Laos

3 Chapter Establishment

    • Characteristics of business base

      In order to establish a base in Laos, it’s necessary to comply with Investment Promotion Act revised in 2009 and executed in 2010 and take a consideration of incentives of the Specific Economic Zone or the Special Economic Zone (SEZ: Special Economic Zone). The Laotian Investment Promotion Act is the integrated law of domestic and foreign investment into one because Laos needs to plan a distinguished law to join WTO. In addition, when establishing your subsidiary, for instance, you must comply with requirements of corporation required by Corporate Law enacted in 2005.

    • Form of Advancement

      When a foreign company conducts business in Laos, in addition to setting up a subsidiary company, you may establish branch offices and representative ones except subsidiary. When establishing bases such as branch office and representative office. The main business form is the overseas subsidiary and the form of corporation is commonly used. 

       

      【Form of advanced enterprise】

    • Local corporation

      ■ Corporation (Co., Ltd.)

      A corporation is divided into a public company and a private company in the company form in which all shareholders have limited liabilities. 

       

      • Private company (Limited Company)

      • Public Company 

       

      Under the Corporate Law of Laos, a company invested by one shareholder is called Sole Limited Company, and a company invested by from 2 to 30 shareholders is called Private Company (Article 2). Both sole and private companies have restrictions on the transfer of shares. These companies have no big difference in operation, but in the case of a sole company it is necessary to add the letter of "Sole" in your company name. Also, if a shareholder is corporation, it is not accepted as sole limited company at the time of application of incorporation. Therefore it is necessary to have another shareholder to complete incorporation of Private Company by preparing two or more shareholders. On the other hand, in the case of public company, the minimum number of shareholders is 9 or more (Article 2). In addition, there is no transfer of shares. Also, only corporate bonds can be issued.

       

      ■ Partnership (Partnership)

      Partnership is defined as "a joint entity formed by combining two or more persons or companies based on a contract for the purpose of obtaining profits", and is classified into two categories according to the range of responsibility of the investor (Article 2). 

       

      • General Partnership

      • Limited Partnership

       

      , General partnership is a form in which all employees (investors) undertake unlimited liability (the responsibilities of employees are not limited to the amount of contribution) and is equivalent to a partnership company of Japan. Since unlimited liability is a prerequisite, this form is rarely used in Laos as well as in Japan. On the other hand, limited partnership refers to a partnership consisting of employees of unlimited liability and limited liability (the responsibilities of employees are limited to the amount of contribution). Because of the liability is "limited", it seems all employees have a limited liability, but it is similar to a joint-stock company of Japan.

       

       

    • Form of expansion other than local subsidiaries

      ■ Representative Office
      As the company form of representative office you can not conduct direct profit-making activities. The following business activities can be performed.

      Collect and investigate information on whether headquarters can invest in Laos
      Contact between Laos and your country on the business of your headquarter

      Elaboration of necessary documents for contracts, agreements etc. that the head office concludes in Laos
      Monitor situation of implementation of contracts, agreements and others concluded by headquarters

       

      When you establish a representative office in Laos, you must apply for a foundation certificate at the one-stop service office of the Ministry of Planning Investment. The certificate of establishment of a representative office may be issued in principle as five business days after the application (Article 47 of Investment Promotion Act).
      A certificate of establishment of a representative office shall approve that the representative office may conduct activities in accordance with the terms of subcontracting, rights and obligations, in specific the right of activity for a gathering of intelligent information for the headquarters to invest in the future(Article 47 of investment Promotion Ac).
      NTT communications is a famous example of a Japanese company that conducts business in the form of a representative office. In 2011, they entered Laos as a representative office, and in the Mekong economic zone, they has provided ICT local solution services including international and domestic networks, data centers, internet, and system integration to multinational companies like Japanese, European, American, Thai and Vietnamese ones.

       

      ■ Branch
      In general, a branch office is the office mainly established in order to develop a similar business to the head office’s one with its request in the remote area from the headquarter or head office, therefore, it’s possible to perform sales activities unlike the advance form of representative office.
      An establishment certificate of branch may be issued within 15 business days after the date of applying to the one-stop service office of the Ministry of Planning Investment to open the branch office. The establishment certificate of branch approves the right to operate a business of a branch office as a mission given by the head office of foreign corporation under the law (Article 48 of Investment Promotion Ac).

