Business Enterprises Comparative Laws

Chapter 1: Forms of Business Organization

Chapter1

FORMS OF BUSINESS ORGANIZATION

Selected Asian Countries		Cambodia
The laws of the four countries provide for the following forms of business organization:
1.1 Sole Proprietorship
A sole proprietorship is a business firm established and owned by one person (natural or legal) who has absolute and full control over the management of the firm and full, unlimited liability for all obligations of the business to the full extent of his personal assets. All four countries: provide for this form of business organization. Singapore and Malaysia: a company may be the owner of a sole proprietorship Thailand and the Philippines: a company may not be the owner of a sole proprietorship.		An enterprise established and operated by an individual, who is owner of all the capital and is liable for its operations. The sole proprietorship is not required to have articles of incorporation and bylaws. This situation can be compared to a natural person who carries on business as a sole proprietor. This natural person does not lose his status as a natural person if it does not registered. Instead it carries on business in violation of the law bearing upon commercial regulations and the commercial register. Cambodia has also a Single member private limited company – particular form of limited company containing only one shareholder.
1.2 Partnership
A partnership is an enterprise established and owned by more than one person who have equal rights and powers to manage the firm--unless otherwise specifically agreed--and unlimited joint liability for its obligations to the full extent of their assets. All four countries: provide for partnership form with the following differences: Singapore and Malaysia: there can be no more than 20 partners, unless it is a partnership exercising a profession, in which case it may have more. Otherwise, a partnership having more than 20 partners must incorporate as a company. Thailand and the Philippines: there appears to be no limit on the number of partners possible. Philippines: a partnership is a legal entity with an identity and capacity separate from that of its owners. Singapore and Malaysia: a partnership is not a legal entity and has no identity and capacity separate from that of its owners. Thailand: partnerships can be either registered or unregistered, but is not considered as a legal entity until it is registered. All four countries: a partnership is formed by a contract.   Philippines, Singapore and Malaysia: Partnerships may not commence doing business until it is registered. Thailand: an unregistered partnership is not a legal entity and a partner cannot acquire rights against third persons by a transaction where his own name did not appear.		A partnership is a contract between two or more persons to combine their property, knowledge or activities to carry on business in common with a view to profit. A general partnership (“société en nom collectif”) is a contract between two or more persons. Each partner is severally and jointly liable toward the partnership’s creditors. All partners manage the business of the partnership. In carrying on the partnership’s business, the act of each partner binds the partnership. The partnership is formed and the parties are bound to the contract at the time the contract is made, unless the contract states otherwise. A partnership has a legal personality separate from that of each of its partners. A partnership acquires legal personality when it registers in accordance with the Law bearing upon commercial regulations and the commercial register, and has the following rights. to own movable and immovable property in its own name; to carry on business in its own name; to contract in its own name; and to sue and be sued in its own name.
1.3 Limited partnership
A limited partnership consists of general partners who have unlimited liability for the debts of the partnership and the right actively to manage the partnership and limited partners whose liability is limited up to a fixed amount and who have only passive management rights to approve certain major transactions. Thailand and the Philippines: This limited partnership form is found there. A limited partnerships must be registered. Thailand: until it is registered, a limited partnership is considered as an ordinary partnership with unlimited liability for each and every partner. Singapore or Malaysia: the limited partnership form is not recognized there.		A limited partnership (“société en commandite“) is a contract between two or more persons where there are two types of partners. The general partners (“commandités”) are severely and jointly liable and are the sole partners entitled to manage the business of the partnership. The limited partners (“commanditaires”) are only liable for the amount of their contribution to the capital of the partnership. The limited partners are not entitled to manage the affairs of the partnership. The specificity of the limited partnership contract is that one or more partners are general partners and other partners are limited partners. Only general partners are permitted to administer and bind the partnership. The limited partners are bound to contribute to the capital of the partnership. The limited partnership is formed on the date on which it is registered in accordance with the law bearing upon commercial regulations and the commercial register. If the limited partnership is not registered, it is deemed to be a general partnership.
