Five Things to Like in the New Companies Law

21
Nov
2017

Introduction:

The end of the comprehensive overhaul of Myanmar’s corporate legal framework is finally in sight with an updated Companies Law (the “MCL”) approved by Myanmar’s Parliament. Once the MCL is signed into law by the President, the outdated Myanmar Companies Act of 1914 (the “1914 Act”) will be abolished, bringing Myanmar Companies Law in line with more updated laws of its kind.   

In this briefing note, we will examine some positive developments that the MCL will bring about in regard to companies wishing to do business in Myanmar. 

1. Nearly all sectors previously reserved for Myanmar nationals are now open to foreign minority ownership

Perhaps the biggest change to be enacted by the MCL is the fact that the definition of a Myanmar company has been liberalized extensively. Those familiar with the current legal framework will know all too well about the restrictive definition attributed to a Myanmar company under the 1914 Act, which precluded even a minute possibility of having a foreign shareholder. This is all set to change with the redefinition of a Myanmar company as capable of accommodating a 35% foreign ownership interest.

This position is certainly advantageous as much as it is a break from tradition. Types of investment that are off limits for foreigners (notably financial services, trade, and land ownership) will open up to joint venture companies with at least a foreign minority interest.

2. Simplified group structuring and having only one shareholder

The MCL replaces the old requirement of having at least two shareholders. In practice, this meant that a company could not hold 100% and typically had to give a 1% to a director or other companies. The MCL now allows for only one shareholder, thereby getting rid of the unnecessary complication caused by the former two shareholder requirement.

Consequently, company structuring will be simplified, allowing for 100% ownership in companies, negating having to give a minority interest by law.   

3. Dividend distribution

The position under the 1914 Act was that no dividends could be paid, apart from the profits of the year or other undistributed profits of the company. Now, under the MCL, dividends are not required to be paid out of company profits; instead, a statutory solvency test must be complied with. In other words, dividends can be paid out even if the company has accumulated losses, subject to satisfying the following requirements:

  1. Satisfaction of the solvency test after the payment of the dividend;
  2. The making of the dividend must be fair and reasonable; and
  3. The dividend must not materially prejudice the ability of the company to pay its creditors.

It remains to be seen how the solvency test will operate in practice; nonetheless, this remains a positive development, as it recognizes the commercial reality that companies may not be continuously making a profit.    

4. Small companies and administrative exemptions

Undoubtedly, small companies will appreciate the provision in the MCL that will exempt companies with less than 30 employees and an aggregate annual revenue of less than MMK50,000,000 (approximately US$36,500) from several administrative requirements. The effects of these exemptions are that a small company need not hold an annual general meeting: unless the Constitution includes otherwise; unless the members pass an ordinary resolution requiring it; or, unless the Registrar of companies, in his or her discretion, determines that the company should hold an annual general meeting.

The same applies to various obligations such as maintaining records of all money received and expended, assets and liabilities, a directors’ report, and appointment of an auditor. This is prefaced by the three exceptions listed above. It should be noted that the audit exemption is a controversial provision with a voice of dissent against its enactment in the lower house of Parliament. It is questionable at this juncture whether or not the audit exemption provision will make the final act.   

Nonetheless, these exemptions provide welcomed simplicity and will reduce overhead costs, particularly for companies in the early stages of market penetration.

5. Technology and holding company meetings

The MCL allows for companies to integrate smart technology into their corporate governance. Examples can be seen in the MCL:

  • Allowing directors’ meetings to be held using any type of technology which the directors agree upon (including telephone or video conferences); and
  • The calling or holding of general meetings using technology available to its members.

By recognizing the holding of key corporate meetings through video link, for example, conducting business in Myanmar will be more efficient, as doing business now no longer requires a ‘boots on the ground’ approach to holding meetings.

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