       

      ■ Joint venture
      Article 11 of Investment Promotion Law of Laos stipulates the form of a joint venture based on a contract between a foreign company and a Laotian one. This method does not require the incorporation registration of new corporations or branches but a joint investment form between a Laos' company and a foreign one prescribed in the contract.
      The Laotian domestic concerned is obliged to declare and notify to the Bureau or the Ministry of Commerce and Industry of the region or the Bureau or the Ministry of Planning and Investment in accordance with provision of Laos. They must obtain authorization from the notary office. (Article 11 of Investment Promotion Act).

    • Establishment of business base

      We will explain the establishment procedure as an example of a form of private company with which most Japanese companies establish bases in Laos.

    • Procedure for establishing a private company

      ■ Procedures of the Japan side
      First of all, on the Japan side, you have to determine necessary information such as shareholder’s composition, capital stock, officers of the company, and so on, and then have to arrange necessary documents for your establishment. In the case of Laos, since there are not so many procedures to apply for establishment, the critical point is how to proceed smoothly on the Japan side.

       

      I. Determination of local subsidiary’s information

      [Determination of founder]
      At least two people shall be founders of the company (Article 86). Founder is the one who fulfills the establishment procedure of the company and must hold one or more shares at the time of establishment (Article 87). Founder shall take legal responsibility against all shareholders for the following acts (Article 88).

      Activities for personal interests
      Concealed income and expenses incurred in connection with the establishment of the company

      Conclusion of a contract except the purpose of establishing a limited company
      Evaluation of a value of assets beyond the actual price
      Other matters prescribed by law

      Founder shall be liable for unlimited liability for the conclusion of a contract with a third party related to the establishment of a limited company or expenditure of unauthorized expenses or approved expenses but not registered in the company (Article 89).
      In the case of a public company, the number of nine founders is required (Article 179), and the founders of the public company shall be natural person or corporations that satisfy the following requirements (Article 180).

      • Having legal capacity
      • The one who doesn’t bankrupt within the limited period of business activity
      • The one who is sentenced of embezzlement or diversion of assets
      • Having the share which is equivalent to 10% of the total amount of capital as minimum

      [Trade Name]

      According to corporate law, these following descriptions are stipulated as invalidity of usage of trade name.

       

      Invalid trade name (Article 22)

      -Trade name which causes confusion to the others and whose name is the same as the others.

      -Trade name which is contradicted with Laotian culture and tradition

      -Trade name which includes a name of nation or international intuition and a symbol of cultural identity and religion

      -Trade name which is similar or the same as the other corporation’s one

       

      [Capital]

      The minimum amount of capital of general business is more than 1 billion kips; approximately $100 thousand dollars (Article 17 of Investment Promotion Law). On the other hand, it is required to prepare for 30% of total investment amount for concession business (Article 12 of Investment Promotion Law). This minimum capital also means to maintain the saving amount for the execution of business, therefore, the capital may not be lower than the total saving amount while the execution of business.

       

      [Organization structure]

      When you establish the corporation and constitute corporation structure, you must comply with corporate law of Laos. Therefore, it’s point that who you choose and appoint. In order to design the most basic structure, you have to verify and consider shareholder, executive officer and accounting auditor.

      It’s possible to establish a company with one or more shareholders. If the establishment is invested by one shareholder, the company is registered as a sole limited company. If by more than two shareholders, the company is registered as a limited company. However, because more than two founders are required, you must have them with each share at the time of establishment. It’s sufficient to have one executive officer regardless of nationality and residential status. Therefore some also take in charge of the representative executive officer in Thailand. At last, as for auditor, if the total amount of assets of your corporation is more than 50 billion kips, you must appoint this position to comply with corporate law. In this case you are mandated to elect certified public accountant of Laos.

       

      Ⅱ. Required document

      The seal certificate of parent company.

      The certified copy of incorporation registration of parent company

      The copy of passport of shareholder and executive officer with their photo

      The certificate of final balance of bank account of shareholder

      The notarized power of attorney to obtain notarization

      The power of attorney of local agent

       

      [Article of Incorporation of new company]

      In Laos, there are two kinds of articles of incorporation; one is basic one and the other is supplemental one. The former is the one prescribed of the basic matters of company and the supplemental one is about management rules such as the dividend of share, the administrative method of general assembly of shareholders and others. The article must be signed with signatures of the representatives of shareholders.

