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I. INTRODUCTION

A. Brief Facts
Laos or officially the Lao People's Democratic Republic (PDR) is the only land-locked
country in Southeast Asia. It shares borders with Thailand, Cambodia, Vietnam, China and
Myanmar.
The communist country has a population of about seven million people1, which is less
than half of Metro Manila's population at daytime. However, Laos PDR has a land area of 237,955
km or about three-quarters of the total land area of the Philippines of 300,000 km. Only one in
10 Laotians have access to electricity2.
Laos PDR is relatively open to foreign direct investments in its bid to jumpstart its
economy. According to the World Bank, as of 2016, Laos PDR ranked 113th out of 195 countries
in terms of gross domestic product, the lower half of which is made up predominantly ofsmall
island and conflict-hit states. The Philippines, on the other hand, ranked 35th.3
Since its independence in 1975, the country has followed a socialist-oriented centrally-
planned economic management style until market-oriented reforms were implemented in 1986,
giving the private sector an increasingly central role in the economy.4
Incorporation and doing business in Laos PDR is relatively similar to the Philippine Laws
governing the same. Business incorporations are regulated under the Law on Enterprises (2005)
and the Investment Promotion Law (2009)5. Philippine corporate practice, on the other hand, is
governed mainly by The Batasang Pambansa Bilang 68 (BP 68) or otherwise known as Corporation

1
World Population Review. (n.d.). World Population 2017. Retrieved from
http://worldpopulationreview.com/countries/
2
Jennings, Ralph. (2017, March 23). These Are The Fastest Growing Economies In East Asia In 2017. Retrieved from
https://www.forbes.com/sites/ralphjennings/2017/03/23/east-asias-5-fastest-growing-countries-in-
2017/#17ca79875ac6
3
World Bank. (2017, April 17). Gross domestic product 2016. Retrieved from
http://databank.worldbank.org/data/download/GDP.pdf
4
ZICOlaw Laos Sole Co., Ltd. (2016). ASEAN Insider Guide: Investing in Lao PDR 2016. Retrieved from
www.zicolaw.com/knowledge/asean-insiders-guide-investing-in-lao-pdr/
5
Dej-Udom and Associates. (June 22). The Limited Liability Company Part II Updated. Retrieved from
http://www.dejudolaw.com/limited-liability-company-in-asean-part-part-2
 Page |2

Code of the Philippines. Some other special laws like Republic Act No. 10142 otherwise known as
Financial Rehabilitation and Insolvency Act of 2010 are also being used in addition to BP 68.

B. Lao PDR as a member of ASEAN

The Lao PDR became a member of ASEAN in 1997. The creation of the ASEAN Economic
Community (AEC) in 2015 is highly relevant for economic development in the Lao PDR. It has
established a single market with 625 million consumers and a purchasing power of USD2.3
trillion. For the Lao PDR, the AEC offers great potential for economic development through
improved access to the regional market. As a single production base, it also increases the
opportunities for the Lao PDR to participate in regional value chains. ASEAN member states
already account for more than half of the Lao PDRs total foreign trade.6
On 25-26 May, the 10th annual ASEAN Defense Ministers Meeting (ADMM) was held in Vientiane,
Laos. The Joint Declaration of the 10thADMM reiterates all Member States commitment to responding
effectively to transnational crimes and transboundary challenges. 7

C. A quick look to different Forms of Lao PDR Enterprises

a. Investors may establish the following forms of enterprise:8

Enterprise Forms Description

Sole Enterprise Enterprise is owned by an individual
Partnership Contractual arrangements involving general or limited
partnerships
Limited Company Private limited liability company with shareholders
numbering to 2 to 30 shareholders
Sole Limited Company Private limited liability company with only one shareholder
Public Company Public limited liability company with at least nine
shareholders
State Company Company with 50% of the shares owned by the State or it is
transformed from other types of enterprise to be owned by
the State
Branch Extension of a partnership or company without a separate
legal personality;
Establishment of a branch is restricted to banks, financial
institutions, insurance companies, international consulting
companies, and foreign airline companies.

6
ZICOlaw, supra
7
The Nuclear Threat Initiative. (2017, January 31). Association of South East Asian Nation (ASEAN). Retrieved from
http://www.nti.org/learn/treaties-and-regimes/association-southeast-asian-nations-asean/
8
ZICOLaw, supra
 Page |3

Representative Office Representative of an offshore company which is not allowed

to conduct business activities;
Only used to test the waters through feasibility studies and
preliminary negotiations, before investing and not allowed
to conduct any commercial activities

II. LIMITED LIABILITY COMPANY (LAO PDR) IN COMPARISON WITH STOCK CORPORATION
(PHILIPPINES)

A. Incorporation process
Under Article 2 of Law on Enterprise (LOE), an enterprise [refers to] a business organization
of individuals or legal entities which shall have a name, capital, an administration and management, and
an office, and which is registered as an enterprise under this law. In connection with stated definition,
the same reference mentioned about companies which states that A company [refers to] a form of
enterprise established through the division of its capital into shares, each share having equal value. A
shareholder is only liable for the companys debts up to an amount not exceeding the unpaid portion of
[such shareholders] shares;
The charter of an enterprise or a company is found in its Contract of incorporation. Under LOE,
Article 81 .
A contract of incorporation shall be made in writing in accordance with the Contract Law of the
Lao PDR.
A contract of incorporation shall contain the following items:
1. The name of the enterprise;
2. The business purpose;
3. The name [and] location of the headquarters and all branches, if any;
4. The stated capital broken down into the value and number of shares, the proportion
contributed in kind, the proportion contributed in cash, and [the number of] common shares and
preferred shares;
5. The names, addresses and nationalities of the promoters of the company, and the number of
shares subscribed by each promoter;
 Page |4

6. Provisions referring to the directors unlimited liability for the debts of the company.42 The
provisions on unlimited liability of the director in this paragraph shall terminate one year after the
date [such] director is removed from the company;
7. The names and signatures of the promoters of the company
On the other hand, under The Corporation Code of the Philippines, Section 2 A
corporation is an artificial being created by operation of law having the right of succession, and
the powers, attributes and properties expressly authorized by law and incident to its existence.
The corporation code states that:
All corporations organized under this code shall file with the Securities and Exchange
Commission articles of incorporation in any of the official languages duly signed and acknowledged
by all of the incorporators, containing substantially the following matters, except as otherwise
prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being incorporated. Where a
corporation has more than one stated purpose, the articles of incorporation shall state which is
the primary purpose and which is/are he secondary purpose or purposes: Provided, That a
nonstock corporation may not include a purpose which would change or contradict its nature as
such;
3. The place where the principal office of the corporation is to be located, which must be within
the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen
(15);
7. The names, nationalities and residences of persons who shall act as directors or trustees until
the first regular directors or trustees are duly elected and qualified in accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the
Philippines, the number of shares into which it is divided, and in case the share are par value
shares, the par value of each, the names, nationalities and residences of the original subscribers,
and the amount subscribed and paid by each on his subscription, and if some or all of the shares
are without par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and
residences of the contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators may deem
necessary and convenient.

