Company formation: not for the faint hearted

By U Min Sein
Volume 31, No. 619
March 19 - 25, 2012

MANY foreign investors, as well as Myanmar citizens, are planning to invest in Myanmar at this time when it is developing and changes are occurring quickly.

For the country to receive maximum benefit from this attention, it is absolutely necessary the government ensures smooth formation of a company, catches up with what other countries are offering and ensures the law is abided by. Foreigners read the laws before coming here and if there is a question we need to answer according to the law. They will not be pleased if the answer is that the law says this and what they will have to do is that. They ask: “Don’t you follow the law? When was the law amended? Can you show me?”

These questions are rather awkward.

The first thing a person has to do in forming a company is to choose a name. Naming a company is clearly stated in section 11 of the Myanmar Company Act.

It shall not have the same name as that of another company already registered. It shall not be a name that could be mistaken by people for that of another company. It shall not have words like state, central bank, union or president. It shall not have words that are intended to mean that it is supported by the government or any governmental department or has links with any regional organisation.

That is all the law says. But now if a foreign name is used it is required to be translated into Myanmar, whether appropriate or not. It is a tiring job. I have never heard of this being a requirement in neighbouring countries that are more developed than us.

There is an expression, “CRD”, that is circulating widely among companies. CRD is an abbreviation of “Certificate of Registration of Documents”. I would be very much obliged if someone would teach me about the authority of that word in the company law.

If a director resigns or is appointed, or a company is liquidated or its name is changed or its address changes, resolutions to that effect are filed at the Company Registration Office and they say that unless a CRD is issued by the office, such acts are not valid.

I could not find CRD anywhere in the law. According to the law, the Company Registration Office is not a company administration office or a department confirming internal affairs of a company. While in quest of the solution, a person supposed to be conversant in the law referred me to section 248(4) of the company law. It states: “The President of the Union may direct a seal or seals to be prepared for the authentication of documents required for or connected with the registration of companies.”

No connection to “CRD” there. However, if a company has no CRD, it causes controversy over the validity of a company’s affairs. Some other directors say the director who has already resigned is still in service or they do not acknowledge the director who is appointed because no CRD is issued. I have never found this kind of issue either in the law or in our neighbouring developed countries.

Section 149 of the Myanmar Company Act states: “A document may be served on the Registrar by sending it to him by post, or delivering it to him, or by leaving for him at his office.” According to section 150: “A document or proceeding requiring authentication by a company may be signed by a director, secretary or other authorised officer of the company, and need not be under its common seal.”

Then I came across section 248(5) and I recalled an incident that happened about two years ago.

A company from a neighbouring country asked us to make a Legal Due Diligence regarding a Myanmar company so a friend was sent to the Company Registration Office. I had applied under section 248(5) of the law in force for facts about the company and offered to pay the fee. But my friend was roundly scolded for two reasons.

The first reason was that the letter was wrongly addressed to the registrar. They said it should be the director general. I maintain that the person who is responsible for the company registration should be addressed as registrar when we write a letter regarding the company registration. What is the correct way to address that person – as the registrar or the director-general? We should take into account the practice of other countries and international standards.

The second reason was that the information requested by us was restricted to some particular departments so for an outsider to ask was considered an offence. When I reported the situation to the company from the neighbouring country, they asked how they could work with that company unless they were furnished with the due diligence – which is instantly available in their country on the internet upon payment of the fee. I was at a loss as to how I should reply to them.

In future, companies planning to invest in Myanmar will want to have a Due Diligence done. I don’t think that problem can be solved with this system. The department concerned will have to at least understand section 248(5) of the company law.

When a foreign company registered a joint venture company, documents from that country that were legalised by the Myanmar embassy in that country were submitted to the Company Registration Office for registration. Months later, when asked, they said that the documents were returned to the Myanmar embassy. I cannot understand why that was done. The Myanmar partner was investigated by the Bureau of Special Investigations (BSI) and the police. I won’t mention the other troubles he had to face.

I – as well as those who want to do business – cannot understand why this happens. The same process is repeated for extension of registration. The directors are interrogated by the police, asked irrelevant questions and told to produce immaterial documents.

There are tax havens in the world, such as British Virgin Islands and Bermuda. Tax havens are a state, country or territory that offers due process, good governance and low corruption and where taxes are levied at a low rate or not at all. As a result, these tax havens receive much income from fees for company validity extension.

In Myanmar, the fee for company renewal – which is not in the law – is not only levied exorbitantly but there is no tax exemption. It is said that renewal has been extended from two years to three years and we should apparently be grateful for that. Going through formalities for renewal in Myanmar is somewhat different from tax havens where it can be done by just remitting the fee. In Myanmar, a certificate that taxes have been paid, which does not concern the Company Registration Office, is required to accompany the renewal process. Everybody who has gone through this process knows how complicated and costly it is. They have to complete a lot of forms. A single trip to Nay Pyi Taw will not do it. The worst thing is that as it takes ages to extend the registration, the company registration cannot be produced when needed.

A friend told me that a company that has been importing and exporting for years could no longer apply for an import and export licence because they did not have a CRD for the company’s change of address. They had already filed the company’s change of address at the Company Registration Office but had not been issued a CRD. So departments should also take cautious note of the influence of the CRD.

I say in good faith that the application of matters not in the law should be reduced. It is time to consider helping foreign and local investors form companies effortlessly and swiftly.

Public companies are going to be formed soon. Issues such as examination of prospectuses, minimum capital, statutory reports and statutory meetings will come up. It will be important to keep up with other countries in terms of regulations and matters like acquisitions, protection of minority rights, insider trading, rules on voting by proxy, speculation in shares and short selling to name but a few.

To this end, it will be important that people who really understand and have the necessary knowledge to prepare the country to face these issues should be given the responsibility. – Translated by Thit Lwin

(U Min Sein is a Registered Accountant and Certified Public Accountant and has been practising law for more than 40 years. He was a commercial law lecturer for 20 years at the Auditor General’s Department training Grade II and III candidates.)