Companies Act

Part 1 - Private Limited Companies

The Maldives parliament has passed a new Companies Act 7/2023 (the “Act”) which has recently been assented to by the president. The law is set to replace the existing framework   for company laws in Maldives and comes in force on 1 January 2024.

Existing companies under the old law are automatically recognized and subject to the new law. Immediate action isn’t required, but certain actions outlined in the sections below must be taken within one year of the law coming into effect.

This memo series by S&A explores some of the key changes which has been brought by this Act. This memo series will be split up as follows with a separate memo for each of the following:

• Private Limited Companies;
• Foreign Investment Corporations;
• Public Companies;
• State Owned Entities; and
• Local Authority Companies.

Private Limited Companies - Key Changes

Single member companies allowed

• The Act permits private companies registration with a single shareholder with a single share and a single director.
• Eliminates the need for nominee directors.
• A full time managing director must be appointed at all times, this position cannot be left vacant.

Non shareholder executive directors can be hired

• Private limited companies, including Foreign Investment Corporations (FICs), need at least onelocally resident director.
• FICs must have a formally appointed local agent.
• Non-FICs must have an all local board, and care should be taken not to hire foreign executive directors unless company is converted to an FIC.

Company secretaries & company seals are no longer required

If a seal is maintained, a single signatory may suffice, otherwise, two signatories or a director with a witness may be required.An exception is when the managing director signs a document.

Annual fee abolished

Companies no longer need to pay an annual fee; instead, they incur various fees based on specific government services received.

PSCs and UBOs have to be disclosed

Persons with Significant Control (PSC) 

A PSC is someone with over 25% shares or votes, or influence over pecuniary or strategic matters. An individual with authority to hire or fire a majority of the board or influence company policies and direction is deemed a PSC

All corporate and individual shareholders must inform the company of Ultimate Beneficial Ownership (UBO) and company must inform the registrar.

Non-compliance may lead to fines:

MVR 1000 first instance, MVR 2000 second instance, and MVR 5000 for subsequent violations.

Company service address

Companies can now choose a separate “service address” for official communications, including legal documents and government notices, in addition to their registered address. 

Board of directors & director disqualification

• Directors must confirm their consent and compliance within one year of the Act starting.
• Non-compliance doesn’t invalidate acts performed by a director on the board.
• Directors must keep a current registry and notify the registrar of board changes within 15 days.

Requirements of the new act

Disqualifying situations

Directors must be over 18 and not disqaulified

No directors are/were not a director of a company subject to liquidation proceedings within the last 5 years; No directors have unspent convictions concerning, money laundering offences of any kind; class 3 misdemeanor contrary to section 212 of the Maldives Penal Code (theft by deception or misrepresentation); class 1 felony contrary to section 215 of the Maldives Penal Code (theft by failure to deliver entrusted funds). Spent for these purposes means 5 years from serving the sentence or 5 years from a date a pardoning. Convictions in this context means those sentences which are delivered after the Act comes into force; No directors have, for a period 1 year past the deadline for payment, failed to pay a fine imposed under this Act for any company; No director is also appointed as the relevant company’s auditor; No director is also appointed the relevant company’s liquidator; No director is barred from being a director of the relevant company under any other laws or regulations or any private agreement between the members of the company;

Shareholders, minority shareholder protection & derivative actions

All shareholders must receive a share certificate and such certificate shall be the title document as regards to the shares. 

Quorum for a shareholder’s meeting is 50% of voting shares. Electronic meetings are allowed, and shareholders can appoint proxies who must vote as instructed. 

The company must maintain an up-to-date shareholders’ registry for the past 5 years, including details of present and ex-shareholders.

Directors are responsible for ensuring its accuracy. Shareholders have the right to examine it, and legal claims can be pursued if the registry is not current.

Shareholders can apply for a derivative action to challenge a board decision not in the company’s best interest.

Minority shareholders can challenge oppressive majority decisions, and ex-shareholders may take action if actions result in the loss of their stake in the company. 

Shareholders are liable only up to their subscribed shares unless the articles of association extend this liability. Any amendment increasing liability is binding only if the shareholder voted in favor. 

Corporate Criminal Responsibility

Failure to accurately disclose required information to the Companies Registrar is a class 1 misdemeanor (unsworn falsification - section 521 of the Maldives Penal Code)

Submitting false documents is a class 4 felony (forgery)

Non-compliance with Registrar requests may lead to a class 1 misdemeanor (obstruction) and a fine of MVR 1,000 to MVR 100,000.

Conclusion

The recently enacted Companies Act in the Maldives brings significant changes to the corporate landscape.

Key highlights include the flexibility for private limited companies, disclosure requirements for Ultimate Beneficial Owners and Persons with Significant Control, the elimination of certain traditional corporate formalities, and enhanced corporate governance standards for directors.

Shareholder rights, including the ability to challenge board decisions, have been strengthened, and the consequences for non-compliance with disclosure and registry maintenance obligations are clearly outlined.

As businesses transition to this new regulatory framework, careful attention to these changes and prompt adherence to the outlined timelines and requirements will be essential for companies operating in the Maldives.