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1.4 Company or Corporation
All four countries: provide for the corporate form of business organization, known as: the Philippines: called the “corporation” or “stock corporation”. Thailand: called “limited company”. Singapore and Malaysia: called “company limited by shares” (often shortened also to “limited company” or to just “company”). A limited company is an artificial, legal entity which has a legal existence separate from that of its shareholders or owners and which is created by the State through operation of law. and therefore has the powers, attributes and properties expressly authorized by law or incident to its existence. It is also the kind of company which is formed with a capital divided into equal shares, the liability of the shareholders being limited to the amount, if any, which is unpaid on the shares respectively held by them. All four countries: there are basically two main types of limited companies—namely: “public limited company” (known in Thailand, Singapore and Malaysia) and an “ordinary corporation” (known in the Philippines) on the one hand; and “private limited company” (known in Thailand, Singapore and Malaysia) or “close corporation” (known the Philippines) on the other. All four countries: the private limited company is described by reference to the public limited company. Therefore, the public limited company or ordinary corporation is described first:		The draft Law of Commercial Enterprises provides for the creation of two types of limited company, namely: 1. private limited company and 2. public limited company. The scope of this Law only relates to legal persons created for the purpose of carrying on business with a view to profit. It does not embrace the creation of non-profit organizations. The Law of Business Enterprises does not provide for rules regulating the issuance of a prospectus by public limited company. The regulation and administration of issuance of prospectus will be provided for in a specific securities law that will include the creation of a securities commission. (art. 87)
1.4.1 Public Limited Company or ordinary stock corporation
All four countries: A “public” company in these countries does not mean a state owned enterprise either wholly or partly. Rather, the word “public” means that this form of company has the right to raise capital by offering shares, debentures or other securities to the public which are freely transferable. Singapore, Malaysia and the Philippines: it is clear that, although a public company has the right to offer or issue securities to the public, it is not required to do so. There is no specific requirement in Thailand either. Thailand: A public company there must have a minimum of 100 shareholders. Singapore and Malaysia: the minimum is two shareholders. the Philippines: the minimum is seven shareholders. All four countries: A public limited company or corporation has the following attributes and properties authorized by law or incident to its existence: 1.4.1 (a) Separate legal entity It is an artificial, legal entity which has a legal existence separate from that of its shareholders or owners created by the State through operation of law. 1.4.1 (b) Right of succession A company enjoys the right of succession or continuous existence without regard to the death, or bankruptcy of its shareholders or changes in shareholders. 1.4.1 (c) Unlimited duration • Thailand, Singapore, and Malaysia: No limit set on the duration of companies. Unless specifically limited to a specific term of existence in their Memorandum of Association, shareholding companies in these three countries have a duration and existence which is unlimited until terminated by operation of law--such as, for example, by merger, amalgamation, bankruptcy, or voluntary dissolution. Unlimited duration promotes economic and business continuity and stability: Since the shareholding company is a legal entity, recognized as a person separate and distinct from its human owners and managers, it can outlast them and go on indefinitely, thereby promoting business and economic continuity and stability. • Philippines: puts a limit on the duration of an incorporated company--namely, 50 years, at which point it must be extended by a vote of 2/3 of the issued shares. Limiting duration in this manner does not promote business and economic stability and continuity as well as those which provide for perpetual life. 1.4.1 (d) Centralized management separate from ownership A company has “centralized management” in a Board of Directors elected by the shareholders but which is empowered to manage the company on a day-to-day basis without consulting the shareholders--except in the case of major transactions as described under Section 13 on allocation of powers in the corporate governance structure. In other words, management is centralized and separated from ownership unlike a partnership where the owners--that, is all of the general partners--have the power to manage and bind the company unless agreed otherwise in the partnership agreement. 1.4.1 (e) Limited liability of shareholders The shareholder-owners of the company have “limited liability” in that they are liable for no more than the price they pay or are obligated to pay for their shares, unlike owners and general partners who have unlimited liability for the debts of their sole proprietorship or partnership up the full extent of their personal assets. 1.4.1 (f) Limited liability of directors and managers Similarly, directors and managers have limited liability in that they are liable only for knowingly illegal actions, disloyalty to the company or “negligence” (that is, careless or very careless acts) but not for honest mistakes of business judgment or even stupidity. 1.4.1 (g) Free transferability of shares The shareholders have the right to freely transfer their shares to other parties without prior approval, although the transfer may be subject to some restrictions. 1.4.1 (h) A flexible capital structure: A company can have a flexible capital structure by having: A large variety of different classes and types of shares and securities to the extent authorized by its Memorandum and/or Articles of Association.   Authorized but unissued shares: That is, the company is not required to issue all of its authorized shares. The proportion varies from country to country.   A public company has the right to raise capital by offering shares, debentures or other securities to the public which are transferable by meeting the disclosure requirements specified in the law--principally be circulating a prospectus which describes the securities, the financial condition and past performance of the company and the prospects and risks of buying the securities.		A “public limited company” is a form of a limited company that is authorized by this law to issue securities to the public. A company comes into existence and acquires legal personality on the date shown in the certificate of incorporation. The “company has the capacity, the rights, powers and privileges of a natural person”, embraces all powers available to a natural person. Like a natural person, a company has, for example, the powers: to sue and be sued; to purchase, receive, rent, own, hold, and manage real and personal property or any interest in such property; to sell, convey, lease, exchange or mortgage any or all of its assets or any interest in them regardless of their location; to participate with other legal or natural persons in another limited company, partnership, joint venture or association of any kind; to enter into any contract; to borrow money; to issue promissory notes; to register trademarks in its name; to lend money; etc.
