Business Structures and Forms
A new Companies Law, aimed at encouraging investment, became effective in June 1997. Companies Law No. 22 of 1997 limits routine procedures and facilitates the process of company registration.
The Law introduced the not-for-profit company form as well as the civil company form, which provides for the establishment of companies by professional persons, such as lawyers, doctors or engineers.
Under the new Law, companies are no longer required to pay a 15 percent capitalizing charge, which had previously acted as a barrier to capital reserves. In addition, amendments to the Law allow company founders to adopt the prices they deem appropriate to estimate the value of their fixed assets.
The Law provides for several entity forms under which business may be conducted in Jordan. These are: (1) general partnership; (2) limited partnership; (3) limited liability company; (4) limited partnership in shares; (5) public shareholding company; (6) mutual fund company; (7) offshore company (exempt company); and (8) foreign company (operating and non-operating).A public shareholding company may be formed by two or more shareholders whose liability is limited to their respective share of the company’s equity. The minimum authorized capital is set at a JD 500,000 minimum. The subscribed capital must exceed JD 100,000 or 20 percent of the authorized capital, whichever is greater.
Banks, financial institutions and insurance companies may only be incorporated as public shareholding companies. Companies operating franchises must also be incorporated in this form.An offshore company (or exempt company) is a public company, private company or a partnership limited in shares, which is registered in Jordan, but conducts its business outside the Kingdom. It is an entity that was introduced in order to attract foreign investments.
This entity may not offer its shares for public subscription in Jordan, and it is prohibited for Jordanians to subscribe to its capital. At least 5 percent of the capital of the offshore company must be invested in Jordanian securities. Where the offshore company is engaged in insurance, banking, finance or joint investments, its capital must be at least JD 1,000,000.A mutual fund (joint investment) company may be organized as a public shareholding company. Its objectives are restricted to investing funds on behalf of others by way of dealing in securities.
This entity may take the form of an open-ended fund with variable capital, which issues redeemable shares, the value of which is determined by the value of the company’s assets. It may also take the form of a closed-ended fund, whose shares are not redeemable and are traded on the stock exchange.This business structure is open to foreigners wishing to engage in business ventures in Jordan. A foreign company that has been awarded a contract in Jordan requiring execution of work therein must register a branch office with the Controller of Companies in the Ministry of Industry and Trade. Such a company is registered as a foreign operating company for purposes of the contract and for the duration thereof. If the company obtains other contracts in Jordan, then the same registration will be extended so as to cover such new contracts. If the company does not obtain any new contracts, then the branch office should be closed and liquidated upon the completion of the contract in respect of which the registration was effected.
Registration fees payable for a Branch Office are JD 250 if the share capital of the foreign company at its home office does not exceed the equivalent of JD 1 million, and JD 500 if the share capital of the foreign company exceeds the equivalent of JD 1 million.Foreign companies are encouraged to set up regional offices in Jordan through tax and customs duty exemptions and provisions for the free movement of foreign currency. A regional office can operate from Jordan and conduct business anywhere in the world, except in Jordan, and may not generate income in Jordan. It may, however, collect information concerning general business opportunities in Jordan or in respect to a particular project. The duration of the regional office is not limited to any period of time or to the completion of a specific project.
The Companies Law does not elaborate on the size or type of foreign company that may register as a regional office in conformity therewith. It is now the policy of the Ministry of Industry and Trade, however, to restrict this facility only to substantial and large companies of international standing in their fields.
A Regional Office enjoys certain exemptions and facilities including the following:
Neither the foreign company nor its regional office established in Jordan will pay any local taxes, including Income Tax and Social Services Tax;
The non-Jordanian employees of the regional office are exempted from payment of income tax and Social Services Tax on their salaries;
A regional office may import its office equipment, furniture and business samples free of customs duties, import fees and all other related charges;
The non-Jordanian employees of the regional office may import a car every five years free of customs duties upon depositing a bank guarantee for the amount of the duty with the Ministry of Finance and Customs as a guarantee that will be discharged upon exporting the car out of Jordan or selling the car locally after paying the duty thereon;
A regional office can maintain an account in Jordan in foreign currency or in Jordanian Dinars, provided that deposits of money to such accounts are from foreign sources; such funds may be deposited in the account and withdrawn in order to be repatriated to the foreign parent company without exchange control restrictions;
No fees are payable upon the registration of, or in connection with the operation of a regional office;
A regional office is exempted from the requirement of registering with the Chamber of Commerce and all other professional associations, as well as from the payment of any fees in this regard; and
The non-Jordanian employees of the regional office are granted residence and work permits; however, the number of non-Jordanian employees at the regional office may not exceed that of its Jordanian employees.A company may go into voluntary liquidation in the event that: The period fixed for its duration has expired, the objective for which it was formed has been achieved or proves to be impossible to achieve. Voluntary liquidation may also take place in the occurrence of an event stipulated in the company’s Articles of Association or by the adoption of a resolution of the Company’s general meeting of shareholders.
A compulsory liquidation may be ordered by the court if the company so resolves, if the company commits a serious breach of law or of its articles of association, if it suspends its business activities for a period exceeding one year, if the number of its shareholders decreases below the legal minimum or if the company is unable to pay its debts.
The company, its creditors, the Controller of Companies or the Attorney General may make an application for the compulsory liquidation of the company.A general partnership is formed by at least two and not more than twenty partners who are jointly and severally liable for the partnership’s debts. Only the names of the actual partners may be included in the partnership’s name.
A partnership’s interest may be transferred with the approval of all partners or in accordance with conditions established in the partnership agreement. The management of the partnership is vested with one or more managers who are individuals and who may or may not be partners in the partnership.
According to the new Law, if the partnership consists of two partners, the withdrawal of one of the partners will not lead to the dissolution of the partnership. Instead, the remaining partner may seek to replace the absent partner with another. Failure to do so within three months of the partner’s withdrawal will result in the partnership’s dissolution by virtue of law.A limited partnership consists of two or more partners who are jointly and severally liable for its debts and one or more partners whose liability for the partnership’s debts is limited to their contribution to the partnership’s capital. The limited partners of the limited partnership may not participate in the management of the partnership or act in its name. This form of business entity consists of two or more general partners who are jointly and severally liable for its debts and three or more partners whose liability for the partnership’s debts is limited to their respective share of the partnership’s equity. Partners are not required to be individuals, and the name of the partnership should include the name of one or more of the general partners and the words, “Limited Partnership in Shares.”
The minimum capital permitted in this form of partnership is JD 100,000, which must be divided into negotiable shares of equal value of JD 1 each. Shares may be issued to the public for subscription but must not exceed twice the general partner’s capital in the partnership.
The limited partnership in shares shall be dissolved or liquidated in the manner provided for by the company’s articles of association. If not provided for, the provisions regarding liquidation of the public shareholding company shall apply.A joint venture need not be registered in Jordan and, hence, is not governed by the Companies Law. A joint venture is typically regulated by the contractual agreement between the joint venture parties. This does not apply in the event that the parties envisage the establishment of a corporate entity.