While it is possible to run a startup without, to incorporate in Cambodia confers a number of significant advantages. Almost every business of a certain scale and success will incorporate in order to access these benefits.

First and foremost, to incorporate a private limited company in Cambodia limits the liability of the shareholders to their capital contributions. In other words, the worst that can happen if the startup fails is that the shareholders lose the money they put into it – and no more. Of course, no founders go into a venture hoping for this worst-case scenario, but it could be even worse.

If you do not incorporate in Cambodia, a startup would be operating as an unregistered sole proprietorship (if one founder) or general partnership (if two or more founders), where the founder(s) are personally liable for all the obligations of the business. If the business is sued – for instance a loan has not been repaid, or an employee terminated improperly – the founder(s) can be forced by the court to pay from their personal assets. With personal bankruptcy not an easy or routine practice in Cambodia, these business debts can follow failed-founders around indefinitely.

Given the relatively high rate of failure for technology startups, founders often need several tries before finding the winning formula. Thus, the concept of “serial entrepreneurs” and the “fail fast, fail often” idea. Limited liability is crucial to the ability to shut-down a failing startup and moving on to a new idea. Without a limited liability company, the founders’ new venture would be at risk from the creditors from the failed business. Better to incorporate, limit your losses to what you’ve put in, and have the option to shut it down and move on.

Second, if you incorporate in Cambodia, it improves a business’s access to financing. Whether in the form of a loan from a bank or individual, or an equity stake in the startup, having an incorporated company makes obtaining finance easier and more likely. A company can issue shares in stock, and banks often prefer handling loans with incorporated borrowers.

Third, operating under a registered company can greatly enhance a business’s credibility and profile. Suppliers, customers and business partners often perceive companies as more stable and trustworthy, to the point that some will only work with registered companies. Banks, for instance, will only open a business account for an incorporated firm. A business bank account makes it easier to separate business from personal funds.

In short, to incorporate as a private limited company in Cambodia is strongly recommended for any startup doing business in the Kingdom.

 

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