What is the main source of law authorising this entity form?

Law on Enterprise No. 46/NA, dated December 26, 2013 (the “Law on Enterprise”); and Law on Investment Promotion No. 14/NA, dated November 17, 2016 (the “Law on Investment Promotion”).

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

Limited companies have a separate legal personality.

(Maximum) period of existence

There is no maximum period of existence. A company shall exist for as long as it can carry out its business activities.

Governing document(s)

A limited company is governed by its articles of association.

Liability of incorporators / shareholders

Shareholders are not personally liable. Their liability is circumscribed to the capital brought to the limited company.

(Governing) bodies

The primary corporate governance body of a limited company is the director (‘ຜູ້ອໍານວຍການ’/’Phu amnouaikan’), or the board of directors (‘ສະພາບໍລິຫານ’/’Sapha bolihan’).

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Although not exhaustive or detailed, the Law on Enterprise sets out a provision under which mergers of limited companies are possible. The legal steps for a merger are as follows.

• A special resolution is passed (effective only if passed by a vote of at least two-thirds of the shareholders or their proxies attending the meeting and representing at least eighty percent of the paid shares).
• The merger is published at least three times through appropriate mass media within 10 working days from the date the resolution was adopted. Creditors are notified and allowed to oppose the merger within 60 days from the date on which they receive the notice. Failure to respond within such period of time shall be deemed as the creditors having no objection.
• The merged enterprise must be newly registered.

Cross border mergers, equity acquisition are also possible, however, due to restrictions that may be imposed on foreign investors in Laos, it is recommended that legal advice be obtained to determine if the target company and its activities are restricted in the case of foreign investors, such as a maximum share equity ratio, and whether foreigners can partake in the activities conducted by the target company.

Can this type of entity be publicly listed or held?

No. In order to be listed or publicly held, a limited company must change its business vehicle to a public company.

Can this type of entity be used for a non-profit or charitable organization?

No, limited companies cannot be used for charitable/non-profit activities. Typically, charitable and non-profit activities remain under the ambit of NGOs and associations. Likewise, the concept of social enterprise is not recognized under Lao law.

Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

• Contract of incorporation (“Sannya sangtang bolisat”);
• Minutes of incorporation (“Bodbantheuk kongpasoum sangtang bolisat”);
• Shareholder’s resolution (“Mati kongpasoum phoutheuhoun
• Copy of directors’ and shareholders’ ID cards (or copy of their passports if they are not Lao citizens);
• Photo of the director whose picture will be displayed on the Enterprise Registration Certificate (the document substantiating that the company has been incorporated and detailing the activities that have been approved by the local authorities to be carried out by the company); and,
• Certificate of the office location, or the branch of the company.

Involvement of notary, company register, governmental authorities

According to a recent reform, the articles of association (AOA) (“Kodlabiab khong bolisad”) are not requested at the time of the filing, but the AOA must be submitted at a later time (deadline and sanctions are not specified in the law). Any subsequent amendments to the articles of association must be reported to the registration authority, which will then issue a letter confirming these changes. Otherwise, the changes made in the articles of association may not be enforceable against third parties.

The incorporation process for a limited company differs depending on whether its proposed activities are:

1. General business;
2. General business listed as a controlled activity;
3. Concession business; or
4. Activities within a Special Economic Zone (SEZ).

Timing (estimate)

1. General business: By law, 10 working days. However this may vary depending on the type of activity.

2. General business, controlled activity: By law, 25 working days. In practice, this may take longer.

3. Concession business: By law, 65 days are necessary; however, the timeframe is difficult to be realistically foreseen since this type of business would also include negotiations with local authorities (e.g., MOU, concession agreement).

4. Activity operated in an SEZ: Varies depending on the SEZ. Some SEZs can incorporate a company within 5 working days.

Authority in charge:

1. General business

Ministry of Industry and Commerce (“Kasouan Oudsahakam lae KanKha”), or its related departments.

2. General business, controlled

   Ministry of Planning and Investment (“Kasouan Phaenkan lae Kanlongtheun"), or its related departments.

3. Concession business

Ministry of Planning and Investment (“Kasouan Phaenkan lae Kanlongtheun”), or its related department.

