A valid shareholders’ agreement is enforceable by the shareholders who are parties to it, against the other shareholders who are also parties to the agreement. Care must be taken to ensure that the rights and obligations of the shareholders, as provided in a shareholders’ agreement, do not contradict the rights and obligations of shareholders as provided in the company’s articles of incorporation and applicable law, most particularly the LCE. Importantly, a shareholders’ agreement differs from the articles of incorporation of a company in that a shareholders’ agreement is a private party contract, whereas the articles of incorporation are a matter of public record. The articles of incorporation must be provided to, and approved by, the MOC, whereas the shareholders’ agreement need not be provided to the MOC. Shareholders’ agreement usually states the number of authorized and issued shares of the company, the names of the shareholders (which may be natural or legal persons), and the amount / percentage of shares that are held be each shareholder. Additionally, typical rights and obligations defined in shareholders’ agreements include provisions on the following, among others: i. Preemptive rights (the right of a shareholder to buy issues of new stock and thereby maintain their percentage of ownership). ii. Tag-along rights (if a majority shareholder sells his or her stake, then the minority shareholder has the right to join the transaction and sell his or her minority stake in the company). 23 CamEd Business School 25  Cambodian Business Law iii. Drag-along rights (a right that enables a majority shareholder to force a minority shareholder to join in the sale of shares of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms, and conditions as any other seller). iv. Accession (a requirement that a transferee receiving shares by a transfer from a shareholder agree to the terms of the shareholders’ agreement). v. Subscriptions (a requirement that a shareholder subscribe to further purchases of shares upon certain dates or upon the occurrence of certain events). vi. Dividends (the right of a shareholder to receive a portion of the company’s profits, in proportion the shareholder’s shares of the company). For further discussion of rights and obligations of shareholders, meetings of shareholders, etc., please refer to Chapter 9 - Management, Capital, and Financing of Companies. 4. Formalities of Establishing a Company All enterprises conducting commercial activities in the Kingdom of Cambodia are required to be registered with the Department of Business Registration of the MOC through the automated (online) registration system, currently at registrationservices.gov.kh/. The three possible forms of presence of a foreign company (representative office, branch, subsidiary) must also register on the same online platform. The table below outlines certain administrative details of company registration. Commercial Refers to the management and holding of a register in which are the Register registration numbers of commercial companies. A commercial enterprise which has their domicile, branch office, subsidiary or representative office in Cambodia is obligated to enroll in the Commercial Register. Enrollment in the Commercial Register shall be made by branch principal or company shareholders/directors in the month of the company establishment and within fifteen (15) days prior to the date of starting the commercial operations. The The competent authority in charge of the Commercial Register. The online MOC(Department registration is at: registrationservices.gov.kh of Business Registration) 24 26 CamEd Business School Cambodian Business Law Publication in the Any registration, amendment and deletion from the Commercial Register Royal Gazette must be published by the commercial recording official in the Royal Gazette by illustrating the following information: (1) Commercial registration number; (2) Name of company; (3) Registered capital; (4) Registered office; (5) Activity and date of starting business; and (6) Company's legal form. 4.1. Required Information for Company Registration The 1995 Law on Commercial Rules and Commercial Registration (“LCRCR”) and the 1999 Law on the Amendment on Commercial Rules and Commercial Registration (“LACRCR”) provide an extensive procedure for registering an enterprise at the MOC. The 2022 amendments have also established new requirements. Altogether, they set out the necessary documents required for the registration of a company or business and determine the circumstances whereby any changes in a company must be notified to the MOC. The MOC has also issued five Prakas illustrating in detail the formalities and procedure for: (a) registration in the Commercial Registry (Prakas No. 042 dated 29 January 2015); (b) registration of changes and amendments of the company (Prakas No. 142 dated 3 June 2015); (c) commercial registration through the automated (online) registration system (Prakas No. 299 dated 29 December 2015);(d) commercial registration through the automated (online) registration system (Prakas No. 213 dated 24 June 2016); and, for ongoing compliance, (e) submission of Annual Declaration of Commercial Enterprise ADCE via online system (Prakas No. 107 dated 05 April 2017). The 2022 amendments empower the commercial registration official to issue a temporary certificate of incorporation valid for one month, which the official may later cancel if a misleading information has been found or if a good-standing lawsuit has been filed. The table below illustrates the basic information required to proceed with registering a company with the MOC, following the latest amendments in 2022: Company Information Name of company 25 CamEd Business School 27  Cambodian Business Law Address of the registered office Specific business objectives: main and secondary business objectives contained in the list provided by the MOC. Business activities must follow the International Standard Industrial Classification of all Economic Activities (ISIC Codes) Legal form Duration: maximum is 99 years Authorized signatory(ies) Shareholder Names of shareholders (or representatives), phone Information numbers and/or email address. Passport/ID card numbers and issuance dates Nationalities of shareholders, phone number and/or email address. Residential addresses of shareholders Number of share to be