In a game-changing move, the Directorate of Investment and Company Administration (“DICA”) has for the first time implemented a transfer of shares in a company wholly owned by Myanmar citizens and registered as a Myanmar Company (“MC”) to a foreigner, without incorporating a new legal entity. To date, it was administratively impossible for foreigners to acquire shares in a company which was established and owned exclusively by Myanmar citizens, except through the creation of a new legal entity which was incorporated as a “Foreign Company” (“FC”). This meant that MCs were unable to access funding such as venture capital or private equity in a straightforward manner.
VDB Loi initiated the solution to this issue with the regulator, suggested how to make the process suitable and worked with the authorities to implement this pioneering remedy. DICA has fixed one of the most problematic obstacles to investment in Myanmar with its decisive and insightful action.
Subject to the conditions which apply to this “conversion with continuing legal personality”, foreigners can now outright acquire shares in wholly Myanmar-owned companies. Investors need no longer resort to beneficial ownership or other solutions using intermediaries or agents.
Earlier conversions from a Myanmar Company to a Foreign Company, which were largely untested as such, used a process where a new legal entity was created. In essence, this is how joint ventures have been created since the 1987 Foreign Investment Law, by setting up a new Foreign Company. This resulted in various problems and uncertainties, such as the possible need to renew and obtain licenses and to assign assets and liabilities, with all the formalities and tax consequences that this entails.
This development demonstrates that, as we have maintained all along, the transfer of shares in a Myanmar Company to a foreigner is an administrative problem and not a legislative one, which is best addressed by an administrative solution.
By this process, foreigners do not become shareholders in a Myanmar Company. Rather, the Myanmar Company continues its legal existence as a Foreign Company, with at least some foreign shareholders. That means the company will have to cease any activities which are solely reserved to Myanmar Companies, such as land ownership or most forms of trading.