Companies Act

Part 4 - State Owned Entities

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 January2024.

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.

State Owned Entities – Key Considerations

How are they formed?

State Owned Entities (SOEs) are formed by presidential decree or law, with the government holding 100% shares.

Registration

The Ministry of Finance submits documents to the Registrar of Companies for SOE registration to ROC who must complete registration within 30 days. If directors’ details are not included in the decree or law, they must be submitted within the same timeframe.

Types of SOEs

1. SOE formed by a Presidential Decree

To form an SOE through a presidential decree, the following requisites must be included in the decree.

1. 1. Company name.
   2. Objectives.
   3. Total shares.
   4. Declaration of 100% shares of the government; and
   5. Memorandum of Association.

2. SOE formed by a Law.

• • SOE formed by law must follow rules specified in the parent legislation.
  • If there are no specific rules in the parent legislation, there are general rules in the Act which apply unless prohibited by another act.

Conversion of SOEs

1. Conversion of a SOE to a Public Company

   • Its members can change an SOE to a public company through the passage of a special resolution.

2. Conversion of a SOE to a Private Company

   • The law allows the conversion of an SOE into a private company if any shares are transferred to a party other than the government.

Applicability of Rules for Private Companies

In the absence of specific laws for SOE governance, the laws for private companies are considered applicable to SOEs.

Constitution and Objectives of SOEs

If the incepting presidential decree or law includes all required information, a separate memorandum of association for an SOE is not necessary. Additionally, SOEs must state their objectives in the company’s constitution. 

Number of Directors and Company Secretary

An SOE is required to have a minimum of three directors, although the presidential decree or a law may specify a different minimum number of directors.

Furthermore, in contrast to a private company, SOE’s are obligated to appoint a company secretary.

Conclusion

The legal and procedural framework introduced for SOEs provides clarity on their formation and governance, emphasizing unique features within the corporate landscape. 

The Act establishes a consistent approach regarding the applicability of private company rules to SOEs when not specified in the enabling presidential decree or law. It also allows flexibility by omitting the need for a separate memorandum of association when the constitution’s requirements are covered in the decree or law.

The Act distinguishes SOEs with specific regulations, including minimum director requirements and the mandatory appointment of a company secretary, along with the incorporation of company objectives in the constitution.

This framework contributes to a clear and distinct governance structure for SOEs.