held by each shareholder Percentage of shares to be held by each shareholder In case the Authorized representatives of shareholders Shareholder of the Company is the Legal Entity Corporate documents of corporate shareholder Director Information Names of directors Passport/ID card numbers and issuance dates 26 28 CamEd Business School Cambodian Business Law Nationalities of directors Residential addresses of directors Number of directors, or maximum and minimum number of the directors Amount of Registered Stated amount of registered capital in Cambodian Capital national currency. Number of Share There is no requirement for a minimum number of shares. Par Value Bank Certificate This requirement has been deleted by the 2022 confirming deposit of amendments to the Law on Commercial Rules and the Registered Capital Commercial Registration. Specimen This requirement has been deleted by the 2022 Signature/Seal of the amendments to the Law on Commercial Rules and Company Commercial Registration. Declaration of no The shareholders and directors of the company must conviction for declare that they have never been convicted for commercial, civil or commercial, civil or criminal conduct. criminal conduct Declaration of Not The directors of the company must declare that they are Being Civil Servant in not the government officials in any government entity any government entity of the Kingdom of Cambodia. of the Kingdom of Cambodia 4.2. Amendments to Articles of Incorporation A limited liability company may amend its articles of incorporation several times and at any time by a special resolution of shareholders (LCE, Art 236). 27 CamEd Business School 29  Cambodian Business Law The following is a non-exhaustive list of such changes to a company’s articles of incorporation: - Change of company name - Change in par value of shares - Change of stated capital - Change of business objectives - Change in shareholding structure - Change of registered address - Change of duration of company - Change in dividends payable - Changes in rights associated with classes of shares Company has 15 days to inform the MoC of any such change, counting from the day of the meeting at which the change was approved (LCE, Art 239). 5. Sanctions for Non-Compliance with the Formalities of Establishing a Company A company that, without reasonable cause, does not comply with registration, filing and publication requirements may be prosecuted pursuant to articles 43 and 44 of the LCRCR and LACRCR. Such failure to comply may result in imprisonment for a period of one (1) year to five (5) years and fines from KHR 1,000,000 to KHR 10,000,000. The 2022 amendments further note that all business entities in Cambodia shall follow the Law on Accounting and Auditing. Where a company commits an offense under the LCE, any director or officer of the company who knowingly authorized, permitted or acquiesced in the commission of the offence is a party to and guilty of the offence and liable for a fine from KHR 1,000,000 to KHR 10,000,000 and may be imprisoned for a term of one (1) month to six (6) months. An offense here refers solely to the making of, or assisting in the making of, a false or misleading report, return, notice or other document to be sent to the MOC. 28 30 CamEd Business School Cambodian Business Law Chapter Roundup – The forms of companies are sole proprietorship, partnership, and limited company. – Limited liability companies must have a company secretary. Shareholders wishing to be invisible on the articles of incorporation may use representatives. – The competent authority for the Commercial Register is the Department of Business Registration of the MOC. The online registration is now at: registrationservices.gov.kh The registration official may issue a temporary certificate, which may be cancelled later. – The minimum required capital for a limited company has been removed. – Enrollment in the Commercial Register applies to commercial enterprises which have their domicile, branch office, subsidiary or their representative office in Cambodia. Enrollment must be done by branch principal or company shareholder(s)/director(s) in the month of the company establishment and within fifteen (15) days prior to the date of starting commercial operations. – Publication in the Royal Gazette is required for any registration, amendment and deletion from the Commercial Register. – The liquidator for a general partnership or a limited company must be a licensed auditing firm or a licensed accounting firm recognized by the Accounting and Auditing Regulator ACAR. 29 CamEd Business School 31  Cambodian Business Law Quick Quiz 1. Under the Law on Commercial Enterprises, which of the following types of companies is/are required to have at least three (3) directors? A. A private limited company B. A public limited company C. Both A and B 2. Under the Law on Commercial Enterprises, which of the following types of companies is authorized by law to issue securities to the public? A. Public Limited Company B. Private Limited Company C. Partnership 3. Under the Law on Commercial Enterprises, a special resolution requires the approval of which of the following? A. Two-thirds of the votes cast by the shareholders B. Majority of the votes cast by the shareholders C. Unanimous approval of the votes cast by the shareholders 4. Enrolment in the Commercial Register applies to commercial enterprises which does not have their domicile, branch office, subsidiary or their representative office in Cambodia. It must be done by branch principal or Company shareholder(s)/director(s) in the month of the Company establishment and within fifteen (15) days after the date of starting the commercial operations. True False 5. A company which fails to comply with the registration, filing and publication requirements may be liable for: A. Imprisonment for a period of one (1) year to five (5) years and/or fine from KHR 1,000,000 to KHR 10,000,000 B. Imprisonment for a period of one (1) year to five (5) years and fine from KHR 1,000,000 to HR 10,000,000 C. Imprisonment for a period of one (1) month to six (6) months and fine from KHR 1,000,000 to KHR 10,000,000 D. Imprisonment for a period of one (1) year to five (5) years and fine from KHR 500,000 to KHR 1,000,000 30 32 CamEd Business School Cambodian Business Law Answers to Self-Quiz 1. B. 2. A. 3. A. 4. False. The Enrolment in the Commercial Register applies to the commercial enterprise which has their domicile, branch office, subsidiary or their representative office in Cambodia. It shall be made by branch principal or Company shareholder(s)/director(s) in the month of the Company establishment and fifteen (15) days prior to the date of starting the commercial operations. 