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Pitfalls of Opening a Business

By: BNG Legal Posted: November-10-2010 in
BNG Legal

Over the weekend, I met a small-business owner here in Phnom Penh who had some legal trouble setting-up her store. She fell into a common trap, which should serve as a lesson for anyone looking to set up their business.

New businesses need to register with the Ministry of Commerce, which requires a copy of the business’s lease agreement. If you’re sub-leasing the premises, then you’ll also need written authorization from the owner of the property, not just the person leasing it to you. If you can’t get the owner’s approval, you won’t be able to get your business registered.

The business-owner had rented a terrific location for her store, put down a deposit, invested in fixtures and signs, and was starting to grow her clientele. When she filed her lease agreement with the Ministry, they rejected it because it wasn’t between the true landlord and herself.

Unbeknownst to her, she had signed a sub-lease. The person from whom she sub-leased wasn’t willing to help her contact the true owner, who was in fact out of the country. Without the landlord’s agreement, she would never be able to get registered. Without registering, she was operating as a sole-proprietorship – which meant she was paying astronomical import duties and make it impossible get her payment system online. Seeing no other solution, she decided to cut her losses by moving to a new location.

Opening a store is hard enough to do once. But doing it again just because you didn’t know you were sub-leasing is heartbreaking.

The lesson is to know whether you’re renting from the landlord or sub-leasing from the tenant by asking for proof of ownership. If you’ve decided to sub-lease, make sure you get the landlord’s approval in writing at the time you sign the lease.

Reposted from Cambodian Law Today

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