Laos

4 Chapter Corporate Laws

    • Introduction

       Basing on recent improvements in its economy, the Lao People’s Democratic Republic (Lao PDR) is now on its way to graduation from Least Developed Country status. It is one of the fastest growing economies in the East Asia and Pacific region.  As of 2015, it has expanded by around 7%, after growing by 7.5% in 2014, according to the World Bank’s latest Lao PDR Economic Monitor. This growth has been largely attributed to increased power generation, services and construction. 
       
      In 1986, the Lao PDR government launched the “New Economic Mechanism” ushering in a series of reforms in its laws and processes. It has since worked on simplifying its business registration process and streamlining business registration. 
       
      Attracting investors, both domestic and foreign, is one of its strategies for sustaining economic growth. Foreign investors are required to obtain:
      1.  Investment license
      2. Annual business registration from the Ministry of Industry and Commerce
      3. Tax registration from the Ministry of Finance
      4. Business logo registration from the Ministry of Public Security
      5. Permits from each line ministry related to the investment (i.e., Ministry of Industry and Commerce for manufacturing; Ministry of Energy and Mines for power sector development)
      6. Appropriate permits from local authorities;and
      7. Import-export license, if applicable.  
       
      To streamline the business registration process, it follows a “One- Stop Shop” model. As such, the Ministry of Industry and Commerce serves as the one stop shop institution for general business activities while the Secretariat to the Lao National Committee on Special Economic Zones (SNCSEZ) in the Office of the Prime Minister for Special Economic Zones (SEZ). 
      In 2013, the Lao government began allowing businesses to apply for tax registration at the time of incorporation. In the same year, it became a member of the World Trade Organization.

       

       

    • Business Entities

      ■Representative office and Branch office
       
      The Business Law does not mention either representative offices or branch offices. Many branch and representative offices have been established in Laos.  The FI Law permits the establishment of both representative offices and branch offices in Laos.  The DDFI has standard descriptions for both these forms of business operations.  Under the DDFI interpretation of a representative office, such an office cannot conduct business on its own, but must refer all business operations to units outside the country.
       
      A foreign enterprise established in Lao PDR may be either a new company or a branch office of a foreign company. A branch office of a foreign company may have the Articles of Association of the parent company or separate Articles of Association providing they are consistent with the laws and regulations of the Lao PDR. The procedures for registering a branch office are the same as for any other type of company. A branch office is regarded as the same legal entity as its parent company. The parent company, therefore, can be held responsible for all liabilities of the branch in Laos.
       
      ■Sole Trader
       
      A sole trader enterprise is a business entity with a minimum registered capital of 1,000,000 kip created by one person who is fully liable for the activities of the entity. The owner of such a business acts on behalf of the entity and may assign a manager to run the business.
       
      ■Partnership
       
      A partnership can be formed between two or more partners to carry out business. There is no capital requirement for a partnership. The partners each may contribute funds, capital equipment, land, patents and trademarks, and technological know-how based on a formula to which they have agreed. The partnership can be managed by either or all of the partners or by a designated manager. All partners are jointly and severally liable for the liabilities of the partnership.
       
      ■Limited Company
       
      A limited liability company is comprised of from one to twenty shareholders. It must have a registered capital of at least kip  5,000,000 ($US470 as of April 2003) with at least half of the registered  capital paid up upon registration of the company and the remaining capital paid  up within two years of such registration. A limited liability company must establish reserve funds appropriated at 5 to 10% from its net profit. The shares of a limited liability company must all have the same value and are transferable only upon approval of two-thirds of the shareholders. A limited liability company must hold a general shareholder meeting at least once a year.  One or more managers, chosen at a general shareholder meeting, may manage the company. The manager may bind the company and may be liable to the company and third parties for his or her wrongful acts.
       
      A one-person limited liability company is a business unit created by a single person. It must have capital of at least 5,000,000 kip.  This person is responsible for the company’s liabilities only up to the extent of the company's registered capital.
       
       A limited liability company is the most common structure for conducting business in Laos.  By law, a company is regarded as a juristic person that has the right to own property and carry out business under its name. Its liabilities to others are separate from those of its shareholders.
       