5. B. 31 CamEd Business School 33  Cambodian Business Law Chapter 3 Legal Personality of Companies Topic List 1. Existence of the Company’s Legal Personality 2. Company’s Identification 3. Legal Capacity of the Company 1. Existence of the Company’s Legal Personality 1.1 Nature of a Company in Formation As further detailed in Section (2) below, a company shall come into existence at the date shown in the Certificate of Incorporation issued by the Ministry of Commerce (“MOC”). The registration of a limited liability company in Cambodia may take several weeks and that is why, in some circumstances, a person may choose to enter into agreements, in the name of and on behalf of the company, to secure a transaction or because business opportunities may have arisen prior to the registration of the company. Pursuant to article 139 of the Law on Commercial Enterprise (“LCE”), a person who enters into a written contract in the name of or on behalf of a company before it comes into existence, is personally bound by the contract and is entitled to the benefits thereof (“Pre-Incorporation Contracts”). Article 139 of the LCE also states that a company may, within a reasonable time after a contract has been entered into by a person in its name or on its behalf, adopt such contract and therefore, the company will be bound by the contract, and entitled to its benefits, as if the company had been in existence at the date of the contract. The adoption of the contract by the company may be inferred from the conduct, or actions, of the company which evidence a real intention of the company to be bound by such contract. Upon adoption of the contract by the company, the person who entered into the contract in the name of the company or on its behalf ceases to be bound by the terms of the contract, unless otherwise ordered by a court. The person shall also need a court decision to enforce her right. 1.2 Beginning of Legal Existence of a Company All companies are born by the desire of one or more natural or legal persons to carry on a specific business in order to make profit. Prior to the company being registered and operating its business, the incorporators, being the natural or legal persons wishing to register a company in Cambodia, shall agree on various details of the company, such as: - The name of the company; - The company’s registered address in Cambodia; 34 CamEd Business School Cambodian Business Law - The business objectives of the company, selected from the list provided by the Ministry of Commerce, and any restrictions on the business that the company may be allowed to carry on; - The authorized capital (to be stated in the Cambodian national currency Riel); - The classes, par value and maximum number of shares the company is authorized to issue; - If the company is authorized to issue more than one class of shares, the maximum number of and par value of shares, the rights, privileges, restrictions and conditions attached to each class of shares; - Whether or not a class of shares may be issued in series and if so, the designation of each series, the rights, privileges, restrictions and conditions attached to each series; - Whether the issuance, transfer or ownership of shares of the company shall be restricted; - Who shall be the shareholders of the company; and - The number of directors or the minimum and maximum number of directors of the company. The abovementioned information shall be stated in the proposed company’s articles of incorporation and the articles may include any other relevant provisions necessary for the company to conduct its business (Articles 93-94 of the LCE). Pursuant to article 96 of the LCE, the incorporator(s) of the company shall submit the articles to the Director of Companies of the MOC for filing and must attach all the other documents, as prescribed by the Director of Companies and necessary for the registration of the company. Please note that pursuant to article 90 of the LCE, each incorporator or director, as the case may be, is responsible for complying with the registration, filing and publications requirements. The Director of Companies means the officers appointed from time to time by the MOC (Article 88(4) of the LCE). Pursuant to article 97 of the LCE, after accepting the articles of incorporation of the proposed company, and after receiving the filing fee, the Director of Companies shall issue a Certificate of Incorporation. The Certificate of Incorporation issued by the Director of Companies certifies the due registration of the company and contains the following information: - The name of the company; - The registration number; - The date of registration of the company; and - The type of the business entity registered. The Certificate of Incorporation brings the company into existence. The date of the Certificate is the legal birthdate of the company. Hence, the company has the capacity, rights, powers 32 CamEd Business School 35  Cambodian Business Law and privileges of a natural person and the capacity to carry on its business in the Cambodia or in any other jurisdiction to the extent the laws of such jurisdiction permit. The legal effects of the Certificate of Incorporation delivered to the company are as follows: - The company becomes a legal entity independent from its shareholders and directors; - The articles of incorporation of the company are binding on the company and its shareholders and directors; and - The liability of the shareholders of the company becomes limited. 1.3 Company’s Life A company begins to exist at the date shown on the Certificate of Incorporation delivered by the Director of Companies, but liabilities and rights may predate this date if the company ratifies pre-incorporation contracts. Please refer to Section A(1) of this Chapter for more details concerning pre-incorporation contracts. The Civil Code and the LCE are silent in regards to the legal duration of a company. However, according to the current practice of the Ministry of Commerce, a company shall not have a stated duration of mo