Legal and Tax Updates

Issue: No. 001P/21 – 08 January 2021

Before answering this question, we need to understand briefly what an IPO is and why a private company goes public.

An Initial Public Offering, generally called IPO, refers to a process when a company sells their stock/securities for the first time to the public to raise capital. A company looking to expand its business or strengthen its competitiveness can use an IPO to generate the capital and make itself known to both local and international public.

The primary benefit of doing an IPO is an ability to raise capital for an unlimited time without any interest rate, whereas a bank loan is for a defined period of time and usually secured by collateral(s) with a high or medium interest rate.

In most instances, an IPO is also used for promoting the company as well as its products, services, quality, effectiveness, and efficiency to clients and suppliers. The listed company will be viewed as adhering to a high standard of corporate governance, and therefore gain confidence from its clients, partners and suppliers. Additionally, some research suggests that IPOs enable the company to become widely known on social media boosting the number of visitors to the company’s page.

Who is an IPO team?

A formation of an IPO team is a crucial, initial phase. An appointment of the IPO team needs to be made as soon as an intent letter is delivered to Securities and Exchange Commission of Cambodia (SECC). In order to comply with the laws and regulations in relation to the IPO and be qualified as part of the IPO team, the IPO team members, including an underwriting firm, a law firm, an accounting firm, a valuation firm, a printing firm and other related parties, must be licensed or accredited by the SECC.

What does a law firm or a lawyer do in the IPO process?

We list down certain kinds of work that a capital markets lawyer may undertake:

1. Due Diligence

Due diligence for capital markets transactions is the most important work in the IPO process. Normally, we investigate and undertake scrutiny, review, and research on legal aspects of the company such as corporate and compliance issues, labor and employment issues, related-party transactions, finance and tax issues, and litigation proceeding status.

2. Drafting/reviewing disclosure documents

Drafting/reviewing a prospectus is also a part of a lawyer’s roles in the IPO. Various information are required to disclose to public investors. Practically, a disclosure document needs to be drafted by a securities firm and need to be verified by experts like lawyers or accountants. This can take months to be drafted and is a critical part of raising capital from the public.

3. Legal and Regulatory Advice

In order to help a company achieve IPO-readiness, lawyers may come up with an elaborate plan of action that requires legal support in the listing process. Lawyers have to advise on potential issues—SECC’s compliance issues, regulatory issues, corporate law requirements, and other complex issues.

Even after the company is listed, the process does not end there. The company then needs lawyers who would ensure that their IPOs comply with all necessary disclosures and SECC’s regulations, and the process are made efficiently as well as effectively.

4. Restructuring and Seeking Regulatory Approvals

Company restructuring is also a significant work for lawyers in the IPO process. In compliance with SECC’s regulations and the needs of capital markets, it may require a change in the company details such as its legal form, its registered capital and par value, its corporate governance, etc. Those changes are needed to seek an approval from relevant regulatory institutions, Ministry of Commerce, and General Department of Taxation.

There are several other works that a capital markets lawyer may undertake during the IPO process, and it varies from one company to another due to their business objective categories and their corporate compliance status.

Disclaimer

The article is merely for general information purposes. It does not constitute a legal advice on the subject matter. If you have any question or need any assistance, please feel free to contact us:

SON Sokeng, Partner, Managing Director sokeng.son@sithisak-lawoffice.com	Sokeng has more than 8 years of professional experiences in corporate, commercial, investment and capital market sector in Cambodia. He has leaded a legal counsel team to advise and assist ACLEDA Bank Plc. in the process of listing on the Cambodia Securities Exchange (CSX). He has been a team member of a legal counsel teamto advise and assist in the IPO process of Phnom Penh Autonomous Port (PPAP). He is currently leading a legal counsel to advise and assist in an IPO of a SME for its proposed listing on the growth board of the CSX.
MANN Channaro Partner,  Head of Banking,   Finance and Capital Markets   Practice Group Channaro.mann@sithisaklawoffice.com	Channaro focuses on corporate and banking & finance over 10 years with Microfinance, Specialized, Foreign Bank branch and Commercial Bank. He has particular expertise in handling financing transactions, including drafting and processing loan documentation and security documents and other agreements for institutions. Channaro experienced with National Bank of Cambodia, Ministry of Commerce and other Authorities in Company Registration and Banking License. Channaro is a key person in providing legal advices to Boards of Directors, Merger Banking Committee and Managements’ Team, policies maker and an approver related to Banking products and services. He got the Certification on Certified Regulatory Compliance from the Institute of Banking and Finance.

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