Foreword

A long-anticipated piece of key legislation, the Companies Act 2023 (the “Act”) was passed by the Maldives Parliament and subsequently ratified by the President of the Republic of Maldives on 27 December 2023.

The Act repeals and replaces Law No.10/96 (the Companies Act 1996, hereafter the “Repealed Act”) in its entirety. Several long-standing practices of the Ministry of Economic Development and the Registrar of Companies have been codified under the new Act, including for instance, the mechanisms for registration of charges over shares in a company, codification of directors’ powers and duties, etc.

There are many welcome new concepts under the Act, most notably the single-shareholder company, removal of objects clause for certain types of companies, and acceptance of non-shareholder directors.

With the new regime under the Act also comes several compliance requirements, including the maintenance of a register of persons with significant interest or control/beneficial owners of a company registered in the Maldives.

Note on Regulations: Despite being a lengthy statute at 177 pages, many requirements have been left to be elaborated under subordinate regulations, for instance, the criteria for a company to prepare audited financial statements. The Act states that these subordinate regulations are to be issued by the Ministry of Economic Development by 26 March 2024.

The Act is effective from 27 December 2023. Existing companies must ensure compliance with the Act before 27 December 2024.

Key Highlights

The Act expands on existing provisions of the Repealed Act, while introducing several new concepts and key definitions. The below summarizes the key changes to the existing regime and significant new requirements.

1. Types of Companies / Categorizations

In addition to the previously recognized categories of private limited companies, public limited companies, state-owned companies and re-registered companies, the new Act also introduces 2 (two) new categories:

• Local Authority Companies (“LAC”); and
• Foreign Investment Companies (“FIC”) (a FIC may be a private company, a public company or a re-registered company. This categorization applies where the entity has foreign individuals or corporates as shareholders).

2. Single-Shareholder Companies

• Abandoning the requirement under the Repealed Act for a minimum of 2 (two) shareholders, the new Act allows for single-shareholder companies to be incorporated. Special provisions and exemptions apply on general meetings, meetings of directors and generally conducting the affairs of single-shareholder companies.
• Similarly, the requirement for a minimum of 2 (two) Directors for each company has been removed. Private companies may have 1 (one) Director only. The requirement for at least 1 (one) Director to be ‘resident’ in the Republic of Maldives remains.

3. Non-Shareholder Directors

• A key issue under the Repealed Act was the requirement for Directors to be a shareholder in a company. The new Act abolishes this, expressly allowing individual shareholders to appoint a third person as a Director.
• For private companies with 100% Maldivian ownership, shareholders are restricted from appointing foreign individuals to represent them on the Board of Directors.

4. Defining Significant Beneficial Owners

The Act introduces key definitions of ‘significant beneficial owner’, ‘significant influence’ and ‘control’.

• “Significant Beneficial Owner”: A person has significant control over a company if they possess the following rights or benefits in respect of a company, whether singly or jointly with others, or through a trust:
  • holding not less than 25% of the shares in the company directly or indirectly;
  • holding not less than 25% of the voting rights in the company directly or indirectly;
  • being entitled to not less than 25% of dividends declared by a company in a financial year, whether directly or indirectly;
  • otherwise exercising or having the right to exercise significant influence or control over the company other than in capacity of a registered shareholder.
• “Significant Influence”: A person has significant influence over a company if they hold the right, whether directly or indirectly, to be involved in the financial or operational decisions of the company.
• “Control” means:
  • holding the right to appoint the majority of the board of directors; or
  • control by a person holding the right to be involved in the operation and management of the company, directly or indirectly, singly or jointly; whether by virtue of holding shares, management rights, by means of a shareholder agreement, voting rights agreement or otherwise.

5. Objectives of a Company

• It is no longer mandatory for private companies (except FICs, state-owned companies, and LACs) to state its objectives in the Memorandum of Association.
• Where a private company has not specified or restricted its objectives, it may engage in any business not prohibited by law.
• A company may still opt to specify its objectives, in which case they can only be amended via a special resolution of shareholders.

6. Registers and Records

Companies are now required to maintain registers of:

1. Directors of the company;
2. Shareholders of the company;
3. Any charges over the shares of the company; and
4. Significant beneficial owners of the company.

Directors are responsible for maintaining these registers and informing any changes to the Registrar of Companies within stipulated timeframes. Directors may face administrative penalties if found in breach.

7. Accounting Records & Appointment of Auditors

• The new Act formally relaxes the older rigid rules and only requires companies to maintain accounting records (without the requirement for an audit) in accordance with a pre-set criteria (to be determined under subordinate legislation).
• Only certain companies that meet a pre-determined threshold must engage an auditor and prepare audited financial statements. It is anticipated that these thresholds will closely follow the MIRA Tax Ruling threshold of an annual turnover of MVR 10,000,000 and above.
• Accounting records must be maintained for a period of 5 (five) years.

8. Resolutions and Quorum for Meetings

• The Act expressly permits shareholder resolutions to be passed by circulation without convening a physical general meeting.
• The Board of Directors are required to meet at least 4 (four) times in a calendar year (up from 2 meetings under the Repealed Act).
• The legal quorum for a meeting of the Board of Directors is set at 50% of appointed Directors.

9. Company Secretaries & Company Seal

• The new Act no longer requires private limited companies to appoint company secretaries or register a company seal (these are now optional).
• If a company chooses to appoint a secretary, they may appoint either an individual or a law firm. Individual company secretaries do not need to be Maldivian nationals but must be resident in the Maldives.

10. Share Transfers and Right of First Refusal

Unless stated otherwise in the articles of association, where a shareholder wishes to transfer their shares to a third party, the remaining shareholders shall have a right of first refusal in respect of those shares.

11. Directors’ Duties, Powers, and Responsibilities

Directors are required to discharge their duties based on a ‘reasonable person’s’ standard of skill and care. Key obligations include the duty to act in the best interest of the company, declare conflicts of interest (and refrain from participating in those decisions), and maintain strict confidentiality.

Compliance Checklist

Below are the key requirements that companies must comply with from the effective date of the Act. Where an existing company has any provisions in its constitutional documents that contradict the provisions of the Act, the relevant provision shall be invalid and the provisions of the Act shall apply.