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1.4.2 Private Limited Company or Close Corporation
1.4.2 (a) General--Similar characteristics to a public company Generally, a private limited company has characteristics similar to a public limited company in that it is a separate legal entity with the right of succession, centralized management, limited liability of shareholders and ownership divided into shares which may be transferred (though subject to restrictions). 1.4.2 (b) Specific requirements of a private limited company/close corporation All four countries: require a private company or close corporation to have the following characteristics: 1.4.2 (b)(1) Restricted number of shareholders: Thailand: No more than 99 shareholders. Singapore and Malaysia: 50 shareholders. Philippines: 20 shareholders. If the number of shareholders exceeds the maximum number, the company must become a public company. 1.4.2 (b)(2) Shares transfer restrictions All four countries: require or permit restrictions on transfer of shares by a company such as a right of first refusal to existing shareholders or the company itself. 1.4.2 (b)(3) Prohibition on offering shares to the public This is the essence of the difference between a “private” and a “public” company. • Philippines, Singapore and Malaysia: prohibit private companies or close corporations from offering shares or other securities to the public, from listing on the stock exchange, from obtaining deposits from the public and from raising money from the public by any other means. If any of the foregoing requirements is not present, the company is considered as a public company or ordinary corporation and not a private company or close corporation. • Thailand: private and public limited companies are formed under different laws, and there are no such automatic provisions.		A “private limited company” is a form of a limited company that meets the following requirements:   1. the company has not more than 30 shareholders at any one time. Persons who own shares jointly shall count as one shareholder for this purpose. 2. the company may not offer its shares or other securities to the public generally, but may offer them to family members, employees and other groups with common family or business interests. the company has one or more restrictions on the transfer of each class of its shares. a majority of the shareholders and a majority of the board of directors elect to have the company treated as a private limited company. The election shall be made in prescribed form provided by the Minister of Commerce.
1.4.3 Other differences between private and public companies
1.4.3 (a) More flexible management structure in the Philippines and Thailand • Thailand: a private limited company may be managed by one or more directors, whereas a public limited company must be managed by a Board of Directors with a minimum of 7 directors. • Philippines: a close corporation may choose to eliminate the board of directors altogether and be managed directly by the shareholders. • Singapore and Malaysia: there is no difference in that both public and private companies must have a minimum of two directors, and there are no other requirements. 1.4.3 (b) Capital Structure somewhat less flexible in Thailand, but the same in Singapore, Malaysia and Philippines • All four countries: a private company can have a large variety of different classes and types of shares and securities similar to a public company as authorized by its Memorandum and/or Articles of Association, except that they cannot issue them to the public. • Philippines: permits in addition a close corporation to issue different classes of shares which have the right to elect their own member to the board of directors, whereas in an ordinary corporation each share carries one vote for all directors. • Singapore, Malaysia and the Philippines: private companies may have authorized but unissued shares: That is, the company is not required to issue all of its authorized shares. • Thailand: all authorized shares must be however issued upon formation or upon any capital increase authorized by a super majority of shareholders. Thus, the capital structure for a private limited company is considerably less flexible in Thailand than the other three countries.		A private company may have only one director, but a public company shall have at least three. The articles of incorporation can specify a larger number, but this article provides for the minimum number of directors which must be complied with. The AoA may provide for more than one class of shares and, if they so provide, the rights of each class of shares may be absolute, relative or contingent. The rights, privileges, restrictions and conditions attaching to the shares of each class shall be set out in the AoA. The rights are attached, individually or in their entirety, to at least one class of shares. Article 145 provides for mandatory rules applicable when the company has more than one class of shares. All fundamental rights attaching to shares, the rights to vote, to receive dividends and to receive the remaining property of the company on dissolution, have to be present in one or more class of shares.