      Please view the following prescribed matters.

       
      [Required documents with notarization and certification]
      Among the above documents, you have to elaborate a letter of power of attorney for your agent in English to complete obtaining certification of the notary office and Laotian consulate.

      III. Delivery of prepared documents
      Upon the above sentences, you shall send these required documents to Laos and later all the processes described below would be the process of the Laos side.

      Procedure at Laos side
      The flow of procedures is as follow.
       

      ① Confirmation and obtain of trade name
      When you establish a company, it is necessary to obtain a certificate of confirmation of name from ERO: Enterprise Registry Office of MoIC: Ministry of Industry and Commerce..You will have to submit three hope names and the signed article of incorporation to ERO. You can obtain the company name in one business day after confirmation. It costs you 10,000 kips as a commission.

      ② Application and obtain of certificate of company registration
      Company’s founders must submit some required documents to the Enterprise Registry Office of Ministry of Commerce and Industry to fulfill the application of certificate of company registration..
      The necessary documents for application are as follows.

      • Investment application form
      • Annex to the application form
      • Articles of incorporation of the new company
      •Business plan statement
      • Joint venture agreement (in the case of a joint venture)
      • Investor's resume, a copy of your passport with ID photo of 3cm x 4cm
      • Parent company's bank final balance statement
      • Power of attorney to an agent

      Certificate of company registration is concluded within 10 business days, except it takes the authority concerned a long time to examine your company’s content technically or practically Anyway, later its issue is done within three business days by Enterprise Registry Office (Article 14). This process of application and registration costs you 380 thousand kips.
       

       ③Application and obtain for certificate of tax registration

      After the application of certificate of company registration, you have to apply for the certificate of tax registration. The required documents are as bellows.

       

      Balance sheet of a beginning of period of fiscal year

      Application form of certificate of tax registration

      Copy of the certification of company registration

      Final balance certificate of bank statement of parent company

      List of employees of company

       

      After a company obtain the certificate of tax registration, it’s mandatory to update the certificate. Renewal fee is 100 thousand kips in the case its sales income is less than 58 thousand dollars. Otherwise the certificate fee would be 150 thousand kips. Also, application fee is 25 thousand kips.

       

      ④Completion of establishment and start of operation

      The certificate of company registration is the approved document to include a permission of investment, an incentive, a tax registration and a permission of business of the company concerned for the legal execution of business.

       

      ⑤Open of bank account and payment of capital

      Most of Japanese companies open their bank accounts of Banque Pour le Commerce Exterior Lao; BCEL. Because of this situation, here we would like to explain you of the opening method of BCEL.

      You can open three kinds of accounts. One is LAK, another is BAHT, and the other is USD so that its rate is different up to interest rate. Please refer to homepage of BCEL because you need the following documents. Please note the required documents.

       

      Application form of opening of bank account

      Certificate of company registration

      Certificate of tax registration

      Permission of investment

      Passport of the representative (the signer)

       

      The minimum deposit is different depending on its currency at the time of opening of bank account like 100 thousand kips, 1,000 bahts and 50 US dollars

      Besides, foreign corporations can pay 20% of the minimum capital amount within 60 days after the date of establishment of incorporation and within two years after its establishment date the rest amount (Paragraph 1 of Article 32 of the provision of Investment Promotion law)

       

      ⑥Approval and creation of company’s seal(stamp)

      A company must obtain approval of Ministry of Information and Culture before creation of its seal. The commission is 10 thousand kips per 1cm2 Also, it requires you within five business days until you obtain approval.

      In Laos, compared to the other countries, it takes you 45 days to create and use the seal after the approval. This is unique point of Laos. At first you need to obtain the determination of seal design from MoIC and the permission to create seal from MoPS. Later you would apply for the creation of seal and obtain the usage permission of your company’s seal from Local level Public Security Office. The following documents are required.

       

      Copy of permission of investment

      Copy of certificate of company registration

      Copy of tax registration

       

      The fee of this procedure costs you 120 thousand kips with Laotian language and 123 thousand kips with foreign ones.

       

      It takes you about 4 months and half to complete all above-mentioned procedures as a whole. Specifically it does you one month and half to operate business from establishment and approximate two months to finish the rest of procedures.

