Business issues 49091 Bulletin Lao PDR THE BUSINESS INFORMATION CENTER AT THE LAO NATIONAL CHAMBER OF COMMERCE AND INDUSTRY No. 8, June 2009 STREAMLINING BUSINESS REGISTRATION IN LAO PDR: REDUCING THE BURDEN OF THE COMPANY SEAL Background procedure for obtaining a Company Seal. LaoPDRrequiresallcompaniestohaveaCompany Seal.Thispartoftheregistrationprocessaccountsfor Procedures for Obtaining Company Seal asignificantamountofthetimeneededforstartingup In Vientiane Capital or Provinces: Enterprise anewbusiness.AccordingtoWorldBank'slatestDoing Registration 2 Enterprise Certificate Finance Businessstudy,thetimerequiredtoobtainaCompany Registry Office Office SealinLaoPDRaccountsfor45ofthetotalof103days (ERO) Tax 1 Certificate neededtostartabusiness,whichisprohibitivelylong. 3 InVientiane Capital only: Traditionally,theprimaryobjectiveoftheCompanySeal (Ministryof Public Security) Seal `Carving' Permit wastoconfirmtheauthenticityofcompanydocuments 4 Order slip 5 inordertomakethemlegallybindingbyaffixingastamp Citizen Administration & for carving Production Unit (Seal to an official document. In this sense, the Company Villages Group Police Training Carving Unit) Department/ Special Sealactsmoreorlessasthesignatureofacompany. Profession Division Seal Registrar However,asbusinesspracticesmodernize,theneedfor aCompanySealisdiminishing,andthesignaturesof In Express line, Regular line, takes more time Vientiane Capital or Provinces: takes less time Pre-approved authorizedrepresentativesofacompanyaresufficient Pre- approved Seal Seal tomakedocumentslegallybinding. Order slip to Order slip to issue seal `use' 6.1 6.2 issue seal `use' Approved This Business Issues Bulletin discusses the current Local Level Public Seal Security Office Seal `Use' requirement in Lao PDR for obtaining a Company 7 Permit Seal and provides practical recommendations for improvementbasedoninternationalbestpractices.As Procedure Explanation: thetimeneededtostartanewbusinessinLaoPDR ThesealiscarvedattheSealCarvingUnit,locatedseparatelyfrom islongrelativetoitsneighbors,reducingtheburdenof themainMPSoffice. thiscumbersomeandlargelyunnecessarystepwould ExpressorprioritysealsaremadefirstattheSealCarvingUnit. streamlinebusinessentryandenhanceinvestment. Then, the seals are registered and sent back to the Citizen AdministrationDepartmentwhereapplicantscancollectthem. Procedures for issuing a Company Seal Forregularseals,theyaremadeandregisteredattheSealCarving Unit,thenapplicantscancomeandcollectthem. Article 11 of Decree 218/PM, issued in July 2005 regulates the requirement for obtaining a Company Timeline: Sealatthetimeofbusinessregistration.TheMinistryof Fromstep1to4usuallytakesabout15workingdays. IndustryandCommerce(MoIC)andMinistryofPublic Fromstep4to7maytakeupto45days. Security(MoPS)arecurrentlyinvolvedinapprovingand registeringeachCompanySeal,andarealsoinvolved indesigningandproducingeachSeal.Thisisquite unusual,asmostcountriesallowCompanySealstobe designedbytheapplicantandproducedbyanapproved This bulletin is published with support from IFC-managed MPDF, a private sector engraver. development initiative in Vietnam, Cambodia, and Lao PDR, whose donors are Australia, Canada, Finland, IFC, Ireland, Japan, New Zealand, the Netherlands, Norway, Sweden, At present the procedure for new companies to and Switzerland. obtain a Company Seal is as follows: The company The "Business Issues Bulletin" provides those interested in business issues with a short summary and analysis of a particular topic affecting the business environment in representativemustfirstgotothenearestofficeofthe Lao PDR, and exposure to different opinions held by various stakeholders on the topic. MoIC,whichwilldeterminetheappropriatedesignofthe The statements and opinions presented here are only meant to provide additional CompanySeal.Next,thecompanymustobtainapermit reference material and do not reflect official opinion of the Lao National Chamber of Commerce and Industry (LNCCI) or IFC. fromtheMoPStobothproducethesealandtohave Readers are welcome to copy and distribute the information contained in this itregistered.Thediagrambelowshowstheseven-step bulletin provided acknowledgement is given to LNCCI/IFC as the source. TheofficialcostforissuingaCompanySealiscurrently Sealwasreducedtofiveworkingdays,wecouldexpect LAK120,000(approximatelyUS$15),makingitoneof toseeLaoPDRrisetwoplacesintheoveralleaseof themorecostlystepsinthebusinessstart-upprocedure doingbusinessrankings,andsixplacesonthe`Starting inLaoPDR.Additionally,the45dayperiodisabreach aBusiness'indicator,from92ndto86th.IftheCompany of Decree 301/PM of October 2005, which clearly Sealwascompletelyremovedasamandatory element statesthatCompanySealsshouldbeissuedwithinfive oftheenterpriseregistrationprocedure,LaoPDRwould workingdays(seeArticle43). risethreeplacesintheoverallrankingsandnoless than21places­from92ndto71st­inthe`Startinga As the table below shows, Lao PDR compares Business'indicator. unfavorablywithmanyneighboringcountriesinregard tothetimerequiredforobtainingCompanySeals.The nearest comparison is Vietnam, where the Company Options for change Sealissuanceprocesscurrentlytakeslessthanathird Thereareanumberofwaysinwhichtheprocedures ofthetime.However,atthetimeofthewritingofthis for issuing Company Seals could be streamlined in Bulletin, Vietnam issued a new regulation (Decree LaoPDR,basedontheexperiencesofothercountries. 