Business and commercial enterprises must be registered at the Ministry of Commerce (MOC) at most 15 days prior to the commencement of business activities, according to the Commercial Law of the Kingdom of Cambodia,
However, most of business people and investors who intend to run a business in a desirable and legal procedure face trouble at the beginning of the business registration since they do not have the knowledge base related to the various types of business organization forms. This prevents them from making a wise decision on which types of business organization form matches best to their business plan.
In Cambodia, there are various types of business organization forms. In this article, Limited Liability Company and Sole Proprietorship will be discussed and explained below, since they are the most common ones in Cambodia.
Limited Liability Company (LLC) possesses legal personalities where liability of shareholders is limited to capital contribution. It is divided into two types including private limited company (Co., LTD.) and public limited company (PLC.). There are some crucial differences between Co., LTD. and PLC.
Firstly, Co., LTD. cannot run its own business related some business activities including banking, insurance, security exchanges and loan service, but the PLC only can do all these business activities.
Another difference is the number of shareholders. Co., LTD. can have 2 to 30 members of shareholders. Also, Co., LTD. can also be called as a Single Private Limited Company in the case that there is an individual who owns all shares, while PLC must have at least two members.
Thirdly, Co., LTD. can have one or more directors, while PLC must have at least three directors. Finally, PLC. can sell the shares or securities to the public, but the Co., LTD. cannot.
Despite some differences, the uniqueness of LLC is that the owners are liable to debts with a limitation to the capital contributions only. This means that the debtor cannot confiscate the company’s owner’s properties at all. The disadvantage of LLC is that required documents for registration processes are a bit complicated, costly, time-consuming. Also, it is required to do the annual declaration at the the Ministry of Commerce (MoC).
A part from LLC, incorporating a Sole Proprietorship is also one of the most popular business organization forms in Cambodia. It is unincorporated business with one owner who used his or her 100% capital. The special advantage of this kind of business form is that the owner does not need to file annual commercial declaration for their business annually.
This allows the owner to save time and money. However, the owner has been banned from some business activities, especially in such sectors as export, and import, and from forming Board of Directors, selling the shares, or changing the entity form to LLC.
With significant understanding related to business entity forms, business people can make a clear and right decision on which type of business form matches best to their needs and business plan for long term investment and sustainable growth.