      Reference material ②

    • Company liquidation and withdrawal

      Regarding liquidation and withdrawal of foreign investment enterprises, Item 46 of Article 32 of Government Ordination 46 prescribed the sentences concerning their dissolution. 


      Conditions of dissolution or liquidation (Paragraph 1)
      ① In the case the validity period of investment license is over or foreign investors are not willing to renew it or the Lao government does not approve renewal of license
      ② In the result that shareholders of foreign investment enterprise conclude their resolution in compliance with corporate law
      ③ In the case of dissolution based on bankruptcy law
      ④ In the case of a conclusion of court

      In the event that shareholders resolve to dissolve or liquidate the company, foreign investment enterprise must submit a resolution statement to the Ministry of Commerce with detailed descriptions of dissolution and liquidation within 10 business days after the date of resolution. Also, prior to the dissolution and liquidation of foreign investment enterprises, Foreign Investment Management Office (FIMC) must go to the hearing of opinions of relevant departments, solve all problems and confirm a fulfillment of obligation for dissolution and liquidation according to the laws and regulations of Lao People's Democratic Republic.

      Afterward, FIMC would deprive the investment license and notify it to Enterprise Registry Office  and the tax authority. The staffs of Enterprise Registry Office invalidate certificate of corporate registration of foreign investment enterprises, delete them from the registration list, and inform the public of this updated fact in newspapers and government’s official telegraph.
      Eventually, the foreign investment enterprises would return their seal to Enterprise Registry Office. After this dissolution procedure has been completed and foreign investors have fulfilled all obligations in accordance with the laws and regulations of Lao People's Democratic Republic, investors are eligible for international remittance of capital, funds and tax incurred by the process of  liquidation.

      ■ Liquidation proceedings based on corporate law
      Among the above points, For example, the process of liquidation of a private company is as follow.
       
      ①   The determination of dissolution

      The method of liquidation shall be executed in accordance with the agreement between shareholders or by the articles of incorporation, except for the case of corporate bankruptcy or court order, or where the shareholder is one or more than 30 (Article 164).

      ② Selection of liquidators
      In the case of a private company, the liquidator is determined by the shareholders’ meeting. Liquidators are selected by voting more than two-thirds of the attendees in the meeting of shareholders, but if the selection is insufficient it may be appointed by the court (Article 165).
      The authority and obligation borne to the liquidator are as follows (Article 62).

       

      · Notification for conduction of liquidation in writing toward creditors 10 business days before
      · Gathering of assets and elaboration of balance sheet
      · Implement procedures to complete the pending business
      · Compensation fee for liquidators with liquidation process
      · Procedures for repaying debt, maintaining assets, transferring and selling assets
      · Submit a report certifying the accuracy of the balance sheet to auditors
      · Hold a meeting of creditors and shareholders once six months
      · Execution of determined duties by a meeting of shareholders and creditors
      · Quarterly reports to executives
      · Repayment of debt to creditors, distribution of assets to shareholders
      · Mediation of corporate legal proceedings
      ·Applying for bankruptcy proceedings by the liquidator in the case of incapability of repayment of debt

       

      ②    Distribution of debt and assets by liquidators
      Debt repayment and asset allocation are done in the following priority order (Article 64).

      a. Employee salary
      b. Obligations to the country prescribed in Article 4 of the law concerning with Security of Trade Safety (Obligations that are not incurred by contracts between company and country, or company and individual)
      c. Collateralized liabilities
      d. Unsecured liabilities
      e. Obligations paid to partners listed in paragraphs 4 and 5 of Article 39
      f. Distribution of losses and profits between partners
      g. Redemption of assets to partners

       

       Registration of company liquidation
      As prescribed in paragraph 2 of article 65, after notifying repayment of debt and distribution of assets, the liquidator must register the company to the relevant enterprise officer within 10 business days.
      Officers of the companies concerned must cancel the company’s name as described above and make an official notice within 10 business days from the day the company’s name was canceled (Article 67).
      When liquidation is completed, the liquidator performs the following act (Article 65).

      Preparation of repayment of debt and distribution of assets as materials as soon as determined by the meeting of creditors and shareholders
      Reveal of the status of debt repayment and asset distribution within 10 business days from the completion of debt repayment and asset distribution
      Submit of all materials on completion of settlement of liquidation to Enterprise Registry Office.