31/2009/ND-CP) on the management and use of Therearetwobroadcategoriesofpossiblereforms:i) CompanySeals.Thus,fromJune1,2009Vietnamese keepingtheCompanySealasamandatoryrequirement companieswillonlyneedtoregisterasampleoftheir of business start-up, but reforming the procedures CompanySealwiththepolice.Thissimplifiedprocedure involved; and ii) moving towards a non-mandatory isexpectedtoreducethetimeinvolvedfromsevendays regime. to two days, making Lao PDR's 45 days even more distantfromregionalnorms. Underthefirst reform category,thesimplestoption would be to bring the Company Seal issuance and Time and Cost of Obtaining Company Seal: registration processinto conformity with Decree301/ Comparing Countries in Asia PMtoensureaturnaroundtimeoffiveworkingdays bringingthetimerequiredclosertoregionalnorms. Company Seal DaysRequired Cost isaMandatory toObtaina (US$approx.) Requirement Company Seal Thereareanumberofwaysthismightbeachieved. One recommendation would be to shift responsibility Lao PDR Yes 45 14.25 forCompanySealissuancetotheEnterpriseRegistry Vietnam Yes 13 10.57 Office (ERO), as part of the company registration China Yes 2 43.92 process. This would allow for substantial efficiency Cambodia Yes 1 15.00 gains,asthenjustonegovernmentagencywouldbe Thailand No 4 8.59 responsibleforthistask,andtheCompanySealcould Indonesia No Notrequired Not applicable beissuedsimultaneouslywiththeregistrationcertificate. Philippines No Notrequired Not applicable Numerous countries allow the government agency responsibleforenterpriseregistrationtoapprove(and KyrgyzRep. No 3 27.92 register) Company Seals, without any recourse to a Timor-Leste Yes 2 Nocharge publicsecurityagency. Malaysia Yes 1 42.37 India Yes 1 7.17 IfrelinquishingresponsibilityforCompanySealissuance Bangladesh Yes 1 1.00 and registration is not acceptable to MoPS, another optionwouldbetorelocatethistasktotheEROoffice, Azerbaijan Yes 1 4.98to49.77 with MoPS continuing to provide this function. This Kazakhstan Yes 1 16.51to31.75 couldinfactbeoneelementofaprocesstoestablish Mongolia Yes 1 34.52forexpress a `one-stop-shop' approach for enterprise registration Source: Doing Business 2009. (US$ exchange rate as of mid-January,andbusinessstart-up,particularlyifthetaxregistration 2009). procedureswerealsoincluded.However,theefficiency IftheperiodforobtainingaCompanySealinLaoPDR gainsofthisoptionwouldbefairlylimitedunlessMoPS couldbeshortened,itwouldhaveaconsiderableand wereabletosignificantlyreducethetimerequiredto positiveimpactontheoveralltimerequiredtostarta processtheCompanySeal. newcompany.Forexample,ifLaoPDRcouldreduce thetimerequiredtoobtainaCompanySealtoalevel AthirdwaytoacceleratetheCompanySealissuance closertotheaverageinAsia­e.g.aroundfiveworking processwouldbetoallowapprovedserviceproviders days,ascalledforinDecree301/PM­itwouldresultin toproducetheCompanySeal,sothatthisburdenis a40%timesaving;abigimprovementwithouttheneed removedfromMoPS.Ifmultipleserviceproviderswere formajorreforms. approved,itislikelythatthetimerequiredtoproduce theCompanySealwouldbereduced.Thisisdonein WhatwouldthismeanforLaoPDR'srankingintheWorld Azerbaijan,forexample,wherenumerousfirmsprovide Bank'sannual`DoingBusiness'survey?Allotherthings aCompanySealmakingservice.InChina,Company beingequal,ifthetimerequiredtoobtainaCompany Seals can be made by anyone holding a `Shanghai 2 specialindustrypermit(companysealcarvingpurpose)'. simplifythewholebusinessstart-upprocess,twooptions OncetheMoPSinChinahasissueda`noticeofcarving should be considered. A first and more incremental permission', the Company Seal can be made by an optionisforthegovernmenttofindwaystospeedupthe outsidefirmholdingthispermit.However,muchwould processforissuingtheCompanySealbystreamlining stilldependonthetimeMoPSrequirestoapproveand procedurestomakethemeasierandfaster.Asecond register the Company Seal.Thus, a reduction in the andmorecomprehensivereformoptionproposedhere overall time needed is not automatically assured by istoremovetherequirementfortheCompanySealas selectingthisoption. partofthebusinessstart-upprocess.Eitheroptionwill improveLaoPDR'sbusinessentryproceduresmaking Anotherpolicyoption,albeitlessattractive,wouldbeto iteasier,fasterandlessexpensiveforentrepreneursto