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26 June, 2018
With the commencement of the new Myanmar Companies Law (MCL) on 1 August 2018, the Directorate of Investment and Company Administration (DICA) is introducing a new electronic companies' registry which will greatly improve the efficiency and transparency of company filing procedures. On 22 June 2018, DICA announced that all companies and other entities incorporated under the Myanmar Companies Act 1914 and the Special Companies Act 1950 must re-register with DICA between 1 August 2018 and 31 January 2019. This announcement comes in the lead up to the implementation of the Myanmar Companies (Electronic Registry System and Miscellaneous Matters) Regulations 2018. The potential implications of failing to re-register by the stipulated deadline are severe: DICA has the discretion to strike a company's name off the register, so the company shall be dissolved and prohibited from carrying on business in Myanmar. Importantly, however, the liability of every director and member of the company shall continue (notwithstanding that the company has been dissolved).
Every company incorporated in Myanmar should thus ensure that it promptly re-registers, submitting all requisite information. In addition to providing much of the standard corporate information similar to that included in the current Form E annual return (such as details of directors, any secretary, the registered office, principal place of business, members and issued share particulars), it is also necessary to stipulate whether the company has an ultimate holding company and whether the company will be a 'foreign company' on re-registration. The criteria to determine a 'foreign company' is whether an overseas corporation or other foreign person (or combination) own or control, directly or indirectly, an 'ownership interest' of more than 35%. 'Ownership interest' is broadly defined to cover any legal, equitable or prescribed interest in a company arising through, inter alia, a direct shareholding in the company, a direct or indirect shareholding in another company which itself holds a direct or indirect shareholding in the first company or through an agreement which provides a direct or indirect right to exercise control over the voting rights in the company. These requirements will bring about greater transparency over corporate ownership structures in Myanmar.
Constitution
A key consideration for a company when re-registering is what constitutional provisions it should adopt. On 1 August 2018, the company's existing memorandum and articles of association shall automatically take effect as the company's 'constitution' (the new term under the MCL), save to the extent that any matters are inconsistent with the MCL and (as of 1 February 2019) save for the objects clause (see further below). Most companies incorporated in Myanmar adopted the previous model form memorandum and articles of association (pursuant to regulations under the Companies Act 1914), in the interests of a speedy incorporation process and given the challenges in trying to deviate from the previous model form.
As the previous model form provisions are often not well suited to modern corporate practices, it is a significant advance that the MCL now allows far greater flexibility as to the constitutional provisions which a company may adopt. Furthermore, the MCL offers a far more comprehensive and up-to-date model constitution and allows companies the flexibility to adopt their own form of constitution. In re-registering with DICA, a company must specify the form of constitution it has adopted – and if the company has not adopted the model form of constitution prescribed under the MCL regulations, a copy of the adopted constitution must be submitted to DICA upon re-registration. We thus strongly recommend that companies take this opportunity to consider which constitutional provisions are best suited to the company's operational practices, and that companies take the necessary steps to adopt suitable new constitutions in time to meet the DICA re-registration deadline.
Objects no longer mandatory
The MCL no longer requires that the company's constitution should set out the company's objects, again allowing greater flexibility as companies will no longer be restricted to only being permitted to conduct 'business activities' which fall within the objects clause as previously approved by DICA. Under the MCL, a company's objects will continue to apply until 31 January 2019, following which the objects will automatically be deemed removed unless the members have passed special resolutions to maintain the objects and made the relevant filings. Alternatively, as of 1 August 2018 a company's members can vote to amend the constitution and remove the objects (thus procuring the removal earlier than when the objects would otherwise automatically cease to apply under the MCL). We suspect that few companies will choose to retain their objects clauses.
Resident director
A new requirement under the MCL is that every company must have at least one director who is ordinarily resident in Myanmar (ie must be a permanent resident or resident for at least 183 days in each relevant 12 month period). Details of the resident director must be provided upon a company re-registering with DICA.
No par value shares
As the MCL does away with par value shares, when a company re-registers, all its existing shares are deemed converted into shares of no par value. This does not however affect any rights and obligations attaching to the shares.
Single member company
As the MCL allows private limited companies to have a single member, some existing companies may also now wish to restructure, to take advantage of the greater flexibility. In particular where the commercial intention has always been that the company should have a single owner, but companies were forced to comply with the Companies Act 1914 requirement that a company must have at least two members, companies may now wish to restructure and transfer the minority shareholder's shares to the main (intended) shareholder. While this can be addressed at any time following the implementation of the MCL, it is a good opportunity to consider whether to 'tidy up' such issues and achieve a corporate structure that wholly reflects the shareholders' intentions in conducting a thorough 'corporate overview' in preparation for the re-registration filing.
New certificate of registration and registration number
After a compliant re-registration application has been submitted to DICA, DICA will issue a new certificate of registration and new registration number for the company. The company will however remain the same legal entity and the issue of the new certificate and registration number does not in any way affect the rights and obligations of the company.
Annual return
As re-registration will entail updating all the company's corporate particulars with DICA, companies do not need to file any annual return which would otherwise fall due within the period between 1 August 2018 and 31 January 2019.
What action should companies take now?
Companies have no choice. To avoid being struck off, any company incorporated in Myanmar must comply with the re-registration requirements by the deadline of 31 January 2019. In particular as companies would be wise to use this opportunity to adopt a more pragmatic constitution and consider whether they wish to take advantage of the greater flexibility offered under the MCL in various key aspects, companies should start preparing and giving thought to what would best suit them and to taking any necessary corporate actions, as well as compiling all the requisite information to be submitted to DICA. We are happy to assist companies in adopting an appropriate constitution, making any desired further corporate changes and preparing the necessary filing, so please contact us for assistance in complying with these mandatory obligations.
For further information, please contact:
Tom Platts, Partner, Stephenson Harwood
tom.platts@shlegal.com