1. Establishment of Corporation/Enterprise Name

LAO COMPANY NAME REGULATION
As already mentioned, business incorporations are regulated under the Law on
Enterprises. All relevant provisions may be categorized into selection, failure to display and use,
and other related matters. Under the said law:
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Selection
An enterprise may select the name or surname of one or several persons or may
use other names as agreed. Any enterprise first subscribing for a name shall have priority
over other enterprises. The name of an enterprise shall at all times indicate the form or
category of such enterprise.
A subscribed name shall terminate if the subscribing enterprise is not accepted
for enterprise registration.
Upon the registration of an enterprise, the business operator shall display a sign
with its name.9

Failure to Display or Use Enterprise Name

An enterprise that, seven days after receiving notice, fails to display its enterprise
sign or uses an enterprise name inconsistent with the form or type of enterprise shall be
sanctioned with re-educational measures or fined 200,000 Kip each time.10

Other related matters

Any authorization to another person to use the name or enterprise license for
business activities shall be made in writing and in accordance with the Contract Law of
the Lao PDR.
In the event that there is no written authorization for the use of a name or
enterprise license but there is sufficient evidence indicating that the owner of the name
or enterprise license knew but did not complain or object or supported such use, it shall
be deemed as due authorization. 10 Translation Endorsed by the Law Committee of the
National Assembly of the Lao PDR11
Any person who authorizes others to use its name or enterprise license shall be
responsible to third parties in accordance with the agreed contract24 or as provided by
the laws.
Any person who authorizes a person having no capacity25 to use its name or
enterprise license shall be liable for the act of such persons.

9
Law on Enterprises, Article 21.
10
Ibid. Article 240
11
Ibid. Article 23
 Page |6

Any person who authorizes an individual or legal entity that is subject to legal
restrictions to use its name or enterprise license shall be jointly liable for the acts of that
individual or legal entity. Any business operations carried out by the authorized persons
shall be deemed to be business operations [conducted] without an enterprise
registration.
A State company may not authorize any individual or legal entity to use its name
or enterprise license. In the event of any violation, it shall be personally liable to the third
party.12

Prohibited Names
While LOE allows the enterprise to select the name to be used the same law,
however, expressly provided several list of names which a company cannot use. Article 22 of LOE
provides that Forbidden names are:
1. Names causing confusion, [names that are] similar or identical to the names of other
enterprises within the same province, [or] city[,] or names of other enterprises that are widely
known;
2. Names that conflict with the fine national culture and traditions or with social order;
3. Names that contain the name of any country, [or] international organization, or the name of
any symbol of cultural identity or national sacred site;
4. Names that are identical or similar to a form or category of enterprise.
Violation of using forbidden name will be sanctioned with re-educational measures or fined
300,000 Kip and be ordered to cease the use of such enterprise name.13
A name shall be cancelled together with the dissolution of the enterprise. Upon termination of a
name, the owner of the name shall remove the sign of its name within seven days from the date of the
notice of termination. Any individual or legal entity still using a cancelled name or enterprise license shall
be deemed to be conducting business without a proper enterprise registration.14 An enterprise that fails
to remove the sign of enterprise name after the enterprise is dissolved as provided in paragraph one,

12
Ibid. Article 24
13
Ibid. Article 241
14
Ibid. Article 26
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Article 26 of this law will be sanctioned with re-educational measures or fined 500,000 Kip and ordered
to remove the sign.15

PHILIPPINES - STOCK CORPORATION NAME REGULATION

No corporate name may be allowed by the Securities and Exchange Commission if the proposed name
is identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change
in the corporate name is approved, the Commission shall issue an amended certificate of incorporation
under the amended name.16
Just like the regulation of Lao PDR on selection of company name, registering and choosing a
corporate name are subjected to several limitation. The limitation are as follows:

1. The proposed name is identical or deceptively or confusingly similar to that of any

existing corporation will not be allowed;
2. Any other name protected by law; or
3. Patently deceptive, confusing or contrary to existing laws. (Sec. 18)
4. The corporate name shall contain the word Corporation or its abbreviation
Corp. or Incorporated, or Inc.
5. The partnership name shall contain the word Company or Co.
6. For limited partnership, the word Limited or Ltd. Shall be included
7. If the name or surname of a person is used as part of a corporate or partnership
name, the consent of said person or his heirs must be submitted except if that person is
a stockholder, member, partner or a declared national hero.
8. change in corporate name involves an amendment of the Articles, which requires
a majority vote of the board and the vote or written assent of stockholders holding 2/3 of
the outstanding capital stock (Sec. 16)
9. Change of corporate name shall require the approval of the SEC. SEC will issue
amended certificate of incorporation under the amended name.

15
Ibid. Article 242
16
Batasang Pambansa Bilang 68, Section 18
 Page |8

10. The name of a dissolved firm shall not be allowed to be used by other firms within
3 years after the approval of the dissolution of the corporation by SEC, unless allowed by
the last stockholders representing at least majority of the outstanding capital stock of the
dissolved firm (SEC Memorandum Circular 14).
11. Amendment in a corporations AOI changing its corporate name does not
extinguish the personality of the original corporation. The corporation upon such change
of its name, is in no sense a new entity, nor the successor of the original corporation. It is
the same corporation with a different name, and its character is not changed.
Consequently, the new corporation is still liable for the debts and obligations of the
old corp.17
12. A corporation should transact business only through its chosen name.

2. Purpose

LAO BUSINESS PURPOSE

Enterprises have to keep accounting books, to perform fiscal obligations towards the
government, to protect the workers legitimate rights and interests, to preserve the environment,
and to uphold other relevant laws and regulations of the Lao PDR.18
The registration of an enterprise has the following effects:
1. Creates a legal entity of a partnership enterprise or a company that is separate from its
shareholders, having rights, duties and responsibilities within the scope of its purposes and
bylaws. xxxx19.

Any modification of the contents in the enterprise registration after registration, such as the
purpose or the registered capital, shall be notified to the relevant enterprise registration officers
within one month after the decision on such modifications has been made.20

17
Republic Planters Bank v. CA, G.R. No. 93073, Dec 21, 1992
18
Law on Enterprise, Article 5.
19
Ibid. Article 16.
20
Ibid. Article 18.
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Any individual or legal entity conducting business inconsistent with its enterprise purpose
shall be re-educated or fined from 1,000,000 Kip to 5,000,000 Kip each time.21

PHILIPPINES CORPORATION PURPOSE/PURPOSES

Under Section 10 of BP 68 Any number of natural persons not less than five (5) but not more
than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may
form a private corporation for any lawful purpose or purposes.
All corporations organized under this code shall file with the Securities and Exchange
Commission articles of incorporation in any of the official languages duly signed and
acknowledged by all of the incorporators, containing substantially the following matters xxxx
2. The specific purpose or purposes for which the corporation is being incorporated.
Where a corporation has more than one stated purpose, the articles of incorporation shall
state which is the primary purpose and which is/are the secondary purpose or purposes:
Provided, That a non-stock corporation may not include a purpose which would change
or contradict its nature as such;
xxxx22
Unless otherwise prescribed by this Code or by special law, and for legitimate purposes,
any provision or matter stated in the articles of incorporation may be amended by a majority
vote of the board of directors or trustees and the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the
appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the
vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock
corporation.23 The Securities and Exchange Commission may reject the articles of incorporation
or disapprove any amendment thereto if the same is not in compliance with the requirements of
this Code. The following are grounds for such rejection or disapproval: xxxx
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and regulations;

21
Ibid. Article 237.
22
Batasang Pambansa 68, Article 14 (2)

23
Ibid. Section 16.
 P a g e | 10

xxxx24

3. Place of Office
LAOS LOCATION OF BUSINESS HEADQUARTER AND BRANCHES, IF ANY

The Law on Enterprise or does mention much of the regulation of chosen location of a
Limited Liability Company. A limited company shall be incorporated in accordance with following
procedures and conditions:
1. At least two promoters submit the contract of incorporation as a notification to the
enterprise registration officers where the companys headquarters are located;
2. xxxx25

However, establishment of a branch is restricted to banks, financial institutions, insurance

companies, international consulting companies, and foreign airline companies. Branch means
extension of a partnership or company without a separate legal personality. 26

PHILIPPINES PRINCIPAL PLACE OF OFFICE

The determination of principal place of office is an important requirement in the
determination of the venue of an action involving the Corporation. This is true since one of the
power of a corporation being a juridical entity, separate from its stockholders and members, is
the power to sue and be sued in its name.
This is also required for the protection of the public transacting with such corporation in
the event of any possibility of an act where the participation of the corporation is called upon.