4. SEZ

Registration authority of the SEZ in which they operate.

Controlled activities

If the company intends to carry out a controlled activity, more scrutiny from the local authorities will result. These activities are deemed sensitive by the local authorities, and the application must therefore be considered by relevant authorities before the Enterprise Registration Certificate, and the relevant licenses, can be issued. The list of controlled activities is broad and imprecise, which may provide leeway for broad interpretation by the officers. Examples of controlled activities include all types of construction; logistics; wholesale/retail; accommodation; education; and manufacture of food or pharmaceuticals. The authorities may consider new activities as controlled from time to time. For instance, transport activities were not originally considered controlled but have recently been treated as such. Controlled activities usually cause more restrictions to be imposed on foreign investors, and foreign investors may need to partner with a local investor to carry them out.

Concession activities

Concession activities are activities which are developed on a land granted by the local authorities to a project developer, for a certain amount of time (max. 50 years, renewable). The approval process involves different steps than that of a more common project. Concession activities, which often involve hydropower plants, mining activities, or large agricultural projects —must successfully pass a number of milestones (environment-social impact assessment, feasibility study, etc.) before the local government would agree that the project be carried out in its territory.

Main costs, including registration and similar fees (excluding legal fees)

The main costs are legal professional fees, which include the drafting and submission of all applications with the concerned registration authorities, drafting the required documents (articles of association and shareholder agreement, if any), handling the bureaucratic process (which in Laos can be very substantial), handling regulatory and licensing requirements, and paying official fees (which are nominal).

Official costs are not high, and will include generally the following:

• Application form: which ranges from LAK 10,000 to LAK 60,000 (approx. USD 1 to USD 6) depending on the type of legal entity;
Fee for issuing the Enterprise Registration Certificate (incorporation license): LAK 20,000 (USD 2) to LAK 5,000,000 (USD 531) Printing of the Enterprise Registration Certificate (incorporation license): LAK 30,000 (approx. USD 3)

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

The business objectives or purposes must be clearly stated in the application to register the incorporation.

Minimum number of incorporators / shareholders and residency requirements

A minimum of one incorporator is required, although a limited company with a single shareholder will be designated as a “sole limited company”. For a regular limited company, at least two incorporators, who will also be shareholders, are required. They should have an address in Laos, but do not need to possess any kind of residency permit.

The maximum number of shareholders is 30.

Minimum number of directors (or other applicable officers) and residency requirements

One director is required. An address in Laos must be provided.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

There is no legal minimum registered capital, unless a regulation regarding a specific industry provides otherwise. In practice however, local officers may set a minimum registered capital requirement at the time of registration. Shares issued may not have a value below LAK 2,000 (approx.. USD 0.24). The methods and schedule of payment for shares shall be agreed among the members. Prior to the registration of the enterprise, the members shall contribute their shares in full as agreed.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

No.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

After obtaining an Enterprise Registration Certificate (“Bay thabian wisahakid”), the company must apply for Tax Identification Number from the Ministry of Finance to obtain the Tax Identification Number Certificate (“Leklahad patchamtou phou sia akon”).

What is the title of the applicable company registry?

Ministry of Industry and Commerce (“Kasouan Oudsahakam lae KanKha”)

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

• Articles of association
• Contract of incorporation
• Minutes of incorporation meeting
• Power of attorney for the assignee to apply for the enterprise registration certificate (if any)
• Resume/CV of the incorporators/directors
• Copy of ID card or copy of passport
• Photo of the director whose picture will be displayed on the Enterprise Registration Certificate
• Certificate of the office or branch location
• Share capital (issued and paid up)
• Shareholders’ details, including address
• Information regarding insolvency, and liquidation
• Annual accounts
• Merger and demerger documents

Publicly available information in Laos is very limited. Only the Enterprise Registration Certificate is publicly available, and the AOA (on request), which contains the name and address of the company, the directors’ names, the registered capital, and the approved activities.

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The board of directors

The board of directors performs its tasks based on the limited company’s articles of association. The Law on Enterprises provides the responsibility of the board of directors as follows:

• To act as the central coordinating body and to oversee the tasks of the directors;
• To appoint a director to fill a vacancy between two ordinary shareholders’ meetings;
• To determine the plan for the administration and management of the limited company for adoption by the shareholders’ meeting;
• To exercise such other rights and perform such other duties as determined in the limited company’s Articles of Association.

