Major reforms to Myanmar’s corporate regime are being proposed as part of the country’s efforts to transform its corporate landscape and boost investor confidence. The latest draft of the new Myanmar Companies Law (Bill) (“new MCL”) was released in January 2017. If passed by Parliament and when it comes into force, the new MCL will replace the existing Myanmar Companies Act 1914 (“MCA 1914”), and bring important changes to keep abreast of developments in other jurisdictions such as UK, Australia and New Zealand.
The Government recently indicated that it expects to have the new MCL fully implemented this year, though there has yet to be any official notice on the effective date.
10 key changes proposed under the new MCL
1. Definition of “foreign company” relaxed
Tight restrictions are imposed on business activities of foreign companies in Myanmar. For example, foreign companies are subject to restrictions on trading and distribution and are not permitted to lease land for more than 1 year.
Based on the current definition of “foreign company” under the MCA 1914, even if a foreigner or foreign-owned company owns only one share in a company, it is deemed a “foreign company”, and thus subject to such restrictions.
Under the new MCL, it is proposed that a company will be deemed a foreign company only if a foreign individual or foreign company owns or controls directly or indirectly an ownership interest in excess of the prescribed ownership limit.
While the new MCL does not yet specify the ownership limit, according to Director General U Aung Naing Oo of the Directorate of Investment and Company Administration (“DICA”) in a press article on 12 January 2017, foreign-owned companies will be defined as those where foreign ownership exceeds 35%.
However, the Ministry of Planning and Finance can change this ratio as the economy develops.
2. Memorandum and articles of association no longer required
Under the new MCL, the constitutive document of a company will be referred to as a constitution and no longer as a memorandum and articles of association (“M&A”).
Once the new MCL comes into force, the company must prepare and file its constitution in the Myanmar language or the English language. Existing companies with M&As and other company registration documents registered under the MCA 1914 will be deemed to have constitutions once the new MCL takes effect.
Furthermore, it will no longer be a requirement for each subscriber in the M&A to give an attestation in the presence of an Advocate or Certified Public Accountant.
3. Process to amend constitution simplified
Currently, an amendment to a company’s M&A requires a special resolution and such amendment will need to be registered in order to be effective. In addition, MCA 1914 requires an approval by the President of the Union (in the case of a name change) and a Court confirmation (in the case of a change to objects clause).
However, in practice, the Company Registration Office does not require such President’s approval or Court confirmation for purposes of registration.
Reflecting this existing practice, under the new MCL, a special resolution is sufficient to amend the provisions of a company’s constitution, even for amendments relating to a change in name or objects.
The registration requirement still applies, and amendments will need to be registered within 28 days to be effective.
4. Company objectives no longer required
Under the new corporate regime, companies will have full legal capacity to carry on any business or activity, subject to certain limitations provided under the new MCL or other laws.
The objectives of an existing company registered under the MCA 1914 will continue to apply until the end of the 12 month transitional period after the commencement of the new MCL.
Such objectives will be deemed removed at the end of the transitional period unless a special resolution of the company is passed to maintain its objectives and notice confirming this is filed with the Companies Registrar.
5. Meeting requirements eased
Companies with less than 30 employees and annual revenues of less than MMK 50 million will be exempted from a number of reporting and meeting requirements, for example annual general meetings and annual financial reports. [Such relaxation of requirements will ease the doing of business and reduce compliance costs for small and medium enterprises.
6. Permits to trade abolished
Under the new MCL, a permit to trade will no longer be required for registration of a company.
7. One shareholder requirement
Currently, at least two shareholders are required to incorporate a company. Under the new MCL, only one member and one share is required to register a company.
This means that it is now possible for one individual shareholder to own a company or for one corporate shareholder to register a 100% owned subsidiary.
8. One director requirement
Under the MCA, a company must have at least two shareholders and two directors. Under the MCL, only one shareholder and one director is required to incorporate a company.
Note however that the new MCL provides that at least one director must be “ordinarily resident” in Myanmar, that is, the director is required to be resident in Myanmar for at least 183 days in any 12 month period after the new MCL comes into force.
9. Different classes of shares allowed
The new MCL will allow a company to issue different classes and types of shares, for example shares which are redeemable, shares which have preference or restricted rights to distribution of capital or income, shares which have limited and conditional voting rights and shares which do not have voting rights.
Further, companies may issue other securities such as options and convertible shares. This will give potential investors a wider range of investment options.
10. Par value to be abolished
Shares issued by a company will have no par value under the new MCL.
The transition to a no-par value regime follows the development and practice in other countries such as Australia, New Zealand, Singapore, Hong Kong and Malaysia which have also abolished par value.
Samuel Britton, Of Counsel | ZICO Law Myanmar