establishanofficial`express'CompanySealissuance startanewbusiness. procedure (whether at MoPS or ERO), whereby applicantspayahigherfeeinordertogettheirCompany Seal more quickly. Azerbaijan, the Kyrgyz Republic, Viewpoints Lithuania and Mongolia are examples of countries "The goal of the Enterprise Registry Office (ERO) is to offeringsuchexpressservices(thefastestbeingtwo make the enterprise registration process simple and hoursintheKyrgyzRepublic).Themaindrawbackwith quick. From ERO's point of view, it is legally necessary thisoptionisthatitwouldraisethecostofbusiness for businesses to follow procedures under the Ministry of entry,potentiallyputtingsmallerbusinesses,lackingthe Public Security (MoPS) to obtain their Company Seal and financialresourcestopayapremiumfeeforexpress permit. However, the process of getting a seal carving serviceatadisadvantage. permit and producing the seal are currently centralized at Underthesecond reform category,onepolicyoption a single place for the whole country, managed by MoPS wouldbetofollowtheexampleofnumerouscountriesby (Department of Citizens Administration and Training for removingthemandatoryrequirementforLaocompanies Villages Group Police). The MoPS then issues a letter touseCompanySeals.ThishasbeendoneinEstonia, to local public security authorities, where the enterprise Latvia,theKyrgyzRepublic,Thailand,Indonesiaand is located, to consider and issue a seal `use' permit at a thePhilippines,amongmanyothers.Ifthisoptionwere later stage. This practice is considered a constraint for pursued,itwouldremove­withasinglereform­the businesses. mosttime-consumingelementofthestart-upprocess The following options would streamline procedures for fornewbusinessesinLaoPDR.Companiescould obtaining a Company Seal and other related permits: stillopttohaveaCompanySeal,iftheywished,butby nolongermakingitamandatoryrequirement,itwould 1. Expand seal-making units under MoPS to every immediately shave 45 days off the time required to province nationwide, or at least to each region. completebusinessstart-upprocedures. 2. Give businesses an option to choose whether they want to use their Company Seal and when, at their Asecondoptionwouldbetoallownewcompaniesto own discretion. Alternatively, they may choose to completealltheotherproceduresneededtocommence use the signature(s) of senior management on some businessoperationswithouthavingtheCompanySeal documents. inhand.ThisisdoneinBulgaria,wheretheCompany 3. Give businesses an option to make their own Company Sealprocedurecanbecompletedsimultaneouslywith Seal, based on conditions set by the relevant public otherstepsintheenterpriseregistrationprocess(and security authority. Then register this seal with relevant the Company Seal takes just one day to be issued agencies, or with ERO, when businesses submit their in Bulgaria). In effect, this is similar to shifting the registration applications. CompanySealfrombeingamandatoryrequirementto anoptionalone,byde-linkingCompanySealissuance Adopting one or more of these proposed solutions would fromtheotherelementsofthestart-upprocess. greatly facilitate business start-up procedures." Alternatively,inBhutan,anewbusinessisonlyrequired Nivone Nhoysaykham togetitsCompanySealwithinoneyearofcommencing Director of Enterprise Registry Office registration,anditspossessionofaCompanySealis checkedaspartofthefirm'sfirstannualinspection.This "Private investment is a key factor driving economic pragmaticoptionremovestheCompanySealissuance growth in Laos and is encouraged consistently by the procedurefromthebusinessstart-upprocessmaking government. And yet establishing a company is time- it faster and cheaper for an entrepreneur to begin consuming and requires a lot of effort. Investors wishing operationsofanewbusiness. to create a company must go through many complicated and lengthy processes, involving various ministries, Conclusion including Ministry of Planning and Invesment (MPI) for investment license, MoIC for company registration, Inordertoeasethetime-consumingandcomplicated Ministry of Finance (MoF) for tax registration, and MoPS CompanySealissuanceprocedures,whichwillin-turn for Company Seal registration. 