The board of directors operates by dividing the responsibilities among the directors. The board of directors must have a president and may choose to have a vice president.

How are the members of the executive body appointed, dismissed and replaced?

The initial board of directors (“Sapha bolihan”) is appointed by the incorporation meeting of the limited company. Subsequent boards of directors are appointed by the shareholders’ meeting (‘ກອງປະຊຸມຜູ່ຮຸ້ນ’/’Kong pasoum phou theu houn’). Any vacancy that arises between two ordinary shareholders’ meetings shall be filled by an appointment made by a meeting of the board of directors.

Is it possible to appoint corporate directors or must all directors be natural persons?

Yes – in the event that there is no director between two shareholders’ meetings, which ultimately is the body appointing the directors.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

The law is silent on non-executive directors. Directors may be vested with rights to bind the legal entity with third-parties or not, depending on the articles of association (the “AOA”). The board of directors is a one-tier body.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

The incorporators of a limited company are the people who initiate the establishment of the limited company. They may not be representatives of the limited company, and incorporators are required to hold at least one share.

The main duties of the incorporator of a limited company are to undertake all activities relating to the establishment of the limited company until the meeting of incorporation is convened.

Shareholders participate in the limited company’s shareholders meetings and make resolutions accordingly.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

The Law on Enterprise states that a limited company must stipulate the quorum and procedures for meetings in its articles of association. If they are not specified, the quorum of the shareholders’ meeting will be two shareholders representing more than half of the total paid-up shares. The articles of association may stipulate a higher requirement, but not lower.

There are two types of shareholders resolutions: ordinary resolutions and special resolutions.

An ordinary resolution is effective only when it is passed by a simple majority vote of the number of shares represented at the meeting where one share equals one vote.

A shareholders’ meeting convened to adopt a special resolution may be held on one or several occasions. A special resolution is effective only when it is passed by a vote of at least two-thirds of the shareholders, or their proxies, attending the meeting and representing at least eighty percent of the paid shares.

A special resolution is necessary for the following actions (among others):

• Amending the articles of association or the contract of incorporation;
• Increasing or reducing the capital;
• A merger or dissolution of the limited company;
• The sale or transfer of all or a substantial part of the business of the limited company to another person;
• The purchase or acceptance of a transfer of the business of another enterprise; and,
• Maintaining the status as a limited company when there are more than thirty shareholders.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

A limited company with two or more directors may establish a board of directors unless otherwise agreed. A limited company with more than LAK 50 billion (approximately USD 5,887,000) in assets must have a board of directors and must appoint auditor(s).

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

Under the law on accounting, all implementing accounting entities must strictly conduct bookkeeping and implement their accounting obligations. A limited company must maintain accounting records and submit them to the Ministry of Finance, or its related departments which may vary depending on the location, and/or size of the legal entity.

Financial statement must be annually filed with the tax authorities by March 31. Personal income tax (salary) must be paid monthly by the 20th of the following month.

Is the entity permitted to determine its own financial year?

Yes.

Is the entity subject to any statutory (external) auditor obligations?

According to the Law on Enterprises, a limited company may employ an auditor on a permanent basis, or may employ an auditor for periodic auditing as decided by the shareholders’ meeting if the limited company possesses assets worth less than LAK 50 billion.

Auditors must not be a director, officer or employee of the limited company or have any involvement in the limited company that could lead to a direct beneficial interest. According to the Law on Enterprise, a shareholder is not deemed to be in breach of these restrictions and can therefore act as an auditor.

Limited companies must submit annual business reports including:

• The total capital, the registered capital and the number of issued shares remaining unpaid;
• The types and number of shares issued and paid;
• The name, location, and type of business of related companies or subsidiaries in which the limited company holds shares, and the types and number of shares;
• Information on the company’s direct or indirect involvement in transactions that could benefit the director(s), or of any increase or reduction of their shareholding in the limited company, or in the company’s subsidiaries, within the accounting year;
• The amount and value of remuneration paid to each director by the limited company; and,
• Other matters set forth in the limited company’s articles of association.

