Private Limited Company

and

Corporation

Sun Samnang, LL.MJanuary, 2014

Limited Liability Company

• What is Limited Liability Company?

• How it is different from partnership? What about corporation?

• In Cambodian law, the classifications are as of Private Limited Liability and Public Limited Liability

• What would be the reasons to forming this kind of company as compared to partnership and corporation?

• Is that because shareholders want just to invest with some amount, which is the only obligation/liability?

What is requirement?

“The company may have 2 to 30 shareholders. However, one person may form a company called single member private limited company. The requirements of a single member private limited company are the same manner as a private limited company except the relationship of shareholder to one another” Art. 86

“The company may not offer its shares or other securities to the public generally, but may offer them to shareholders, family members and managers

And the company may have one or more restrictions on the transfer of each class of its shares.” 86

“A private limited company shall have one or more directors”. Article 118

• What about Public Limited Liability?

“A “Public Limited Company” is a form of a limited company that is authorized by this Law to issue securities to the public” 87.

What is “Securities”?

“Security" means

(a) a share of any class or series of shares of a company,

(b) a bond,

(c) includes a certificate evidencing a security.

What is share?

Each share shall be in registered form. Each share has a par value and the company shall 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 shall be set out in the articles.

If the articles fail to provide the number and

price attached to the shares, the company

shall issue a minimum of one thousand

(1,000) shares with a par value of not less

than four thousand (4,000) Riels per share.

• Generally there are two kinds of stock: Common stock and Preferred stock

The common stock holders usually have

Voting Right, that means holders can

influence the corporation through their vote.

They also have Preemptive-right

What is Preferred stock?

Preferred stock holder does not have voting

right but carries priority in dividend and

liquidation and the stock is convertible

What about Bond?

Bond is like a loan: the issuer is the borrower (debtor), the holder is the lender. Bond and stock are both securities, but the major difference is stockholders have a equity stake (they are owners), whereas bondholders have a creditor stake (they are lenders)

How do you acquire shares?

1) Subscription (buying)

2) Transfer (shares are transferable with restriction that share is usually transferred to other shareholder first).

About Corporation

• Corporation is an artificial being, created by the law, that is corporation exists as a person, separate and distinct from the persons who own the corporation

What does it mean?

Corporation continues even death of its owners

• Property owned by the corporation is not owned by the persons who owns shares in the corporation, but by corporation

• Debt of corporation are debts of this artificial person, not of the persons running it or owning shares in it.

• Separate taxpayers

• Corporation can sue or be sued in its own name with respect to corporate rights and liabilities, but the shareholders cannot sue on behalf of corporation unless the corporation refuses to sue.

Can shareholders be sued as to corporate liabilities? Or personally liable for corporation debt?

Disregarding the corporate entity

• One of the basic advantages of the corporate form of business organization is the limitation of shareholder liability.

• Corporations are formed for the express purpose of limiting one’s risk to the amount of his investment in the stock.

How is it formed?

Article 91: Creation of Limited Company

One or more competent natural persons or

legal persons may create a limited company

by filing articles of incorporation with the

Director of Companies.

Actors in Corporation

• Shareholders

• Boards of Directors

• Officers

Shareholders

Board of Directors

Officers

Who is Shareholder?

• Why people choose to invest in corporation, rather than just having his own business or forming partnership?

• Do you see any advantage or disadvantage of investing in corporation? Or any other kinds of business form?

• Shareholder or stockholder is an individual or institution that legally owns one more shares of stock in a corporation. Shareholders own the stock but not in the corporation itself.

• What rights do they have?

• Rights to sell their share, provided there is buyer

• Right to vote on directors

• Right to purchase new shares

• Right to what assets remains after a liquidation

Board of Directors?

• Who are they? What do they do?

• Directors are elected by shareholders. They attend meeting, exercise judgment, vote and direct management, and jointly oversee the activities of the corporation.

Who can be directors?

• Anyone who is at least 18 years old

• Do you have to be a shareholder to be a member of board of directors?

• The law requires to have at least 3 members with 2 year mandate

Officers?

• They generally are people responsible for management of business and daily activities of corporation. Their titles vary depending on corporation. Examples are President, Chief Executing Officer (CEO). Chief Accounting or Administrative Officer.

Article 101: Nationality

• A company shall be deemed to be of Khmer nationality only if:

(a) The company has a place of business and a registered office located in the Kingdom of

Cambodia;

(b) More than 51% of the voting shares of the company are held by natural or legal persons of Khmer nationality.

What is Bylaw?

• A rule of governing and managing the affairs of the corporation. Bylaw contains provisions establishing the corporate seal and the form of stock certificate, the number of officers, and directors, the method of electing them and removing them from the office.

• Bylaws specify the time and place of the meetings of the directors and shareholders.

Article of Incorporation? a) The name of the company.

(b) The company's Registered Office in the Kingdom of Cambodia.

(c) The objectives of the company and any

restrictions on the business that the company

may carry on.

(d) Company objectives may include one or more

types of businesses not contrary to any provision of

law.