4. Required Capital and Classification of Shares

LAOS
CAPITAL REQUIREMENT

24
Ibid. Section 17 (2)
25
Law on Enterprise, Article 86.
26
ZICOLaw, supra.
 P a g e | 11

The last paragraph of Article 81 of LOE states that The stated capital mentioned in item 427
of this article is the registered capital of the company. The registered capital of a partnership or
company is the value of all shares as defined in item 4 of Article 33 and item 4 of Article 81 of this
law. Such registered capital is also referred to as the stated capital of the partnership or the
company. The declared registered capital must truly exist in the Lao PDR, as prescribed by the laws.
In the event of a breach, the breaching party shall be responsible under the laws for the offence of
making false statements to a government authority. 28
According to Lao capitalization rules, there are two types of capital. Registered Capital
which refers to the subscribed share capital in a Lao enterprise required to be paid up, and Total
Capital which refers to the sum of: Registered Capital + long-term debt + retained earnings
(where long-term debt = debt not due and payable within the current 12 month reporting
period). The amount of Total Capital, which is in excess of the Registered Capital, is not required
to be paid up.29
An LLC can have both common and preferred shares and minimum share value is LAK
2000. Minimum paid-up capital is LAK 1 billion (US$ 140,000) for general business activities. For
general investment business activities, a company must pay in 100% of its registered capital when
it receives its ERC. For agricultural business, 40% of the registered capital must be paid in after
receiving the ERC and fully paid in within one year. For manufacturing, 60% of the registered
capital must be paid in after receiving the ERC and fully paid in within one year. For trade and
services, 80% of the registered capital must be paid in after receiving the ERC and fully paid in
within one year. All business entities formed under Lao law and all companies incorporated under
foreign law are considered Lao tax residents and subject to Lao profit tax. According the 2011
Decree on the Implementation of the Tax Law, for businesses that do not have tax breaks from
investment privileges, the corporate profit tax rate is 24%.30

27
Law on Enterprise, Article 81,
4. The stated capital broken down into the value and number of shares, the proportion contributed in
kind, the proportion contributed in cash, and [the number of] common shares and preferred shares;
28
Ibid. Article 20
29
ZICOLaw, Supra.
30
Dej-Udom and Associates, Supra
 P a g e | 12

Below are the minimum capitalization and payment requirements:31

Type Minimum Registered Capital Payment Requirement

General investments
at least LAK 1 billion For agriculture
business, at least 40% of
registered capital must be paid
within 90 working days from
issuance of the Enterprise
Registration Certificate and the
remainder within 1 year
For production and
handicraft processing business,
at least 60% of registered
capital must be paid within 90
working days and the remainder
within 1 year
For commerce and
service business, at least 80% of
registered capital must be paid
within 90 working days and the
remainder within 1 year

Concession investments Amount depends on the At least 20% of registered

type and size of the project
Registered capital must
be at least 30% of total capital
capital must be paid within
90 working days from
issuance of the Concession
Registration Certificate and
the remainder within 2
years

A limited company may increase its registered capital by increasing the number of shares or
increasing the value of each share. Increasing the registered capital shall be approved by [the
adoption of] a special resolution of the shareholders meeting as stipulated in Article 144 of this law.32
Payment of shares as mentioned above or payment of shares in other cases, such as an increase of
capital under Article 110 of this law, shall be made in cash and it is prohibited to set off debts with
the limited company, unless a special resolution of the shareholders meeting is passed.33

31
ZICOLaw, Supra.
32
Law on Enterprise, Article 110.
33
Ibid. Article 97
 P a g e | 13

A limited company may reduce its registered capital by reducing the value of each share or
reducing the number of the companys shares. The reduction of registered capital shall comply with
the following requirements:
1. The value of shares remaining after the reduction shall not be less than two thousand Kip;
2. 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 as described in
paragraph three, Article 20 of this law;
3. The reduction of registered capital may be executed only when a special resolution is
passed as provided in Article 144 of this law;
4. The creditors of the limited company have not opposed the reduction of such capital.34
An objection by a creditor prevents the limited company from reducing its capital, unless the
debt due to that creditor has been fully repaid.
In the event that any creditor has not received such notice on the reduction of capital due to
the fault of the limited company, the limited company shall pay the debt owed to such creditor not
later than one year from the date of the shareholders meeting adopting the resolution for the
reduction of the capital of the limited company.
In the event that the creditor is at fault, such creditor shall be considered as having not
objected. 35
Under Laotian laws, local businesses registered as Limited Liability Companies (LLC),
which is the most common form of business in Laos PDR, must appoint at least one director and
one shareholder or any nationality, and must have a minimum capital of $650. Foreign LLCs, on
the other hand, must have a paid up capital of at least $125,000.36

CLASSIFICATIONS OF SHARES
There are two types of shares of a limited company: common shares and preferred shares37.
Each share of a limited company shall not be issued [with a face value of] less than two thousand Kip.

34
Ibid. Article 112
35
Ibid. Article 114
36
Dej-Udom and Associates, Supra
37
Law on enterprise. Article 2 preferred share [refers to] a type of share which the owner may redeem, and which
has specific rights and obligations that are different from ordinary shares
 P a g e | 14

A share of a limited company may be held by one or several shareholders, and one person
shall be assigned to have rights as a shareholder in the limited company, provided that these
shareholders shall be jointly responsible for payment of unpaid shares to the limited company.
Shares of a limited company may be contributed in cash or in kind. The contribution in kind
shall be appraised in monetary terms [which appraisal shall be] approved by at least two-thirds of the
promoters and share subscribers attending the incorporation meeting, except as otherwise agreed.
Shares contributed in other forms than in kind and in cash shall be determined in detail at the
incorporation meeting.38
An LC cannot hold shares in its own company, but can hold shares in other companies or be a partner in partnership
enterprises.39

The value of a share of a limited company shall be determined in the contract of

incorporation. Such value of a share is referred as its par value. A limited company shall not issue
shares below par value40

Article 96. Payment of Shares before Enterprise Registration

Payment of shares before enterprise registration is the payment of shares following the
incorporation meeting stipulated in item 541 of Article 86 of this law.
In such case of payment of shares, the subscribers shall pay in full if it is in kind and at least seventy
percent of the value of subscribed shares if it is in cash.
The directors of the limited company may call for payment of the remaining amount at any time
after registration of the enterprise, unless the companys bylaws stipulate otherwise.