       
      ■Public Company
       
      A public company can be created by a minimum of seven shareholders. All shares in the company must have equal value. Shareholders in public companies are liable up to the limit of their unpaid capital contribution. Shares in public companies may be paid in cash or in kind. The maximum value of each share is 10,000 kip. A public company's registered capital must be 50,000,000 kip or greater.
       
      The management of a public company is conducted by the Executive Council, which includes 5 to 17 members, including one or two worker’s representatives. A public company must hold an ordinary general meeting of shareholders at least once each year. Shareholders and proxies representing two-thirds of the shares can call an extraordinary general meeting upon first notification or half of the shareholders on second notification.
       
      Shares of public companies may be sold to outsiders as well as inside shareholders. Shares in a public company are transferable. At present, however, there is no stock market in Laos. A public company is incorporated in a similar manner to a private company. A limited company may be transformed into a public company. Unlike a private company, a public company may issue debentures and shares to the public.
       
      ■Private-State Mixed Enterprise
       
      A Joint-Venture enterprise is a joint enterprise between the state on one side, and other forms of private business entities on the other side. In mixed enterprises, the state must hold at least 51% of the shares.  Mixed enterprises are regulated by the same rules as public companies with the following exceptions:
       
      ·The private shares are managed as shares of public  companies;
      ·The share certificates are transferable;
      ·The government has the decision over the transfer of shares  owned by the state;
      ·The Chairman of the Board of Director is appointed by the  Minister of Finance and the Vice-Chairman is selected by the private party and  approved by the minister of Finance;
      ·The President of the Board of Directors has a casting vote.
       

    • Business Laws

      ■Business Law of 1995
      The Business Law aims at promoting all economic sectors investing in business in all sectors in view of developing market economy along the market mechanism adjusted by the State. The following are the highlights of the law:
       
       
       
      1. Business Persons
      Business persons are persons conducting business operations as their profession. They include intermediaries   or those representing and liasing between business persons.
      - Intermediaries include agents and brokers:
       
      ·Agents are individuals or juristic entities representing an individual or juristic entity in negotiating and signing business contracts.
      · Brokers are individuals or juristic entities acting for the interest of other individuals against compensation or establishing contacts between business persons for the negotiation of contracts without being any party’s agent.
       
      2. Persons prohibited from conducting business as their profession include:
      · Children under eighteen years of age
      ·Incapacitated persons
      ·Persons prohibited from conducting business by court decision
      · Civil servants, unless specifically authorized.
       
      3.Business sectors reserved specifically for Lao citizens will be determined separately by the government.
      4.Trade certificates are exchangeable credit contract documents governing payments according to the regulations of financial institutions.
      5.Persons having the intention to create an enterprise shall present an application for the creation and registration of such enterprise to the commercial sector. Application procedures for the creation and registration of enterprises will be separately determined by the relevant sectors.
      At the receipt of an application, the commercial sector and other concerned sectors shall rapidly consider and give an answer within a period not exceeding 60 days from the day the application is received.
      An enterprise will be considered as lawfully created only when properly registered.
      6.Enterprise registration shall take place as the sequential and systematic recording of enterprise registration numbers in the "Enterprise Registry" grouping all contracts, by-laws and information of enterprises kept by creditors. After their registration, any change in relation to the enterprises, such as amendment of by-laws, dissolution, liquidation, the person responsible for the enterprise shall notify the concerned officials in order to record such changes in the Enterprise Registry.
      7. After the registration of enterprises, the registration of revenues shall be made with the Financial Department.
      The revenue registration monitors the performance of annual obligations according to the financial laws and regulations.
      8. Investors and shareholders have the following rights and obligations:
      ·Contribute to the operations of the company in accordance with the by-laws:
      ·Receive notifications on the company’s operations
      ·Participate in meetings and vote
      ·Receive dividends:
      ·Contribute capital to the company and pay shares in due time
      ·Be responsible for the company’s liabilities according to the type of company.
       
