The President Ratifies the New Companies Act

/in , /by

The new Companies Act 1 (the “New Act”) has been ratified on 27 December 2023 and will be effective on 1 January 2024. Upon becoming effective, the New Act will repeal the current Companies Act 2 (the “Previous Act”) which has been in force since 1 July 1997.

The New Act introduces substantial changes to the company law landscape in Maldives bringing major developments that impact companies in Maldives. New compliance and regulatory requirements are also introduced under the New Act.

Types of Companies

Similarly to the earlier regime, the New Act allows the formation of the following companies:

  1. Private companies
  2. Public companies 
  3. Government companies 
  4. Local authority companies

The New Act also designates any private or public company with foreign shareholding as a Foreign Investment Company. Foreign registered companies are permitted to re-register in Maldives similar to before. 

Foreign-owned companies will be subject to the Foreign Investment Act3 and the relevant policies made thereunder.

Single Shareholder Companies

  1. The New Act stipulates that the minimum number of shareholders required in a private or public company is one shareholder and as such, single shareholder private companies are now permitted in Maldives.
  2. Previously, a minimum of two shareholders were required to form a private company.

Board of Directors

  1. The Board of Directors of private companies may consist of one Director, rather than two Directors as required under the Previous Act.
  2. The New Act provides that directors may be appointed in the following manner:

    • by a resolution of the shareholders; or 
    • appointment by a specific shareholder (where such powers are granted under the AOA).
  3. As a major difference, natural persons who are shareholders of the company may appoint other individuals as representative directors. Earlier, representative directors could only be appointed by entity shareholders.
  4. The New Act also provides that a director who is resident in the Maldives must be present in all companies, which was also a requirement under the Previous Act.
  5. As a new change, locally owned private companies (i.e. owned by 100% Maldivian or Maldivian owned-entities) should only have Maldivians as directors of the company.
  6. The fiduciary duties of the directors have also been detailed in the New Act. The Previous Act does not include detailed provisions in this regard despite fiduciary duties being recognised by the courts of Maldives.

Company Seal

  1. Under the New Act, it is not mandatory for companies to have a registered company seal. 
  2. However, there are significant differences applicable to the execution of documents where company seals are not registered by the company.
  3. Where a company seal is registered, documents of the company can be executed by an authorised sole signatory with the company seal affixed to the document.
  4. Where a company seal is not registered, documents of the company may be executed in the following manner:
    • Two authorised signatories executing the document; or
    • A director of the company executing the document in the presence of a witness attesting to the signature; or
    • Managing Director executing the document.

Board Meetings

  1. The New Act has introduced a requirement for all companies to hold four board meetings annually whereas previously two board meetings were required.
  2. The quorum for the board meetings is set as more than 50% of the directors and the Articles of Association may stipulate a higher quorum.

Company Secretary

  1. Contrary to the requirements of the Previous Act, it is no longer mandatory for a private company to appoint a Company Secretary.
  2. A major difference under the New Act is that law firms, accountancy firms or audit firms registered in Maldives can be appointed as Company Secretaries.
  3. The New Act also provides that natural persons appointed as Company Secretaries should be 18 years of age, resident in Maldives and should not be a director of the company. Earlier under the Previous Act, directors could be appointed as Company Secretaries.

Significant Beneficial Owners

  1. One of the major overhauls under the New Act is the introduction of the requirement to register significant beneficial owners (SBOs) of entity shareholders.
  2. SBOs are defined under the New Act as individuals who possess:
    • Direct or indirect control of 25% shares in the company; or
    • Direct or indirect control of 25% voting rights of members in the company; or
    • Direct or indirect right to receive 25% dividends in the company; or
    • The right to exercise significant influence or control in the company without solely due to owning shares in the company.
  3. SBOs have to be registered in the company and the company must maintain a register of SBOs.
  4. Companies are required to inform the details of the UBOs to the Registrar of Companies (ROC). Failure to register and inform the details of UBOs results in penalties against all directors of the company.

Local agents of re-registered entities

  1. Foreign companies re-registering in Maldives are now required to appoint an agent who is resident in Maldives.
  2. The agent is accountable to the ROC on behalf of the re-registered entity and is also personally responsible for any actions taken against the re-registered entity.

Directors Declaration

  1. The New Act maintains the requirement to prepare an annual Directors’ Report which has to be submitted to the ROC annually.
  2. As a new change, the New Act requires the company to include a declaration as part of the Directors’ Report.
  3. The declaration should confirm that the information provided in the Business Register is accurate.

Compliance Statement

  1. A compliance statement signed by an attorney or the Company Secretary (for companies other than private companies) is to be submitted to the ROC in the following circumstances:
    • Changing the company form from private to a public company and vice versa;
    • Registering changes to the Memorandum of Association or Articles of Association;
    • Registering changes to the authorised capital of the company.
  2. The compliance statement confirms that the company is compliant with the Companies Act and the regulations made thereunder.

Service Address

  1. Companies may register a service address in addition to the registered address.
  2. Upon registration, service address will be utilised by the ROC and other third parties to send notices and documents to the company.

Objectives and articles of the companies

  1. By default, locally owned companies have unrestricted objectives as the scope of their businesses, in contrast to the Previous Act where specific objectives of the company were to be included in the MOA. Such companies may however choose to limit their objectives.
  2. Similarly to before, foreign-owned companies will only be permitted to operate within the business scope approved under the foreign investment laws.
  3. Model Articles are to be published by the ROC and companies may choose to adopt the Model Articles.

Inactive companies

  1. The New Act creates a requirement for ROC to classify companies as inactive where:
    • 3 months have elapsed without the minimum requirement for the board of directors; or
    • 1 year has elapsed without filing the declaration to be submitted with the Director’s Report;
    • 2 years have elapsed without filing the annual financial statements and reports;
    • 1 year has elapsed without paying any outstanding penalties.
  2. A company may fulfil the pending obligations to remove the company from the inactive companies register.
  3. The ROC is to initiate winding up procedures for companies listed as inactive companies for 2 years.

Abolition of annual fee

  1. Previously an annual fee of MVR 2,000 was applicable for each private company. The New Act has abolished the requirement for payment of the annual fee.
  2. However, new service fees have been introduced for corporate applications to be made with the ROC.

Compliance with the new Act

  1. The New Act requires already incorporated companies and re-registered companies to comply with the New Act within 1 year from the effective date (i.e. before the end of 2024).

Effective Date

The New Act will be effective from 1 January 2024.

References

  1. Act Number 7/2023
  2. Act Number 10/96
  3. Act Number 25/79