Article 97. Payment of Shares after Enterprise Registration

In calling for the payment of shares as described in paragraph two, Article 96 of this law, the
directors of a limited company shall call upon each shareholder to pay for shares in proportion to his

38
Ibid. Article 94
39
Dej-Udom and Associates, Supra
40
Law on Enterprise, Article 95.
41
Article 86. Incorporation of Limited Companies
A limited company shall be incorporated in accordance with following procedures and conditions:
xxxx
5. The director calls for payment in full of shares from the promoters and subscribers of the limited
company as defined in paragraph one of Article 96 of this law.
xxxx
 P a g e | 15

shareholding by giving thirty days prior written notice to each shareholder indicating the date and
amount of payment.
Payment of shares as mentioned above or payment of shares in other cases, such as an increase
of capital under Article 110 of this law, shall be made in cash and it is prohibited to set off debts with
the limited company, unless a special resolution of the shareholders meeting is passed.

Article 98. Effects of Failure to Pay for Shares

Shareholders who fail to pay for shares at the first call by the directors of a limited company
shall pay interest at the bank rate for loans on the portion remaining unpaid commencing from the
date they receive notice, and are entitled to vote in the shareholders meeting with only their fully
paid shares.
In the event that a shareholder fails to pay both shares and interest at the second call, the
directors are entitled to sell these shares by giving priority as specified in items 1 to 4 of Article 111
of this law to recover payment for the shares and interest for the limited company. Any remaining
amount shall be returned to the concerned shareholder.
In the event that the amount from the sale of shares under paragraph two of this article is not
sufficient, the directors have the right to claim for full payment; otherwise, the directors may refuse
to register the transfer of shares or suspend the right to vote of the concerned shareholder at the
shareholders meeting.

SHAREHOLDER AND THEIR RIGHTS AND DUTIES

As there are two types of share, there are also two types of share holders, the commons
shareholders whose rights are enumerated in Article 99 of the Law on Enterprise, and the
preferred share holder whose rights are governed by Article 100 of the same law.
The rights and duties of a common shareholder are as follows:
1. To present opinions on the limited companys activities;
2. To participate in the limited companys activities;
3. To pay for shares on the due date;
4. To fully protect their interests;
5. To receive information and examine the records of the limited company as provided
in the limited companys bylaws;
6. To file complaints against directors, officers or employees of the limited company
causing prejudice to their interests;
 P a g e | 16

7. To be liable for the unpaid portion of their shares;

8. To have pre-emptive rights with respect to the transfer or sale of shares by
shareholders of the limited company to third parties;
9. To elect or remove directors of the limited company;
10. To receive part of the assets remaining from liquidation in event of dissolution;
11. To receive dividends in proportion to their shareholdings;
12. To exercise such other rights and perform such other duties as specified under
laws and regulations.

The distribution of dividends and assets described in items 10 and 11 of this article may be
carried out only after the distribution to the limited companys preferred shareholders and creditors.

The rights and duties of a preferred shareholder, on the other hand are the following:

1. The rights and duties as described in items one to six of Article 99 of this law;
2. To be entitled to the distribution of assets and dividends before the common
shareholders. Dividends may be received at a fixed amount or as a percentage of
shares as agreed by the shareholders;
3. To receive other special rights. Any modification or revision of these special rights
shall be determined in the limited companys bylaws;
4. To redeem their shares when the limited company is profitable or to seek to sell
their shares to new shareholders after the limited company has refused to buy such
shares, except as otherwise agreed.
In the event that the limited company agrees to purchase the shares mentioned in item 146
of this article, the purchase price shall be at the set price or agreed price.

Preferred shareholders are not entitled to elect the directors of the limited company.

Share Transfer by Operation of Law

A share transfer by operation of law [refers to] the transfer of shares pursuant to the grounds
set out in paragraph two of Article 98 and paragraph three of Article 108 of this law, or by the death,
bankruptcy or other circumstances of the shareholder.
A person who receives shares transferred by operation of law shall present full and proper
evidence on the acquisition of such transferred shares, including share certificates, to the relevant
 P a g e | 17

limited company in order to be issued a share certificate and to be registered as a new shareholder
of the limited company (Article 105, LOE)

Restrictions on Share Transfers by Operation of Law

Restrictions on share transfers by operation of law include:
1. The restrictions described in paragraph three, Article 98 of this law;
2. Restrictions on share transfers under other laws, such as restrictions, if any, against
shareholding by foreign persons, foreign residents or apatrids in any type of business;
3. The transfer of shares during the supervision of assets48;
4. The transfer of shares when the shareholder register book is closed, if agreed or specified
in the bylaws of the limited company. (Article 106, LOE)

Liability of Share Transferor and Transferee

The transferor is liable to creditors for the unpaid portion of the shares transferred, in the
case:
1. As provided in paragraph four, Article 104 of this law;
2. Payment is called on transferred shares;
3. The transferee is unable to pay the outstanding portion of the unpaid shares.

The transferors liabilities are liabilities towards creditors[,] and they shall be terminated
within one year from the date of registration of the share transfer. The limited company may not file
a claim50 against the transferor.
The transferee acquires all rights, duties and obligations attaching to the transferred
shares.(Article 109, LOE)

Invalid Transfer of Registered Share Certificates

A transfer of registered share certificates shall be invalid if there is any breach of the
requirements set forth in paragraph two, Article 10442 of this law.

42
Bearer shares may only be transferred when:
1. [The transfer] is consistent with the restrictions on share transfer provided in the bylaws of the limited
company;
2. [The transfer] does not contravene any legal restrictions on share transfers;
3. They are acquired [pursuant to] a transfer of shares by operation of law;
 P a g e | 18

An invalid transfer of such shares results in the transferee not becoming a shareholder of the
limited company until a proper solution is found. In such case, the transferor shall remain the owner
of the transferred shares.
A transferee who has possessed shares in good faith for more than two years, without any
claim or protest, is entitled to be the lawful owner of such shares. (Article 108, LOE)

PHILIPPINES

CAPITAL REQUIREMENT
Stock corporations incorporated under this Code shall not be required to have any minimum
authorized capital stock provided that in no case shall the paid-up capital be less than five
Thousand (P5,000.00) pesos, except as otherwise specifically provided for by special law43.

BP 68, section 13 requires that At least twenty-five percent (25%) of the authorized capital stock
as stated in the articles of incorporation must be subscribed at the time of incorporation, and at
least twenty-five (25%) per cent of the total subscription must be paid upon subscription, the
balance to be payable on a date or dates fixed in the contract of subscription without need of
call, or in the absence of a fixed date or dates, upon call for payment by the board of directors:
Provided, however, That in no case shall the paid-up capital be less than five Thousand
(P5,000.00) pesos.

4. [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;
5. The transfer is registered. In the event of a transfer to a third party, a prior offering shall be made to the
other shareholders of the company, and the transfer shall be registered with the name and address of the
transferee in the share register.
The directors of a limited company may refuse to register a transfer of registered share certificates if the
shares have not been fully paid.
In the event that a limited company has registered the transfer of shares as mentioned in paragraph three
above, the transferor shall remain liable to creditors for his unpaid portion of the transferred shares.
43
Corporations with more stringent capital requirements:
Insurance corporations must have paid-up capital stock of at least P 5 M (Insurance Code, Sec 188)
Banks monetary board fixes minimum paid-up capital requirements for the different classes of banks
(Central Bank Act and General Banking Act).
 P a g e | 19

Paid up capital is the portion of the authorized capital stock which has been subscribed
and paid. Not all funds or assets received by the corporation can be considered paid-up capital,
for this term has a technical signification in corporation law. Such must from part of the
authorized capital stock of the corporation, subscribed and then actually paid-up.44

CLASSIFICATION OF SHARES
BP 68, section 6 provides that:
The shares of stock of stock corporations may be divided into classes or series of shares,
or both, any of which classes or series of shares may have such rights, privileges or restrictions as
may be stated in the articles of incorporation: Provided, That no share may be deprived of voting
rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise
provided in this Code: Provided, further, That there shall always be a class or series of shares which
have complete voting rights. Any or all of the shares or series of shares may have a par value or
have no par value as may be provided for in the articles of incorporation: Provided, however, That
banks, trust companies, insurance companies, public utilities, and building and loan associations
shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the articles of incorporation which are
not violative of the provisions of this Code: Provided, That preferred shares of stock may be issued
only with a stated par value. The board of directors, where authorized in the articles of
incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof:
Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof
with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to its creditors in
respect thereto: Provided; That shares without par value may not be issued for a consideration
less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration
received by the corporation for its no-par value shares shall be treated as capital and shall not be
available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance
with constitutional or legal requirements.