      ■Law on Enterprises, as amended 2013
      This is the law governing the registration of commercial activities. On December 26, 2013, the National Assembly amended and repealed the 2005 Law on Enterprises and adopted the 2013 Enterprise Law effective September 17, 2014. Some of the highlights of the law are:
       
      ·Enterprise Registration Certificate (ERC)
       
      An ERC must not be transferred to other individuals or legal entities for use. Violators are liable for all the acts of the individual/entity using the ERC rights. Business operations performed by the individual/entity misusing the ERC are illegal and the transferor is subject to a fine. The interests of a creditor of an unregistered individual/entity using the ERC, however, are protected if their transaction was concluded in good faith.
       
      ·Joint-Companies
      Establishment of joint companies under the 2005 Enterprise Law applied when both State and non-State investors each held 50% of the shares. The 2013 Enterprise Law provides that a joint company is an investment between the State or a State Enterprise and non-State investors and the amount of capital from State investors is decided as agreed by the parties.
       
      ■ Law on the Promotion and Management of Foreign Investment 
      1. Openness to foreign investment:
      Among the reforms adopted by the Lao Government in 1994 was an official policy promoting foreign direct investment as a means of boosting development and economic growth. Under the 1994 Foreign Investment Law, foreign investment is only specifically prohibited in sectors affecting national security, or if it is deemed detrimental to the environment or to public health. The law permits 100% foreign ownership in all sectors except hydropower, forestry, and mining. In practice, however, some sectors, such as finance, construction, and many aspects of timber exploitation are effectively closed to most foreigners.
       
      The Foreign Investment Law is framed in positive, progressive terms, though it lacks detail and implementing regulations. It guarantees protection of foreign investments and property from government confiscation, seizure or nationalization without compensation. It also guarantees operation free from government interference, the right to lease land, to transfer leasehold interests, to make improvements on land and buildings, and to repatriate earnings. Foreign investors may invest in either joint ventures with Lao partners or in wholly foreign-owned entities.
       
       

    • Auditor

       
      ■ Obligation to set up corporate auditors As in Japan, Corporate Auditors in Laos are responsible for investigating whether there is illegal or significantly unfair execution of duties by corporate management audits and accounting audits, and for preventing or correcting injustice. The obligation to set up the corporate auditors is different between the public company and the private company, and in the case of the private company, there is no obligation to establish a corporate auditor, and installation is optional. However, if you own more than 50 billion Kip (about 500 million yen), you have to hire a Corporate Auditor (Article 153). On the other hand, in a public company, it is necessary to appoint a corporate auditor from the date of establishment (Article 179).

       
      ■ Election / dismissal of corporate auditors Statutory auditors are appointed / dismissed at the shareholders meeting, but due to the absence of a term of office, the term of office is automatically renewed unless it is dismissed at the general meeting of shareholders. In addition, when vacancies arise due to dismissal, an extraordinary general meeting is held and a new corporate auditor must be appointed immediately. Statutory auditors are required to be in an independent position, specifically, they must meet the following requirements (Article 154). · It is not a director, an officer or an employee of a corporation · There is no direct interest relationship with the stock company (provided, however, that the shareholders have no interest relationship)

       
      ■ Authority and roles of corporate auditors Statutory auditors must have the right, such as questions concerning work on officers and employees, viewing books, etc., and report the results at the general meeting of shareholders (Article 156). The authority of the corporate auditors is as follows (Article 156). · Audit fee receipt · Implementation of accounting audit · Questions for directors, officers or employees · Preparation of the accounting audit report to shareholders meeting
       
       

    • MINIMUM REQUIREMENTS

      ■Establishment and registration of enterprise certificate
      Establishment and registration of enterprise certificate to operate the business in Lao PDR are under 4 categories, 3 forms and 4 types in line with the Enterprise Law.

       
       
       
       
       
      ■Enterprise registration and its outcomes
       
      1. Enterprise registration
      It is the Government legalization of the enterprise registration to both domestic and foreign person, and legal entity in the business operations in Lao PDR.  Enterprise registration is done only one time throughout the business movement time.
       
       
      2. Outcomes of enterprise registration
      Make the partnership and the company in the legal entity status which is different from stockholders.  It gives rights, duties, responsibilities in accordance with its objective scope and regulations.
       