3 Recently, the procedures for obtaining an investment a Company Seal mandatory, a more effective way license, as well as enterprise and tax registration to establish the identity of a company would be to procedures were streamlined with the intention to implement an effective e-signature law, which over 100 significantly reduce the time it takes for approval. countries have already done. As a result, a minority However, in practice, it still takes a long time to get a of jurisdictions worldwide now require a seal -- even Company Seal, mainly because of limited capacity though the requirement is still `on the books' in many to make and design the seal. On the other hand, the Asian countries. Electronic signatures cost nothing, and registration time could be reduced considerably if they are much more difficult to forge than seals. investors were allowed to design their own seals, and production was out-sourced to a specialized company Even if the Company Seal requirement is not to be based on certain criteria set by relevant authorities. In eliminated right away, getting a Seal should not present Lao PDR, it is unrealistic to abrogate the use of the a bottleneck for entrepreneurs trying to start a business. Company Seal, so it is important to find a way to make In Singapore, for example, where private companies are this process easier." authorized to make Company Seals, fulfilling the Seal requirement takes only one day. Allowing private parties Mr. Soutsaka Bounmanit, Managing Director to provide Seals in Lao PDR could significantly ease the Soutsaka College of Management and Technology process of starting a company." "A sound regulatory environment for the establishment Justin Yap, Regulatory Economist, of enterprises is a key factor to encouraging investment Doing Business Reform Unit, Investment Climate in Lao PDR. Under the 2005 Enterprise Law, the Department/FIAS, World Bank Group Government of Lao PDR has made great strides in this respect, particularly with the recent implementation of "It can often be a challenge for a developing country to new processes for company name subscription and find practical ways to improve the enabling environment enterprise registration with the Enterprise Registry for companies without expending quite considerable Office (ERO) of the Ministry of Industry and Commerce. energy and costs. But occasionally it is possible to However, these steps represent only two aspects of the identify a relatively simple initiative that can have a company establishment process, and there are other substantial impact ­ rather like low-hanging fruit that can steps in this process that can be streamlined, such as be easily harvested without too much effort. This is the the issuance of Company Seals. case with the Company Seal issuance and registration process in Lao PDR. The requirement for all companies to have a Company Seal in Lao PDR is important to ensure that the legal For those countries that still require all new businesses acts of companies are validly authorized, and to provide to have a Company Seal, most take no more than a few some measure of protection against fraud. Making the days to issue it; indeed, in some developing countries, ERO responsible for the issuance of Company Seals, it takes just a few hours. But in Lao PDR, the 45 days and implementing a five business day turnaround it takes to get a Company Seal is perhaps the longest timeframe, would make the company establishment processing period in the world. Therefore, there is process more efficient for investors. Alternatively, little doubt that these 45 days could be reduced very transferring responsibility for the design and carving substantially, and relatively easily. process to certain regulated private sector actors would free up limited government resources, and may reduce I would suggest that responsibility for approval and the time that it takes to establish an enterprise in Lao registration of new Company Seals is passed to PDR. Reforming the Company Seal process should be Enterprise Registry Office (ERO), as part of a move encouraged, as this is a straight forward and inexpensive towards a `one-stop-shop' service for new businesses. way of improving the regulatory environment for the It would then be ERO's duty to abide by Prime Minister's establishment of enterprises in Lao PDR and for Decree 301, which limits the Company Seal issuance encouraging both foreign and domestic investment." period to no more than five working days. That would immediately remove 40 days from the company start-up Chris Manley procedures in Lao PDR, and serve as a positive signal Country Managing Director, Mekong Law Group to investors that the country is becoming more and more business friendly." "Company Seals are, in many ways, vestiges of a bygone era when companies communicated with each Nick Freeman, other and with customers mostly on paper. Today, FDI and Private Sector Development Specialist even many basic transactions take place electronically, making Company Seals obsolete. Rather than making Business issues · Publisher: LNCCI Business Center · KM 5, Ban Phonphanao, Vientiane · Tel: 856-21-412579 · Fax: 856-21-452580 Bulletin · Reviewed by: Mr. Khunthavong Dalavong, LNCCI Secretary General · Layout and printed by: V.V. Design and Publishing · E-mail: vv_dap@yahoo.com, 500 copies · License No. 177/C by Ministry of Information and Culture, dated 21/02/05