Section 1(c) of the Myanmar Companies Law 2017 (MCL) defines “ultimate holding company” in sub-section (xliii) as follows:
“(xliii) “ultimate holding company”, in relation to a body corporate, means a body corporate that is a holding company of the first-mentioned body corporate and is itself not a subsidiary of any body corporate;”
Whether a company has an ultimate holding company or not, and – where it does have an ultimate holding company – identifying details of the ultimate holding company, are required to be notified to the Directorate of Investment and Company Administration and recorded in the ‘Myanmar Companies Online’ (MyCO) online electronic company registry. For example, section 6(b)(viii)(G) of the MCL states that this is required content for a company incorporation application. Section 7 of the MCL states that making a making a false declaration in an incorporation application under section 6 is an offence that may be subject to a fine of MMK 2,500,000.
So, what is an “ultimate holding company”? As set out above, the concept links to the concepts of “holding company” and “subsidiary”, which are each also defined expressions under section 1(c) of the MCL. Assessing whether a company is a subsidiary of another company can require consideration of matters of control and access to dividends, which can be somewhat complicated. We will therefore focus in this short article on share ownership only, as this is more straightforward and is the most common criterion on which holding company and subsidiary relationships are identified.
In relation to share ownership, a company is a subsidiary of another company if the other company holds more than one-half of the issued shares of the first-mentioned company, other than shares that carry no right to participate beyond a specified amount in a distribution of either profits or capital. The phrase “shares that carry no right to participate beyond a specified amount in a distribution” appears to be a reference to non-voting preference shares with a fixed preferential dividend. (For more information on preference shares, see our article).
Therefore, for most purposes, a company is a subsidiary of another company if the other company holds more than one-half of the first-mentioned company’s issues ordinary shares (or at least issued voting shares). If the first-mentioned company is a subsidiary of the other company, then the other company is a holding company of the first-mentioned company.
An ultimate holding company is the highest company in a chain of majority ownership which does not itself have a holding company (that is, which is not itself at least 50% owned by another company). For example, if: Htet Myo Aung owns 100% of the shares in company A; company A owns 62% of the shares in company B; company B owns 56% of the shares in company C; and company C owns 75% of the shares in company D – then each of company A, B and C is a holding company of company D, but company A is the ultimate holding company of each of companies B, C and D. That is, each company in the ownership chain is the holding company of the one below it, but company A is the ultimate holding company as it is the ‘highest’ company that does not itself have a holding company. (The fact that Htet Myo Aung owns 100% of company A is not relevant as he is not a company and cannot be an ultimate holding company). However, if, for example, company B owns only 49% of company C, then company C would be the ultimate holding company of company D. In that circumstance, company C itself no longer has a holding company. (Incidentally, with this change company A would still the ultimate holding company of company B, but only of company B).
We often come across company registry records where an ultimate holding company is relevant, but either this has not been registered correctly (for example, the first-level holding company has been registered instead of the top-level ultimate holding company), or no ultimate holding company has been registered at all. We have even seen examples where a company does not have an ultimate holding company registered, but is 100% owned by another company. In that scenario, at least the direct shareholding company must be a holding company and it must be relevant to register an ultimate holding company. Failure to correctly register ultimate holding company details creates a gap in corporate governance related information that may be of importance to other shareholders; and can potentially expose the applicant for incorporation and the directors to fines under the MCL. If you would like any further information on, or assistance with, company incorporation, company register or other MyCO filing compliance issues, please feel free to contact us.