By The DICAN
Myanmar is undergoing significant economic liberalization and reforms designed to promote economic growth and investment. Now is also the time to undertake the legal reforms required to support economic liberalization – reforms in regulation of companies that have occurred in many neighboring countries in our region undergoing significant economic growth. These reforms in company law include simpler company formation, reducing compliance burden on SMEs, improving corporate governance, and more flexible share capital management for companies. They aim to make it easier to start and conduct business, support entrepreneurship and the development of a strong and vibrant private sector.
The Myanmar Companies Act 1914 has been governing company activities in Myanmar for over a hundred years. The current law contains many fundamental principles of company law that are found in other countries in the region such as Singapore, Malaysia, Hong Kong. However, it also contains many outdated and burdensome requirements designed for the 19th century business environment. These requirements include requiring companies to seek the approval of the President to change the company name and the approval of the Courts to change the business activity of a company
Other countries with similar laws to the Myanmar Companies Act have been actively reforming their company laws to better fit with modern business realities. Major overhaul of company laws have gained momentum in the last few years. Singapore introduced a new Companies Act in 2015, Hong Kong introduced a new Companies Ordinance in 2014 and Malaysia has most recently passed its new Companies Act this year. The main changes in these laws are all drawn from experiences and reforms in jurisdictions that share a similar company law framework — such as the United Kingdom, Australia and New Zealand — and are based on “tried and tested” concepts.
Similarly, Myanmar will now introduce some of these major reforms as it seeks to encourage investment by companies in many sectors of the economy. A draft Myanmar Companies Law has now been prepared which draws on all of the international experiences and reforms in companies laws from Singapore, Malaysia and Hong Kong. The major reforms in the draft Myanmar Companies Law include the following:
1. Easier incorporation for private companies which will be allowed to have a single director and single shareholder.
2. Removing requirement for annual general meetings and annual financial statements for small private companies.
3. Allowing written resolutions of shareholders and directors so that companies will no longer be required to hold physical meetings.
4. Removing the requirement for companies to have memoranda and articles of association and allowing a company to adopt a “constitution” with tailored rules for itself and its members.
5. Allowing companies to manage their share capital more flexibly by increasing or reducing share capital with fewer requirements.
6. Setting out legal duties of company directors to ensure that management of companies is line with international corporate governance standards.
These major changes will modernize the management of companies and bring many improvements to the corporate sector. Companies will be able to operate in accordance with clear requirements in the law and enjoy greater freedom to conduct their internal affairs based on the company’s situation. It will improve the transparency of companies, increase the accountability of directors and better protect investors in companies. All of these changes are long overdue for companies in Myanmar which have faced years of unclear and burdensome regulation, resulting in poor compliance with the law.
Myanmar has a lot of catching up to do in business regulation. The country currently ranks 167th under the World Bank Doing Business rankings which measures how easy it is to set up a company, and regulations for doing business such as protecting minority shareholders and enforcing contracts. Its neighbours which share the same company law heritage rank much higher – Malaysia ranks 16th, Hong Kong ranks 5th and Singapore ranks 1st. These results hold important lessons for Myanmar. Research studies have shown that greater ease of doing business (high rankings) is related to increased company formation and strong economic growth.
The proposed new Myanmar Companies Law aims to address these issues by supporting company registrations, lowering regulations for small companies, allowing greater flexibility in company affairs, and improving regulation. It will start a new era of company management and regulation in Myanmar and build a modern business environment for the 21st century.
By The DICAN