The Law on Audit No.51/NA, July 22, 2014, mandates a statutory audit of foreign companies’ financial statements. This audit must be performed independently by an auditor. The Law on Audit defines an auditor as a certified public accountant working as an employee in an audit firm, and an audit firm as an entity authorized by and registered with the Ministry of Finance.

Therefore, the provisions contained in the Law on Enterprises, and the requirements imposed by the Law on Independent Audit may be in conflict, since the requirements contained in the Law on Independent Audit are more restrictive than the Law on Enterprise.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

No.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Shares (“Houn”)

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Yes, shares can be common shares or preferred shares.

What documentation is required for the transfer of ownership interests?

• Share transfer form
• Relevant share certificate
• Sale/purchase agreement

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

Registered shares may only be transferred when:

• The transfer is consistent with the restrictions on share transfer provided in the limited company’s articles of association;
• The transfer does not contravene any legal restrictions on share transfer;
• The transfer is made in writing by indicating the names and signatures of the transferor and transferee, as well as the names and signatures of at least one witness for the transferor and one for the transferee, and the serial number of the transferred share certificate; and,
• The transfer is registered in the company’s book, and is also registered with the authorities. The registration is formalized by affixing the authorities’ seal thereon.

In the event of a transfer to a third party, a prior offering shall be made to the other shareholders of the limited company, and the transfer shall be registered with the name and address of the transferee in the share register.

Are there any applicable stamp duties imposed when transferring ownership interests?

In general, a tax of 2% of the share transfer price is levied on these transfers, which are not valid unless the tax is paid.

How are shares issued? (including information on payment obligations, registration requirements)

Within thirty days from the date of registration of a limited company, the directors shall issue share certificates to the shareholders. Each share certificate shall bear the signature of the directors with the stamp of the limited company.

Afterwards, the limited company may increase its registered capital by increasing the number of shares or increasing the value of each share.

The increase must be approved by a special resolution of the shareholders’ meeting. The shareholder registration book must be updated accordingly.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

The consideration for the issuance of shares of a limited company may be contributed in cash or in kind. Any contribution in kind must be appraised in monetary terms and approved by at least two-thirds of the founders and share subscribers attending the incorporation meeting, unless otherwise agreed.

Contributions without issuing shares are not addressed under the Law on Enterprise.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

Share cancellation and repurchase shall follow the terms laid out in the minutes of the incorporators meeting and board of directors’ resolution.

A limited company may reduce its registered capital by reducing the value of each share or reducing the number of the company’s shares. The reduction of registered capital shall comply with the following requirements:

• The value of shares remaining after the reduction shall not be less than LAK 2,000;
• The capital remaining after the reduction shall not be less than one half of the registered capital and shall not be less than the capital set by the relevant authorities;
• The reduction of registered capital may be executed only by special resolution; and
• The creditors of the limited company have not opposed the capital reduction.

Any requirements with respect to distributions to shareholders?

Distributions must be approved by a shareholders meeting.

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. The incorporators or shareholders can adopt restrictive agreements among themselves, provided that they are consistent with the articles of association and the law.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

The company should be prepared to bear the cost of holding a shareholders’ meeting at least annually, and the auditor’s costs and fees for inspection accounting documents. In addition, if the legal entity requires an additional operating license to carry out its business activity, the license may have to be renewed from time to time as licenses are usually only valid for a limited duration.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

Profit tax is chargeable at up to 24% for both domestic and foreign legal entities.

A withholding tax of 10% is applied to profits paid to foreign corporate shareholders in the form of dividends. This percentage can vary if the country where the shareholder is located has signed a double tax treaty with Laos.

Summary of any specific matters, e.g. recent or prospective major legal developments

Local authorities are aware that the company registration process is too slow, and they are currently devising new mechanisms to speed up the issuance of incorporation certification, along with the respective operating business licenses. There have been real improvements over the past year, and the authorities are now working on this matter to further enhance the registration process. While e-filing is not yet available, the local authorities are currently working on this.

The authorities hope that this will have a decisive impact on further attracting foreign direct investment, and boost Laos’ ranking on the Ease of Doing Business Report, issued annually by the World Bank.