      Make the enterprise able to operate the business in accordance with the business activities determined in the enterprise registration certificate.
      The content of document files declared in the enterprise registration is open.
      It is the registration of enterprise and tax at the same time.
       
      3.Businesses for Lao citizens that are not necessarily declared for enterprise registration
       
      ·Production of agriculture and handicraft for family economy by using family members’ labour without hiring non-family member persons.
      ·Vendors comprise of: small-scale minimart business operators, peddlers, stall merchants with regular income below 100.000 Kip/day.
      ·Small-scale minimart business operators, peddlers, stall merchants with regular income below 100.000 Kip/ day.
      ·Seasonal traders or business operators.(based on the Announcement of Non-Registered Business No. 2037/IC.ERM28/10/214).

       

       

    • NVESTMENTS

      ■Investment in Special Economic Zone and Specific Economic Zone (SEZ)
      Investment in SEZ consists of 2 forms as follows:
      1.  General Investment
      Developers and investors can invest in all sectors in the SEZ, except for the Government prohibitive activities, mainly the trading of arms, drugs, poisonous chemical substances, activities that destroy environment, lives and properties of the people, services that are against regulations and laws, destruction of peace, tidiness, and beautiful national and local cultures. The general investments will not receive any promotional policy from SEZ.
       
      2.  Promotional Investment
      Promotional investments, according to the regulation of the SEZ Administrative Committee or Economic Administrative Board, are mainly the electronic industries, scientific and new technological researches in the production, production of modern  construction equipment, tourist precincts infrastructure, production and processing of hygienic agricultural product, organic products, production for export, forestation, schools, hospitals, public parks and other investment activities considered appropriate and strongly supportive by SEZ.
       
      ■Investment Proposals in SEZ
      Both domestic and foreign people and legal entities with purposes of investment is SEZ shall submit the investment application to the SEZ Administrative Committee or Administrative Board, depending on its specific forms.
                Investors can submit their investment application by fax, email or in persons to the One Stop Service Office of SEZ, depending on case by case.
       
      ■Management Mechanism
      1. Organisational Structure of SEZ Administrative Committee/Administrative Board.
      Organisational structure of SEZ includes Economic Administrative Committee/Board, Small Administrative – Wider Society Office(One Stop Service Office) that may be divided into several working units based on the appropriateness of each region, for instance, (1) Developers’ Group, (2) Social-Economic Group, and each group may be divided into several working units as follows:

       
       
      2. Basic Principles in mall Administrative – Wider Society Office (One Stop Service)
      Small Administrative – Wider Society Office (One Stop Service) operates in line with the general principles in the form of one stop service through concise, swift, creative, transparent, disclosed and accountable procedures. Agreements on important issues in relation to the SEZ development and management shall be made through the Economic Administrative Committee/Board.  In case the discussion with concerned sectors is necessary, the Small Administrative – Wider Society Office will be the one stop service provider in providing information and solving issues of the investors and service providers in the zone based on the determined date and time. Levies and service fee shall be openly announced and stuck at the Small Administrative – Wider Society Office.
       
      Basic functions of Small Administrative – Wider Society Office (One Stop Service)

       
       
      3. Small Administrative – Wider Society Office (One Stop Service)
      Small Administrative – Wider Society Office (One Stop Service)is the service centre in SEZ development and management, starting from receiving documents or proposals of investors, service provider throughout the solution, approval and return of the document to the entrepreneurs.  These generally include:
      1. Land Title Deed;
      2. Enterprise Registration Certificate;
      3. Import-Export (raw materials, machineries, construction materials, goods and  
      others);
      4. License on labour import (identity card and labour card);
      5.Tax-Customs collection (salary and value added tax);
      6. License on construction of office buildings, service centres, supermarkets and
      factory;
      7. License on environment;
       
       Procedures of Small Administrative – Wider Society Office (One Stop Service)
       
       
       