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1.5 Other forms and classifications of companies
1.5.1 A “listed” company
All four countries: a “listed” company is a public company which is listed on the stock exchange. Thus, all listed companies are public companies, but not all public companies are listed companies.
1.5.2 Related Companies--subsidiaries, holding companies, etc.
Singapore and Malaysia: also define companies by their relation to each other: 1.5.2 (a) Subsidiary-- “daughter” company A company is a subsidiary (“daughter company”) of another company where the other company: 1. Controls the composition of the subsidiary’s Board of Directors; and 2. Controls more than half of the voting power or the issued shares of the subsidiary. 1.5.2 (b) Holding Company-- “parent company” A company is the “holding company” (or “parent”) of another company if that other company is its subsidiary as defined above and itself is not a subsidiary of another company. Other countries might use the term “parent company”. 1.5.2 (c) Affiliated company-- “sister company” A company is “affiliated” with another company where they both have the same holding or parent company and are therefore “sister companies.” 1.5.2 (d) Related companies Singapore and Malaysian: provide that companies which are holding companies or subsidiaries as to each other or are subsidiaries of the same holding company are related to each other.		Affiliate - interpretation • a company is affiliated with another company if one of them is the subsidiary of the other or both are subsidiaries of the same company or each of them is controlled by the same person. • if two companies are affiliated with the same company at the same time, they are deemed to be affiliated with each other. • "Subsidiary" means a partnership or company controlled by another partnership or company, called a "parent." • In the case of a subsidiary partnership, the parent partnership owns at least a majority of the interest of the subsidiary. • In the case of a subsidiary company, the parent company owns at least a majority of the company's voting shares. • A subsidiary partnership or company is always formed pursuant to the laws of Cambodia independently of the fact that the parent partnership or company may be formed pursuant to the laws of Cambodia or to the laws of a foreign country. All legal obligations imposed by the laws of Cambodia are applicable to a subsidiary. A subsidiary partnership or company will register in accordance with the rules applicable to partnership and company formed in Cambodia. Note: to the exception of the restrictions imposed at large by legislation regulating a specific type of activity (for example, banking), there are no restrictions on the commercial activities that a subsidiary may carry out. The main foreign elements of a subsidiary, are: ownership of interest or shares by a foreign entity and control of the subsidiary.
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1.5.3 Branch and representative office
All four countries: recognizes branches not as a separate business organization but as part of a foreign or domestic company which therefore has unlimited liability for the obligations and losses of the branch. Branches must be registered to do business. Thailand recognizes the representative office again not as a separate business organization form.		Foreign business defined A foreign business is a legal person formed under the laws of a foreign country having a place of business in, and doing business in Cambodia. • a foreign business may conduct business in Cambodia in the following forms: 1. commercial representative office, commercial relations office, or agency; (“representative office”); or 2. branch. • a representative office and a branch are agents of their principals and do not have legal personality separate from their principals “doing business:” A foreign business shall be considered to be “doing business” if the foreign business performs any of the following acts in Cambodia: 1. rents office or any other space for manufacturing, or processing, or performing services for more than one month; 2. employs any person to work for it for more than one month; 3. employs or pays persons to regularly enter Cambodia to sell goods or services of the foreign business, even if the foreign business does not have an address in Cambodia; 4. performs any other act that constitutes carrying on business in the kingdom of Cambodia. “representative office:” A representative office may perform the following acts in Cambodia: 1. Contact customers for the purpose of introducing customers to its principal. 2. Research commercial information and provide the information to its principal. 3. Conduct market research. 4. Market goods at trade fairs, and exhibit samples and goods in its office or at trade fairs. 5. Keep a quantity of goods for the purpose of trade fairs. 6. Rent an office and employ local staff. 7. Enter into contracts with local customers. A representative office may not regularly buy or sell goods, perform services, or engage in manufacturing, processing or construction. Branch: A branch may perform the same acts as a representative office. In addition, a branch may regularly buy and sell goods and services and engage in manufacturing, processing and construction.
1.5.4 Joint Venture
All five countries: a joint venture is not a legal entity nor a legal form of business organization and need not be registered as such. Basically it is an agreement between two persons--natural or legal--to pursue a specific goal. To carry out its goal, the joint venture take any legal form of business organization as described above, including that of a company (which would require registration but as a company not as a joint venture). Otherwise, it is treated as a partnership between the parties for third party liability purposes.