Under the said section, the following are the classification of shares:
1. Common Shares - These are ordinarily and usually issued stocks without extraordinary
rights and privileges, and entitle the shareholder to a pro rata division of profits. It
represents the residual ownership interest in the corporation. The holders of this kind
of share have complete voting rights and they cannot be deprived of the said rights
except as provided by law.
2. Preferred Shares - These entitle the shareholder to some priority on distribution of
dividends and assets over those holders of common shares.
3. Par Value Shares - Shares with a value fixed in the articles of incorporation and the
certificates of stock. The par value fixes the minimum issue price of the shares.

44
MSCI-NACUSIP Local Chapter v. National Wages and Productivity Commission
 P a g e | 20

4. No Par Value Shares - These are shares having no stated value in the article of
incorporation.
5. Founder Shares - Shares classified as such in the articles of incorporation which may
be given special preference in voting rights and dividend payments. But if an exclusive
right to vote and be voted for as director is granted, this privilege is subject to approval
by the SEC, and cannot exceed 5 years from the date of approval. (Sec. 7)
6. Redeemable Shares - These are shares of stocks issued by a corporation which said
corporation can purchase or take up from their holders upon expiry of the period
stated in certificates of stock representing said shares (Sec. 8).
7. Treasury Shares - Shares that have been earlier issued as fully paid and have
thereafter been acquired by the corporation by purchase, donation, and redemption
or through some lawful means. (Sec. 9)
8. Non-voting Shares - Shares without right to vote. The law only authorizes the denial
of voting rights in the case of redeemable shares and preferred shares, provided that
there shall always be a class or series of shares which have complete voting rights.
9. Voting Shares - Shares with a right to vote. If the stock is originally issued as voting
stock, it may not thereafter be deprived of the right to vote without the consent of
the holder.
10. Delinquent Share Shares which are unpaid and has become due.

SHAREHOLDERS AND THEIR RIGHTS AND DUTIES

Shareholder may differ from the types of share they hold. For puposes of this paper the
following are the Shareholders, Shareholders with voting right and Shareholders with non-voting
rights.
Shareholders with voting rights are generally those holders of any type of share other
than non-voting shares and/or delinquent shares. Shareholders with non-voting rights are those
who are generally have no right to vote except on the following where although action is usually
initiated by the board of directors or trustees, their decision is not final, and approval of the
stockholders or members would be necessary:
(1) Amendment of articles of incorporation;
(2) Increase and decrease of capital stock;
(3) Incurring, creating or increasing bonded indebtedness;
(4) Sale, lease, mortgage or other disposition of substantially all corporate assets;
(5) Investment of funds in another business or corporation or for a purpose other than the
primary purpose for which the corporation was organized;
(6) Adoption, amendment and repeal of by-laws;
(7) Merger and consolidation;
(8) Dissolution of corporation
 P a g e | 21

In all of these cases, even non-voting stocks, or non-voting members, as the case may be,
will be entitled to vote. (Sec. 6)
However, where a shareholder is a holder of an unpaid delinquent shares such
stockholder are not allowed to vote even in the matters enumerated above.

5. The Directors and their Duties, Responsibilities and Liabilities

LAOS AND THE PHILIPPINES

The Law on Enterprise states that a director is the representative of a limited company. The
relationships among directors, the limited company and third parties shall be based on the relevant
laws and regulations.
A director of a limited company receives no salary but receives an annual honorarium and
remuneration for each meeting at the rate or in the amount determined by the shareholders
meeting, except for third party directors or as otherwise agreed.

Directors may or may not be shareholders, except as otherwise agreed.

All acts of directors must be within the scope of power and duties determined in the bylaws of
the company and shall be under the supervision of the shareholders meeting.
A limited company may have several directors depending on the needs of the limited
company.
In the event that a limited company has several directors, one of whom is authorized to enter
into contracts with third parties on behalf of the limited company, such director shall be called the
general director.
In the event that the chairman of the board of directors is elected as the general director, he
shall be referred to as the president of the board (Article 116).
Where the limited company has assets in the value of LAK 50 billion, such company must
establish a board of directors and appoint auditors.
In the event that the chairman of the board of directors is elected as the general director, he shall
be referred to as the president of the board.
A board of directors has the following rights and duties:
 P a g e | 22

(i) To act as the central coordinating body and to oversee the tasks of the directors;
(ii) To appoint a director to fill a vacancy between two ordinary shareholders meetings;
(iii) To determine the plan for the administration and management of the limited company for
adoption by the shareholders meeting; and
(iv) To exercise such other rights and perform such other duties as determined in the AoA of the
limited company.

A director is a representative of a limited company. A director does not receive a salary

but receives an annual honorarium and remuneration for each meeting at the rate or in the
amount determined by the shareholders meeting, except for third party directors or as
otherwise agreed by the shareholders.
Directors may or may not be shareholders, except as otherwise agreed by the
shareholders.47 All acts of directors must be within the scope of power and duties determined
in the AoA of the company and will be under the supervision of the shareholders meeting.
The specific duties of directors include:
(i) Administering the business of the limited company in compliance with the contract of
incorporation, the AoA of the limited company and the resolutions of the shareholders
meeting;
(ii) Calling and collecting payments for shares at the determined amount and at the
defined time;
(iii) Managing and using the capital of the limited company in accordance with the defined
purpose and goal;
(iv) Establishing the accounting system, maintaining and filing all documents of the limited
company;
(v) Cooperating with the auditors by providing clarifications on the source and accuracy
of numbers and information appearing in the balance sheets before submitting them to
the shareholders meeting for adoption;
(vi) Sending copies of the balance sheet to the shareholders and keeping copies for review
by holders of bearer shares when required;
 P a g e | 23

(vii) Properly distributing the profits;

(viii) Administering and deploying officers or employees of the limited company; and
(ix) Informing the company of their direct or indirect involvement in transactions of the
limited company that could benefit them or of any increase or reduction of their
shareholding in the limited company or in the companys subsidiaries within the
accounting year.

