Transforming Myanmar’s corporate landscape
FOR more than a century Myanmar companies have been regulated by the colonial-era Myanmar Companies Act of 1914. The law shares similarities with company laws from other former British colonies such as Singapore, Malaysia and Hong Kong – yet while they have updated their laws to reflect the realities of modern businesses, the Myanmar Companies Act has remained largely frozen in time.
Today, Myanmar is transforming rapidly into a democratic, marketbased economy that is among the fastest-growing in the world. Change is sweeping the corporate sector. The Yangon Securities Exchange opened last year under the newly established Myanmar Securities Exchange Commission. The Financial Institutions Law passed by the Union parliament this year is helping modernise the banking sector. Separate foreign and Myanmar citizen investments laws are being merged to encourage greater investment.
With these developments, more domestic and international investors are gaining the confidence to set up businesses, which could contribute much needed funding, technology, knowledge and job opportunities to the economy.
To maintain momentum and further build investor confidence, however, a clear and stable legal framework for company affairs is important. A robust Companies Law can instil sound corporate practices that safeguard investors, creditors and other stakeholders in companies ranging from small businesses to large conglomerates.
For example, the reporting and disclosure requirements for companies usually imposed under the company law, if properly applied, would bring much-needed transparency and accountability to Myanmar companies’ performance.
The current Companies Act provides a solid framework for corporate regulation, but it also contains many outdated requirements. Companies are required to seek presidential approval to change their names, and court approval to change business objectives. Directors’ legal duties are not clearly set out and companies cannot easily alter their share capital to reflect business needs.
Sections of the law no longer in use have not been removed, creating uncertainty for users. The law also lacks proper sanctions and enforcement mechanisms to regulate corporate conduct. The penalties and fines specified in the law were last updated in 1989 and reflect prices from 25 years ago.
But change is coming. The Directorate of Investment and Company Administration (DICA), with assistance from the Asian Development Bank (ADB), has prepared a new Myanmar Companies Law.
The law will govern the registration, ownership, management and internal affairs of all companies in Myanmar, and reflect tried and tested reforms from the UK, Singapore, Malaysia, New Zealand, and Hong Kong.
The draft law, expected to be submitted to parliament for approval in the coming months, is designed to streamline company management and administration, strengthen governance and enforcement, and make Myanmar firms more competitive and attractive to investors.
Key reforms include the introduction of single-shareholder and single-director companies – meaning Myanmar’s individual business owners will no longer have to find a partner to form a company. More flexible capital structures and changes to share capital will allow companies to raise or reduce capital with fewer procedural requirements.
Small and family-owned business will be the main beneficiaries of simpler company administration requirements, which will lower compliance costs. The law introduces written resolutions of directors and shareholders in place of meetings and now recognises electronic communication methods. Small companies will no longer be required to hold annual general meetings or prepare audited annual financial statements, except in limited circumstances.
Corporate governance standards will be raised, which for public companies will help build confidence in the newly established Yangon Securities Exchange. The proposed law will also make it easier for Myanmar’s public companies to attract new investment, technology and knowhow by permitting foreign investors to own shares. The government will be able to set a higher threshold for when a Myanmar company with foreign shareholders will be considered a foreign company.
All these changes are aimed at spurring entrepreneurship and greater business activity by providing the flexibility to form and manage companies based on market conditions. Lower compliance costs, particularly for small and family businesses, reflect the new government’s priority of supporting small and medium enterprises, creating opportunities and jobs, and increasing transparency and the rule of law.
The new law will also supportthe much-needed reform of stateowned enterprises by providing a legal framework for corporatisation and improved corporate governance. This will be an important step toward enhancing the transparency and accountability of public administration.
Once approved, the law will be complemented by a new electronic companies registry containing all company documents filed with DICA.
While the Myanmar companies registry has come a long way in the past three years – it now takes one or two days and costs K500,000 (US$425) to register a local company, compared to six months and K50 million in 2011 – the government is striving to do even better.
The new electronic registry, to be established with ADB assistance, will provide an efficient and cost-effective way for companies to meet compulsory reporting requirements. Publically accessible online 24 hours a day, the registry will also promote unprecedented transparency.
These transformative changes will help Myanmar make rapid strides in improving its business environment in line with neighbouring countries. They will send an important message to local and international investors – the new Myanmar is now open for business.
Aung Naing Oo is director general of the Directorate of Investment and Company Administration, the registrar of companies in Myanmar. Winfried Wicklein is the Asian Development Bank’s country director in Myanmar.