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Forms of Business Ownership in Cambodia

The Law on Commercial Enterprises, promulgated on 19 June 2005, governs commercial law in Cambodia and defines different types of corporate structures through which business can be conducted, including (1) sole proprietorships, (2) partnerships, (3) private limited liability companies or public limited enterprises, and (4) foreign businesses. Investors must register the business at the Ministry of Commerce in the month of formation and no more than 15 days before the commencement of its operations.
 
From 4 January 2016, the Ministry of Commerce (‘’MoC’’) launched an online commercial registration platform to facilitate business registration for new companies. Moreover, all companies that were incorporated before 4 January 2016 are required to re-register on the MoC’s website.  
 
Sole proprietorship
 
A sole proprietorship, as its name implies, is a type of business entity that is owned and operated by a single natural person who owns all of its capital.  There is no legal distinction between the owner (i.e the sole proprietor) and the business. As a consequence, the owner bears sole and exclusive responsibility over the obligations and liabilities that may occur during the operation of the business.
 
Partnership
 
Two or more persons own a business. It is the most commonly used business organization for professionals such as lawyers, doctors and accountants who wish to do business together. There are two types of partnerships: general partnership and limited partnership.
 
In a general partnership, the general partners control the day-to-day operations and are personally liable for the partnership’s debts and obligations. However, a limited partnership has at least one general partner who is the sole person authorized to administer and bind the partnership and is required to have at least one limited partner who contributes to the capital and is liable only to the extent of their capital contribution.
 
Company
 
The company is the most common business entity. While, constituting a company is more complicated and expensive than forming a sole proprietorship or a partnership, it has the considerable advantage of limited liability for its members.
 
The Law on Commercial Enterprises requires a limited liability company to have, by default, its capital divided into 1,000 shares, with a value per share at least equal to KHR 4,000. Therefore, the Ministry of Commerce requires a deposit of KHM 4 million into a company bank account in order to meet the capital requirements for commercial incorporation. The company is required to have a registered office address in Cambodia.
 
There are two types of companies: private limited and the public limited companies.
 

  • Private Limited Companies: A Private Limited Company may have 2 to 30 shareholders and is prohibited from offering its shares or other securities to the public.
 
  • Public Limited Companies: A Public Limited Company is legally authorized to issues securities to the public. It may have more than 30 shareholders. In Cambodia, only Private Limited Companies can operate banking business, insurance business or be a financial institution.
 
Foreign Business
 
A foreign parent company has various options to conduct its business in Cambodia. It can either set-up a Representative Office, incorporate a Branch Office, or register a Subsidiary.
 
  • Representative Office
 
An RO is not a separate legal entity from its principal and has no legal personality. Nonetheless, it remains subject to commercial registration with the Ministry of Commerce (“MoC”).
 
Its scope of activities is limited. The permissible acts of a representative office in Cambodia include:
 
  • introducing customers to the principal company;
  • conducting market research;
  • marketing products at trade fairs;
  • renting an office and employing staff; and
  • entering into contracts with local customers on behalf of its principal.
 
Most importantly, an RO must not, whether directly or on behalf of its parent company, carry on commercial operations, be engaged in profit making activities, nor engage in trading activities in and out of Cambodia. Its activities should be limited to facilitating the sourcing of local goods and services and to collect information for its parent company. It may also serve as a channel for promoting and marketing the parent company’s products and services in Cambodia.
 
A RO should not derive any income from its activities. However, the RO is subject to tax requirements regarding the withholding tax paid on salaries to employees as well as an annual business operation tax (patent tax).
 
  • Branch
 
A branch is an office opened by a foreign company for the purposes of conducting a particular commercial activity in Cambodia. It is not a separate legal entity from its principal and has no distinct legal personality. In common with an RO, a branch is subject to commercial registration with the MoC.
 
A branch can conduct all of the activities of a RO. In addition, a branch can undertake business and commercial operations in Cambodia in any sector that is open to foreign investment. Indeed, a branch may purchase and sell goods, conduct regular professional services, engage in manufacturing, processing and construction in the same manner as a local business, except for any activities that are prohibited to foreigners (such as the restriction on for foreign ownership of land). Hence, the scope of activities of a branch is broader than that of a RO, because a branch can engage in any commercial and profit making activities that are allowed to any local companies (except activities that are restricted for foreign investors).
 
  • Subsidiary
 
A subsidiary can be incorporated as a limited liability company or a partnership and is a separate legal entity from its principal. A subsidiary is a company incorporated in Cambodia which has at least 51% of its capital held by a foreign company.
 
A subsidiary can undertake any activity that is open to foreign investment. Each subsidiary is required to incorporate and register with the MoC.