Directors are prohibited from engaging in the following business activities in competition
with the limited company:
(i) To conduct identical or similar business activities to the limited company, whether such
conduct is for their own personal interest or for another persons interest, except as
approved by the shareholders meeting;
(ii) To be a partner in a general partnership enterprise or a general partner in a limited
partnership enterprise that conducts the same or similar business activities as the limited
company, except as approved by the shareholders meeting;
(iii) To undertake any transactions with their own limited company, whether for their own
personal interest or for another persons interests, except as otherwise agreed; and
(iv) Directors, including members of their families or close relatives, may not borrow money
from their limited company, except as permitted by the AoA of the limited company. These
restrictions also apply to the officers and employees of the limited company45.
On the contrast, it is required by BP 68 that Philippines Corporation must commence
business within the first 2 years of its incorporation. In this business matters it is required under
Sec. 25 of the said BP that in the organization of a stock and election of the directors, for the
commencement of its business, a President is to be elected, who shall be a director and a holder
of at least 1 share of stock; a treasurer who may or may not be a director but must not be holding
the office of a President; a secretary who shall be a resident and citizen of the Philippines and
who may or may not be a director and who is not holding the position of the president.

45
ZICOLaw, supra
 P a g e | 24

An LLC must hold a general shareholder meeting at least once a year where one or more
directors of the company may be elected. A manager of an LLC may bind the company and may
be liable to the company and third parties for his or her wrongful acts46. This is similar to the
requirements of BP 68 which requires that the Board of Director must hold a meeting once a year
except if special meeting may be required. Meeting of shareholders may be held for at least once
a year or as may necessarily be required. Generally, when the corporation has knowledge that its
officers or agents exceed their power, it must promptly disaffirm the contract or act, and allow
the other party or third person to act in the belief that it was authorized or has been ratified.
Otherwise, if it acquiesces, with knowledge of the facts, or if it fails to disaffirm, ratification will
be implied.47 Ultra vires acts entered into by the board of directors binds the corporation and the
courts will not interfere unless terms are oppressive and unconscionable.48

6. Pertinent Requirements of Nationality, Names, and Addresses

LAO
Article 81 of Law on Enterprise provides that A contract of incorporation shall be made in
writing in accordance with the Contract Law of the Lao PDR.
xxxx
5. The names, addresses and nationalities of the promoters of the company, and the
number of shares subscribed by each promoter;
xxxx
7. The names and signatures of the promoters of the company.

PHILIPPINES
Section 14 of BP 68 states that All corporations organized under this code shall file with
the Securities and Exchange Commission articles of incorporation in any of the official languages
duly signed and acknowledged by all of the incorporators, containing substantially the following
matters, except as otherwise prescribed by this Code or by special law:
xxxx

46
United Nations. (2010). An investment guide to the Lao Peoples Democratic Republic Opportunities and
Conditions 2010. Retrieved from http://unctad.org/en/docs/diaepcb201002_en.pdf
47
Premiere Development Bank vs. Court of Appeals, G.R. No. 159352, Apr. 14, 2004
48
Gamboa vs. Victoriano, G.R. No. L43324. May 5, 1979
 P a g e | 25

5. The names, nationalities and residences of the incorporators;

xxxx
7. The names, nationalities and residences of persons who shall act as directors or
trustees until the first regular directors or trustees are duly elected and qualified in
accordance with this Code;

Generally, Filipino citizenship is not a requirement for becoming an incorporator except

when engaged in a business which is partly or wholly nationalized where majority must be
residents. The same is true for Directors but the regulation is being made under the Anti-Dummy
Law.
Names are required for the verification as only natural persons can be an incorporator49.
This is also true for Names of Directors being required.

Some areas of Commerce where nationality is a strong requirement

LAO:
Prohibited sectors

Manufacturing of weapons and drugs

Military and defense training
Investigation and security services
Funerals and related services
Religious education
Manufacturing of cultural products that are damaging to national culture
Chemical substances and industrial waste that is hazardous to human health

Foreigners are prohibited from producing a number of Lao cultural handicrafts, as well as from fishing and operating fish
farms (unless certain conditions are met).

Some sectors have a local equity ownership requirement:

1. Production of beer and other alcohol

2. Production of medicine
3. Wholesale of beverages, tobacco, clothes and machinery

49
Batasang Pambansa 68, Article 10
 P a g e | 26

The exploitation of natural resources of generation of energy requires a joint venture with a local party. 50
There are certain industry sectors which require low capital, technological know-how and expertise is reserved for
Lao citizens. Other industry sectors require limits on foreign shareholding and minimum paid up capitalisation. These
restrictions and conditions are currently applied to certain investment activities related to construction, transport,
finance, insurance, and services sectors.51

PHILIPPINES:

LIST A:
FOREIGN OWNERSHIP IS LIMITED
BY MANDATE OF THE CONSTITUTION AND SPECIFIC LAWS
No Foreign Equity
1. Mass Media except recording [Article XVI, Section 11 of the Constitution; Presidential
Memorandum Order dated 04 May 1994].
2. Services involving the practice of licensed professions save in cases prescribed by law.
a. Engineering
i. Aeronautical Engineering
ii. Agricultural Engineering
iii. Chemical Engineering
iv. Civil Engineering
v. Electrical Engineering
vi. Electronics and Communication Engineering
vii. Geodetic Engineering
viii. Mechanical Engineering
ix. Metallurgical Engineering
x. Mining Engineering
xi. Naval Architecture and Marine Engineering

50
ASEAN Briefing. (2015, November 17). Foreign Investment Restrictions across ASEAN: An Overview of the
Regions Negative Lists Part Three. Retrieved from http://www.aseanbriefing.com/news/2015/11/17/foreign-
investment-restrictions-across-asean-an-overview-of-the-regions-negative-lists-part-three.html
51
ZICOLaw, Supra
 P a g e | 27

xii. Sanitary Engineering

b. Medical and Allied Professions

i. Dentistry
ii. Medical Technology
iii. Midwifery
iv. Nursing
v. Nutrition and Dietetics
vi. Optometry
vii. Pharmacy
viii. Physical and Occupational Therapy
ix. Radiologic and X-ray Technology
x. Veterinary Medicine

c. Accountancy
d. Architecture
e. Criminology
f. Chemistry
g. Customs Broker
h. Environmental Planning
i. Forestry
j. Geology
k. Interior Design
l. Landscape Architecture
m. Law
n. Librarianship
o. Marine Deck Officer
p. Marine Engine Officer
q. Master Plumbing
 P a g e | 28

r. Sugar Technology
s. Social Work
t. Teaching
[Article XIV, Section 14 of the Constitution; Section 1 of R. A. No. 5181]
3. Retail Trade [Republic Act No. 1180]
4. Cooperatives [Chapter III, Article 26 of R. A. No. 6938]
5. Private Security Agencies [Section 4 of R. A. No. 5487]
6. Small-scale Mining [Section 3 of R. A. No. 7076]
7. Utilization of marine resources in archipelagic waters, territorial sea, and exclusive economic
zone [Article XII, Section 2 of the Constitution]
8. Ownership, operation and management of cockpits [Section 5 of Presidential Decree No.
449]
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons [Article II, Section 8
of the Constitution]
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological
weapons [Various treaties to which the Philippines is a signatory and conventions supported by
the Philippines)
_______________________
[1/ Domestic investments are also prohibited (Article II, Section 8 of the Constitution;
Convention/Treaties to which the Philippines is a signatory)]
_______________________

Up to Twenty-Five Percent (25%) Foreign Equity

11. Private recruitment, whether for local or overseas employment [Articles 27 of Presidential
Decree No. 442]
12. Contracts for the construction and repair of locally-funded works except:
a. Infrastructure/development projects covered in Republic Act No. 7718, also known as the
Expanded BOT Law; and
 P a g e | 29

b. Projects which are foreign-funded or assisted and required to undergo international

competitive bidding [Commonwealth Act 541 as amended by Presidential Decree No. 1594;
Letter of Instructions No. 630; Republic Act No. 7718]