       
      ■Criteria and procedures of Small Administrative – Wider Society Office (One Stop Service)
      1. Lease of land utilization rights in SEZ
      a. Criteria of a proposer
      · Both local and foreign people or legal people;
      · Criminal Record Excerpt No. 03 (for Lao people);
      ·  Financial status;
      b. Documents required for license approval
      ·  Application for the lease of land utilization rights (based on SEZ printed forms);
      ·  Contract of business partnership (in case of joint investment from several parties);
      ·  Copy of identity card, copy of family book and criminal record excerpt No. 3 (for domestic  
           investors);
      ·  Copy of passport and brief biography of the investor (for foreign investors);
      ·  Power of attorney (as per the form of SEZ);
      c.  Consideration Procedures
      · The investors submit the proposal and relevant documents to the developer at One Stop
           Service Office of SEZ of their interest of investment;
      · The investors agree and concur with the developers on the rental rate, duration, payment
           method;
      · The developer signs a land lease contract with the investor, then proposes to the SEZ
      Administrative Committee or Economic Administration Board for the issuance of the leased land utilisation license in accordance with the agreed contract duration  (as per the form of SEZ).  The maximum duration of land lease contract must not exceed the SEZ development duration.
      2 Application for Enterprise Registration Certificate
      a. Conditions of the proposer
      ·  Person or legal person(both domestic and foreign);
      ·  Land use license for SEZ (rented with developer);
      ·  Criminal record excerpt No. 3. (for Lao citizen);
      b. Documents required for applying for an approval
      ·  Application for investment (as per the form of SEZ);
      ·  Land use license issued by the Zone Administrative Committee (rental has been paid);
      ·  Business partnership contract (if there are several investment parties);
      ·  Copy of ID card, copy of family book and criminal record excerpt No. 3 (for domestic
           investors);
      · Copy of passport and brief biography of investor (for foreign investors);
      ·  Power of Attorney (as per the form of SEZ).
      c. Procedures of Enterprise Registration Certificate issuance and renewal
      ·  After receiving the utilisation right certificate of the lease land, the investor submit the investment application, together with other relevant documents, to the One Stop Service Office for consideration;
      ·  Administrative Committee/Economic Administration Board issues the Enterprise Registration Certificate (as per the form of SEZ) no later than 3 days with 1 year validity for each issuance.  After expiration, the One Stop Service Office shall be advised to renew the certificate for the following year;
      · Before approving the Business Registration Certificate for the following year, the SEZ Administrative Committee must examine to find out whether the investor has already completely followed the customs-tax commitment, salary tax and other commitments or not.

       
       
      d. Cancellation of Enterprise Registration Certificate
      The Administrative Committee/Economic Administration Board is entitled to cancel or withdraw the approved Enterprise Registration Certificate and other promotion policies if it is found that the investor is not able to operate the business and procure 30% (thirty per cent) of the registered capital within 365 days (three hundred sixty-five days) after receiving the Enterprise Registration Certificate (is not entitled for the Enterprise Registration Certificate renewal).
       
      3 Application for stamps
      a. Documents required for license application
      ·  Application for stamp making (as per the form of SEZ);
      ·   Enterprise Registration Certificate.
      b. Procedures of license application
      ·  Submit application and enterprise registration certificate to One Stop Service Office of the zone;
      ·  Administrative Committee/Economic Administration Board verifies the documents and coordinates with concerned sectors (if needed) and issue the stamp use certificate (as per the form of SEZ).

       
       
      4 Goods Import-Export
       
      a. Documents required for applying for the approval
      ·  Enterprise Registration Certificate;
      ·   Application for goods import-export customs exempt (as per the form of SEZ);
      ·   Purchase orders and import-export invoice and packing list
       
      b. Procedures in applying for the approval
      ·   The investor submits the proposal and other relevant documents to One Stop Service Office;
      ·   SEZ Administrative Committee/ Economic Administration Board issues the certificate (as per the form of SEZ);
      ·   Declare the certificate and other relevant documents to customs-tax officers at goods import-export check pointfor their facilitation;
      ·   Import the goods according to the regulations at the customs-tax checkpoint;
      ·   If the goods are imported for service and trading, customs-tax laws for imported goods must be implemented.