Bringing Corporate Regulation in Myanmar into the Twentieth Century
02 December 2016 | Melinda Tun, Asian Development Bank
The Myanmar corporate sector is growing at a rapid pace. At the start of the country's economic and political reforms in 2011, there were almost 20,000 registered companies in Myanmar. Today, just five years later, there are almost 55,000 companies registered in Myanmar. This is set to grow as Myanmar turns a new chapter in its history. In April 2016, for the first time in over fifty years, a democratically elected government took office, led by the country's democracy icon Daw Aung Sun Suu Kyi. Long-standing economic sanctions imposed by the United States have just been lifted and the country is projected to be one of the fastest growing economies in the world as it reengages with the global economy.
Amidst the remarkable changes occurring in Myanmar, one thing has remained constant – the Myanmar Companies Act has been the legal framework governing all companies in Myanmar since 1914 when the country was still a British colony. It shares many similarities with the company laws of neighbouring jurisdictions such as Singapore, Malaysia and Australia, which all inherited British company law principles. While those jurisdictions have updated their laws to reflect developments in corporate regulation in the 21st century, the Myanmar Companies Act has undergone very few amendments in its hundred year history.
It is clear that some changes are long overdue. The law contains many outdated requirements which are out of step with modern business practices. For example, companies are required to seek presidential approval to change their names, and court approval to change their objects. The legal duties of company directors are not clearly defined and it is difficult for companies to alter their share capital without cumbersome procedures. Some parts of the law are no longer in use today but continue to be set out in the law, creating much regulatory uncertainty for companies. Importantly, the law also lacks proper sanctions and enforcement mechanisms to regulate corporate conduct, including the actions of company directors.
At the same time, some significant changes are taking place in the Myanmar business landscape. The Yangon Securities Exchange was opened last year under the supervision of the newly established Myanmar Securities Exchange Commission. The Banking and Financial Institution Law was passed earlier this year with the aim of modernising the banking sector. A new Investment Law to encourage much-needed investment in many sectors of the economy was recently approved in October 2016. These legal and regulatory developments are spurring the greater use of companies as legal entities to conduct business and driving the growth of the corporate sector in Myanmar.
A strong and robust legal framework for company affairs is therefore crucial to maintaining investor confidence in Myanmar's nascent corporate sector. 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. Poor standards of corporate practice undermine not only individual company performance but also hinder the development of important sectors such as banking and finance. They also undermine the new government's focus on rebuilding the rule of law and improving governance across the country.
The draft new Myanmar Companies Law, which is being prepared with the assistance of the Asian Development Bank, seeks to address these issues. The draft new law will replace the Myanmar Companies Act and form a central part of the legal framework for doing business in the country. The new law will reflect tried and tested reforms in places such as Singapore, Malaysia, Hong Kong and New Zealand.
Key reforms include the introduction of single shareholder and single director companies, allowing flexible changes to share capital, improving corporate governance standards and simplifying administrative requirements, such as allowing written resolutions of directors and shareholders and electronic communications. The reforms aim to improve regulatory certainty and reduce the compliance burden, particularly for small and family businesses which comprise the majority of companies in the country.
The new law, once enacted, will also be accompanied by the establishment of an electronic companies registry which will be a central database of all documents filed with the Myanmar registrar of companies. The electronic registry will be publically accessible and available online in the nature of many company registries around the world. It will bring an end to manual paper filings and hard copy company records which the Myanmar companies registry laboriously maintains. More importantly, it will promote unprecedented transparency in the Myanmar corporate sector, once known for its opaque dealings.
All of these changes are long overdue for businesspeople and companies in Myanmar, which have endured years of burdensome regulation and legal uncertainty. The reforms will bring corporate regulation in Myanmar in line with many of its neighbours in the region. Experience in those countries has shown that economic development is accompanied by efficient and effective legal frameworks for businesses. A new legal framework for corporate regulation will support a vibrant and robust corporate sector for many years to come as the country prepares to enter a new era.