Up to Thirty Percent (30%) Foreign Equity

13. Advertising [Article XVI, Section 11 of the Constitution]

Up to Forty Percent (40%) Foreign Equity

14. Exploration, development and utilization of natural resources (Article XII, Section 2 of the
Constitution)2
_____________
[2/ Full foreign participation is allowed through financial or technical assistance agreement
with the President (Article XII, Section 2 of the Constitution)]
___________________
15. Ownership of private lands [Article XII, Section 7 of the Constitution; Chapter 5, Section 22
of Commonwealth Act No. 141]
16. Operation and management of public utilities [Article XII, Section 11 of the Constitution;
Section 16 of Commonwealth Act No. 146]
17. Ownership/establishment and administration of educational institutions [Article XIV, Section
2 of the Constitution]
18. Engaging in the rice and corn administration [Presidential Decree No. 194]
19. Financing companies regulated by the Securities and Exchange Commission [SEC] [Section 6,
Republic Act No. 5980]
20. Contracts for the supply of materials, goods and commodities to government-owned or
controlled corporation, company, agency or municipal corporation [Republic Act No. 5183]
21. Contracts for the construction of defense-related structure [e.g.,land, air, sea and coastal
defense, arsenals, barracks, depots, hangars, landing fields, quarters, hospitals] [Commonwealth
Act No. 541]
 P a g e | 30

22. Project proponent and facility operator of a BOT project requiring a public utility franchise
[Article XII, Section 11 of the Constitution; Section 2(a) of R. A. No. 7718]
23. Private domestic and overseas construction contracts [Republic Act No. 4566; Section 14 of
the Constitution]

LIST B:
FOREIGN OWNERSHIP IS LIMITED
FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH AND MORALS
AND PROTECTION OF SMALL AND MEDIUM-SCALE ENTERPRISES
Up to Forty Percent (40%) Foreign Equity
1. Manufacture, repair, storage, and/or distribution of products and ingredients used in the
manufacture thereof requiring Philippine National Police [PNP] clearance:
a. Firearms [handguns to shotguns], parts of firearms and ammunition therefor, instruments
or implements used or intended to be used in the manufacture of firearms
b. Gunpowder
c. Dynamite
d. Blasting supplies
e. Ingredients used in making explosives:
i. Chlorate of potassium and sodium
ii. Nitrates of ammonium 4vxc & barium, copper [11], lead [11] calcium and cuprite
iii. Nitric acid
iv. Nitrocellulose
v. Perchlorates of ammonium, potassium and sodium
vi. Dinitrocellulose
vii. Glycerol
viii. Amorphous Phosphorus
ix. Hydrogen Peroxide
 P a g e | 31

x. Strontium Nitrate Powder

xi. Toluene
f. Telescopic sights, sniperscope and other similar devices [Republic Act No. 7042]
2. Manufacture, repair, storage and/or distribution of products requiring Department of
National Defense [DND] clearance:
a. Guns and ammunition for warfare
b. Nuclear weapons and ordnance
c. Military ordnance and parts thereof [e.g., torpedoes, mines, depthcharger, bombs,
grenades, missiles]
d. Gunnery, bombing and fire control systems and components
e. Guided missiles/missile systems and components
f. Tactical aircraft (fixed and rotary-winged), components and parts thereof
g. Space vehicles and component system
h. Combat vessels (air, land, naval) and auxiliaries
i. Weapons repair and maintenance equipment
j. Military communications equipment
k. Night vision equipment
l. Stimulated coherent radiation devices, components and accessories
m. Biological warfare components
n. Armament training devices
[Republic Act No. 7042, as amended by R. A. No. 8179]
3. Manufacture and distribution of dangerous drugs [Republic Act No. 7042, as amended by R.
A. No. 8179]
4. Sauna and steam bathhouses, massage clinics and other like activities regulated by law
because of risks they may impose to public health and morals [Republic Act No. 7042, as amended
by R. A. No. 8179]
5. Other forms of gambling, e.g., race track operation; racehorse ownership/importation
[Republic Act No. 7042, as amended by R. A. No. 8179]
 P a g e | 32

6. Domestic market enterprises with paid-in equity of less than the equivalent of US$200,000.00
unless they involve advance technology or they employ at least fifty [50] direct employees, the
minimum paid-in capital will be reduced to US $ 100,000.00. [R. A. 7042, as amended by R.A.
8179]52

7. Promoter
LAO AND THE PHILIPPINES
An LLC must be established by promoters who undertake all activities in starting the
limited company. Each promoter must hold at least one share in the company, but cannot be its
representative. A Lao limited company must have two, but no more than thirty shareholders, and
one director, and corporate shareholders are allowed. A limited company with a single
shareholder is also permitted. An LLC can have both common and preferred shares and minimum
share value is LAK 2000. Minimum paid-up capital is LAK 1 billion (US$ 140,000) for general
business activities. An LC is formed through the registration of its Contract of Incorporation with
the Ministry of Industry and Commerce (MOIC) and comes into existence on the date indicated
on the Enterprise Registration Certificate (ERC) from the MOIC. For general investment business
activities, a company must pay in 100% of its registered capital when it receives its ERC. For
agricultural business, 40% of the registered capital must be paid in after receiving the ERC and
fully paid in within one year. For manufacturing, 60% of the registered capital must be paid in
after receiving the ERC and fully paid in within one year. For trade and services, 80% of the
registered capital must be paid in after receiving the ERC and fully paid in within one year. All
business entities formed under Lao law and all companies incorporated under foreign law are
considered Lao tax residents and subject to Lao profit tax. According the 2011 Decree on the
Implementation of the Tax Law, for businesses that do not have tax breaks from investment
privileges, the corporate profit tax rate is 24%53.

52
SECOND REGULAR INVESTMENT NEGATIVE LIST Pursuant to Executive Order No. 362, Retrieved from
http://www.chanrobles.com/default3.htm#.WaohmoTyut8
53
Dej-Udom and Associates, supra
 P a g e | 33

Procedure for Incorporation54

1. Apply for a Name Reservation Certificate and Enterprise Registration Certificate (ERC)
Agency: Enterprise Registry Office (ERO), Department of Investment Promotion for
General Businesses (IPB), Ministry of Industry and Commerce (MOIC).
2. Register the Articles of Association. Agency: State Asset Management Office, Ministry of
Finance.
3. Apply for Tax Registration Certificate. Agency: Tax Department.
4. Obtain Approval of Content on the Company Signage and the Company Signage Building
Permit. Agency: Ministry of Information Culture and Tourism.
5. Carve a company seal. Agency: Ministry of Industry and Commerce and Ministry of Public
Security.
6. Register company seal at the provincial department of public security. Agency: Provincial
Department of Public Security.
7. Register the workers for social security. Agency: Social Security Oce.
8. Register for VAT. Agency: Tax authority.

In the incorporation of the stock corporation, a promoter may take part. A promoter is a
person who brings about or cause to bring about the formation and organization of a corporation
by:
1. bringing together the incorporators or the persons interested in the enterprise,
2. procuring subscriptions or capital for the corporation and
3. setting in motion the machinery which leads to the incorporation of the corporation
itself.

