On December 6, 2017, Myanmar’s President U Htin Kyaw approved the new Myanmar Companies Act, 2017, replacing the country’s century-old Companies Act of 1914. The new law aims to change the way companies are regulated in the country. It will modernize company formation and management, and significantly revise corporate governance in Myanmar, bringing the country’s company legislation at par with international standards.
The Act was drafted by Myanmar’s Directorate of Investment and Company Administration (DICA) with technical assistance from the Asian Development Bank (ADB). It offers a wide range of regulations that are relevant to foreign investors and businesses operating in Myanmar. Some of these are discussed below.
Change in the definition of foreign companies
One of the most significant changes introduced in the Act is the new definition of foreign companies. In the old Companies Act of 1914, even a company with a one percent of its shares owned by a foreign investor was classified as a foreign company. To sustain the “local company” status, companies had to maintain a 100 percent local ownership, thereby largely restricting foreign investment in Myanmar’s domestic companies.
The new Companies Act allows foreign investors to hold up to 35 percent of shares in a domestic company without the company losing its classification as a “local company”. The change in the foreign company definition unlocks huge business potential in areas that were previously restricted to foreign investors, such as banking and finance. It authorizes foreign investors to trade in shares on the Yangon Stock Exchange,which was previously restricted to local companies.
Further, it is much easier for companies to transform its legal status from “foreign” to “local” or vice versa, without seeking prior approval from the regulator. The concerned domestic company only need to notify DICA, if it transforms its legal status to that of a foreign company, that is, if the foreign investors share in the company increases beyond the prescribed limit of 35 percent.
This effectively opens up Myanmar’s economy to foreign minority ownership and paves the way for more foreign investments.
Amendment to rules related to company administration
Earlier, every company required a minimum of two shareholders and two directors for the incorporation of the company. The new Act reduces this requirement to a minimum of one shareholder and one director, allowing investors to make their Myanmar company a 100 percent owned subsidiary.
As per the new legislation, the director of the company need not be a Myanmar citizen, but must fulfill conditions to pass the “ordinary resident” status. In other words, she or he must be present in Myanmar for a minimum of 183 days in a year to qualify as the director of a company.
Further, the new Companies Act explicitly details the duties of corporate directors, including the duty regarding the use of position and use of information. It also details duty in relation to obligations of a company and duty to act with care and diligence.
Other important changes
Capital management: The Act allows more flexible capital structures and changes to share capital that will permit companies to raise or reduce capital with fewer procedural requirements.
Company registration process: Simplifying the application process for incorporation and registration of companies, the Act exempts investors from the need to obtain a trade permit from DICA. The change will significantly enhance the ease of doing business in Myanmar.
Protection to minority shareholders: Allowing for more flexibility in the organization of a company, the new legislation introduces more protection to minority shareholders. It empowers such shareholders to sue on behalf of the company, even if the directors of the company do not approve of the claims. Companies may also provide other instruments in their constitution that minority shareholders may use to further their interests.
Further, the law legally authorizes companies to carry on any business and activities, after obtaining a relevant license and therefore no longer need to define the objectives of the company in its Memorandum of Association.
Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region.