The long-awaited Myanmar Companies Law 2017 (“MCL”) will come into effect on 1st August 2018 and replace the 100-year old Companies Act 1914 (“MCA”). The MCL aims to modernize Myanmar’s corporate framework and provide new opportunities to both foreign and local companies which were previously not available under the MCA.
Under the MCL, a foreign company is defined as a company with an ownership interest of MORE than 35% by a foreign company or a foreign individual, or a combination of both. This would mean that locally-incorporated companies with up to 35% foreign shareholding would still be characterised as a ‘Myanmar Company’, as opposed to the previous definition in the MCA which states that a company with even one share held by a foreigner would be categorised as a ‘Foreign Company’.
The express requirement under the MCA that foreign companies are required to obtain a business permit, commonly known as the ‘Permit to Trade’ is no longer a requirement under the MCL. In addition, companies are also no longer required to have both Memorandum of Association and Articles of Association (“M&A”). The MOA will be replaced by a single constitution. Companies with an existing MOA will have the option of either (i) adopting the standard company constitution issued by the Directorate of Investment and Company Administration (“DICA”); (ii) draft a customised company constitution (which must comply with the MCL); or (iii) adopt their current M&A as the constitution of the company. Companies which opt to adopt a new constitution will now be allowed to issue different classes of shares and will no longer be bound by objects under their previous M&A. They are also be able to make distribution of dividend provided that the company satisfies a solvency test. Investors should consider modifying their existing M&A to benefit from these reforms under the MCL.
Shares and Shareholders
Under the MCA, locally incorporated companies are required to have at least two shareholders. Under the MCL, it is now possible to have a single shareholder in the company. This simplified structure will allow companies (especially foreign companies) to incorporate wholly-owned subsidiaries in Myanmar. Shareholders’ rights have also been expanded under the MCL whereby a shareholder is now allowed to initiate derivative action on behalf of the company, subject to certain conditions being met.
Previously under the MCA, a company is only allowed to hold shares up to the amount of its authorised capital stated in its Memorandum of Association. Now, under the MCL, shares shall no longer have a nominal or par value and companies can now price their shares with more flexibility. Consequently, the concept of share premium and prohibition against the issue of shares at a discount are also no longer applicable.
Reduction of share capital in a company has now been made easier under the MCL as Court approval is no longer required. Instead, the MCL provides the type of shareholders’ approval required (whether ordinary or special resolution) depending on the type of capital reduction proposed (whether equal or selective).
New private companies under the MCL are required to have at least one director who must be ordinarily resident in the Union or is resident in the Union for at least 183 days in each 12-month period. There is no requirement for the said director to be a Myanmar citizen. Existing companies incorporated under the MCA must ensure that at least one of its directors is a ‘resident’ and if there is none, the company has an obligation to appoint one ‘resident’ director within a year from the coming into effect of the MCL. Public companies, on the other, are required to have at least three directors, and one of which must be a Myanmar citizen and a resident in Myanmar.
The MCL has explicitly laid down a comprehensive set of directors’ duties, which are generally in line with common law principles and international corporate governance frameworks. Some of the main duties imposed on directors are:
- duty to act with care and diligence;
- duty to act in good faith in the company’s best interest;
- duty regarding use of position;
- duty regarding use of information;
- duty to comply with the New Companies Law and constitution;
- duty to avoid reckless trading;
- duty in relation to obligations (of a company); and
- duty to disclose certain interests.
A ‘Small Company’ under the MCL has been defined as a company, other than a public company or subsidiary of a public company, which has less than 30 employees with an annual revenue of less than MMK50 million in aggregate in a year. Small Companies under the MCL are exempted from certain legal reporting and meeting requirements. For instance, a small company does not need to hold an annual general meeting or file an annual financial statement. They are also not required to audit their financial statements under the MCL.
Registration of Charge and Mortgage
The new MCL expressly provides that the registration of charge and mortgage under the MCL are no longer taken to breach, nor be restricted by the Transfer of Immoveable Property Restriction Act 1987 (or any laws with similar effects). Although there is no express language in the MCL to state that foreign companies are allowed to take security over immovable property, a wide interpretation of the new Law will suggest so.
DICA has also introduced a new electronic registry system called “MyCO” or the Myanmar Companies Online registry system which will be launched on 1st August 2018. It announced that the Myanmar Companies (Electronic Registry System and Miscellaneous Matters) Regulations 2018 will come into effect on 1 August 2018. All existing companies incorporated under the MCA will be required to re-register themselves online within six months from the coming into force of the MCL. DICA will be temporarily closed and registrations suspended between 23 – 31 July to allow for the implementation of MyCo. If an existing company fails to re-register using MyCo before the deadline then, the Registrar may strike its name from the register and announce the company’s dissolution.
The coming into effect of the new MCL is a much welcome move by the Myanmar government as the MCL is intended to significantly enhance the ease of doing business in Myanmar for both local and foreign investors. It also intended to pave the way for foreign investors to access the Yangon Stock Exchange (albeit limited to 35% shareholding) and consequently, help Myanmar companies raise funds through the capital markets.
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