54
World Bank. (2016, June). Doing Business. Retrieved from
www.doingbusiness.org/data/exploreeconomies/laopdr/starting-a-business
 P a g e | 34

All promoter(s) have joint personal liability for a corporation that was never formed. He
remains liable on contracts even after incorporation even though corporation adopts the
contract. Promoters are not agents of the corporation before it comes into existence. Upon
incorporation, the practice is for the BOD to pass a resolution ratifying the contracts entered into
by the incorporators with the promoter. Then, they become agents of the corporation.

Requirement of a stock corporation:

1. Name verification slip
2. AOI and bylaws
3. Treasurers affidavit
4. Registration data sheet
5. Proof of payment of subscription like Bank Certificate of Deposit if the paidup capital
is in cash
6. Favorable endorsement from proper government agency in case of special
corporations.

OTHER MATTERS REGARDING LAO ENTERPRISE

Public Limited Corporation

A business entity may also register as a Public Limited Company (PLC) in Laos PDR. Local
PLCs are required to have a minimum capital of $6,100. Foreign businesses, whether wholly or
partially owned, are required to have a minimum paid-up capital of $125,000. PLCs are mandated
to appoint at least seven shareholders, three directors, and one worker representative. PLCs are
corporations whose shares of stocks may be bought and sold by the public.
Foreign businesses looking to open a branch or representative office in Laos PDR are
required to appoint at least one director and one shareholder.
Banks, on the other hand, are required to have a reserve capital set by law; and are
mandated to offer agricultural loans amounting to 15 percent of the total deposits.
 P a g e | 35

Capital Restriction
Export.gov, a trade and commerce resource site setup by the U.S. Department of
Commerce, Laos PDR's 2010 Law on Investment Promotion mandated uniform business
registration requirements and tax incentives that apply equally to foreign and domestic
investors55.
Investors generally face no restriction on capital ownership in any business activity in Laos
PDR save for "where the government deems the investment to be detrimental to national
security, health or national traditions, or to have a negative impact on the natural environment"
and where certain industries are reserved exclusively for Laotian citizens.
Some of these businesses closed to foreign investments are the following: manufacturing
(the manufacture of Lao dolls; gold, silver, and copper products/jewellery; authentic Lao musical
instruments; cotton and kapok blankets and mattresses), and fishery.
On the other hand, both domestic and foreign businesses cannot engage in the
manufacture of weapons, narcotic drugs, chemical substance and industrial waste harmful to
health and the environment, investigation and security agencies, funeral and related activities,
among others.

Foreign Investment and Property Rights

Foreign investments in Laos PDR are covered by its Law on the Promotion and
Management of Foreign Investment. Under the said law, foreign companies looking to do
business in Laos PDR must either establish a representative office or a limited company. The
former is a legal entity registered in another country recognized by Laotian authorities to collect
data on investment opportunities or to coordinate with local regulators.
A representative office is not allowed to carry out commercial activities or earn income.
A limited company, meanwhile, under Laos PDR rules and regulations is either a wholly or
partially owned foreign company in Laos engaged in direct investments.

55
Export.gov. (2016, November 8). Lao - Openness to and Restriction on Foreign Investment. Retrieved from
https://www.export.gov/article?id=Lao-Openness-to-Foreign-Investment
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Such an entity is required to submit Articles of Association, Shareholders' or Joint Venture

Agreement, Lease Agreement, Business Plan, among other reportorial requirements56. Foreign
investors who invest in a joint venture must contribute a minimum portion of 30 percent of the
total equity investment converted into Lao currency.
A foreign investment shall be regarded as legalized only after receiving a written foreign
investment license granted by Laos PDR's Foreign Investment Management Committee or FMIC.
Once the said license is issued, a foreign investor has to register and commence its operation
within 90 days. Registration involves signing up with Laos PDR's Ministry of Commerce whether
an enterprise is domestic, foreign, state, private, joint venture, etc.
Foreign investors are not entitled to own land in Laos PDR but they have the right to lease.

56
Arion Legal. (2017, February 25). How do I start my own business in Laos?. Retrieved from http://jclao.com/what-
do-i-need-to-know-about-operating-a-company-in-laos
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LIMITED LIABILITY CORPORATION of LAOS versus PHILIPPINE CORPORATION (STOCK)

LIMITED LIABILITY CORPORATION (LLC) PHILIPPINE CORPORATION (STOCK)

DIFFERENCES
Up to 20 shareholders (However more than 30 Unlimited amount of shareholders
shareholders is allowed provided that a
special resolution is required)
Minimum capital of $650 No minimum authorized capital stock
required (Sec. 12, BP 68)
Foreign LLCs Paid up capital for at least No paid-up capital less than Php 5,000.00
$125,000 (Sec. 13, BP 68)

Must appoint at least one director and one Directors are elected (Sec. 26, BP 68)
shareholder or any nationality
Board of Directors and an auditor only if The Board of Directors are essential for a
registered capital exceeds $600,000 corporation to exercise its powers (Sec. 23, BP
68)
Approval by 2/3 vote of the shareholders in Vote of MBOD + 2/3 OCS for cases of:
case of: a) increase of decrease in capital (Sec. 38, BP
a) an increase or decrease in capital; 68);
b) sale or transfer of all or substantially all of b) sale or transfer of all or substantially all of
its business; its business ( Sec. 40, BP 68)
c) merger; or acquisition c) merger; or acquisition ( Sec. 77, BP 68)
SIMILARITIES
All shares issued by the LLC have the same Doctrine of Equality of Shares (Sec. 6, BP 68)
value
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right to own property, to carry out businesses Doctrine of Separate Juridical Personality (
under its name, and has separate liabilities Sec. 2, Article 44, New Civil Code )
from those of its shareholder
An LLC must hold a general shareholder Regular meetings of stockholders or members
meeting at least once a year to elect directors shall be held annually if not so fixed, on any
date in April (Sec. 50, BP 68)
A manager of an LLC may bind the company The chairman, managing partner, manager
and may be liable to the company and third and secretary can bind the company
parties for his or her wrongful acts

COMPARISON:
PUBLIC LIMITED CORPORATION (PLC) of LAOS versus PHILIPPINE CORPORATION (STOCK)
PUBLIC LIMITED COMPANY (PLC) PHILIPPINE CORPORATION (STOCK)
DIFFERENCES
Local PLCs need a minimum capital of $6,100 No minimum authorized capital stock
required(Sec. 12, BP 68)
Foreign businesses (PLC), whether wholly or No paid-up capital less than Php 5,000.00
partially owned, are required to have a (Sec. 13, BP 68)
minimum paid-up capital of $125,000.
PLCs need to appoint: a)Unlimited amount of shareholders,
a)at least seven shareholders, b) The number of directors or trustees shall
b) three directors, not be less than 5 nor more than 15 (Sec. 14,
c) and one worker representative BP 68)
c) No workers representative
SIMILARITIES
PLCs are corporations whose shares of stocks Open corporations
may be bought and sold by the public
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N.B.
Limited company
a company in which the liability of each shareholder is limited to the amount of the capital
agreed to be invested by him in it; liability does not extend to the member's other assets. (Collins
Dictionary of Law W.J. Stewart, 2006)

In the Philippines, where there is no Limited Liability Corporation (LLC), the closest entity would
be a corporation a separate juridical person established under the Philippine Corporation Code
and regulated by the Securities and Exchange Commission (SEC) of the Philippines.
(http://www.tripleiconsulting.com/corporation/)

Public Limited Company (PLC)

A public limited company (PLC) is the legal designation of a limited liability company which has
offered shares to the general public and has limited liability.
(http://www.investopedia.com/terms/p/plc.asp#ixzz4qIlQvaYf)