Corporate Law at Micronesia
Here’s a clear overview of Corporate Law in the Federated States of Micronesia (FSM):
Corporate Law in Micronesia
1. Legal Framework
Corporate law in FSM is governed mainly by the FSM Business Corporation Act, which is largely based on the Model Business Corporation Act (MBCA) from the United States.
Each FSM state (Yap, Chuuk, Pohnpei, Kosrae) can have its own variations, but generally, corporate laws are harmonized.
FSM is a sovereign nation in free association with the United States, so U.S. legal influences are strong.
2. Types of Business Entities
| Entity Type | Key Features |
|---|---|
| Business Corporation | Separate legal entity; limited liability; can be for-profit or non-profit |
| Sole Proprietorship | Individual ownership; unlimited liability |
| Partnership | General or limited partnerships allowed |
| Limited Liability Company (LLC) | Increasingly popular; combines partnership and corporate features |
3. Company Formation
Companies register with the FSM Department of Resources and Development (R&D) or the relevant state agency.
Basic steps include:
Filing Articles of Incorporation
Designating a registered agent and office
Paying registration fees
No minimum capital requirement.
Foreigners can incorporate businesses but may need local permits depending on business activities.
4. Corporate Governance
Business corporations require:
Board of Directors
Officers appointed by directors
Shareholders meetings per bylaws and laws
Fiduciary duties apply to directors and officers.
5. Taxation
FSM has no national corporate income tax.
States may levy their own taxes; tax rates vary by state.
Some business activities are subject to local business licenses and fees.
FSM benefits from various international agreements for tax purposes.
6. Foreign Investment
Foreign investors can own companies.
Certain sectors may require special permits.
FSM encourages foreign investment but emphasizes environmental and cultural protections.
7. Dissolution and Bankruptcy
Voluntary dissolution requires shareholder approval and filing with authorities.
Bankruptcy laws are limited; insolvency is typically handled through liquidation under general commercial laws.
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