Egypt's Business Structures and Forms
Investors interested in establishing businesses in Egypt are subject to four laws: Corporate Law No. 159 of 1981; Investment Law No. 8 of 1997; New Communities Law No. 59 of 1979; and the Desert Land Law No. 143 of 1981. All companies established in Egypt are governed by the Corporate Law No. 159 of 1981 and the Commercial Law of 1883. Foreign companies may receive incentives and guarantees granted by other laws provided that they will be working in one of the fields prescribed therein.
Investment Law No. 8 of 1997 specifies those fields in which a company may receive the incentives and guarantees. These fields include: reclamation and cultivation of barren and desert lands; animal, poultry and fish production; industry and mining; hotels, motels, boarding houses, tourist villages, tourist travel and transport; transport of goods in cooling vans, cold stores for preservation of agricultural products, industrial products, food stuffs, containers stations and grain silos; aviation transportation and the services directly connected therewith; overseas maritime transport; all service for digging and exploration operations, transport and delivery of gas; housing projects, the units of which are leased wholly empty for non-administrative housing purposes; the infrastructure comprising drinking water, drainage water, electricity, roads and communications; hospitals and medical treatment centers which offer 10 percent of their capacity free of charge; financial leasing; guaranteeing subscription to securities; risk capital; production of computer software systems; and projects funded by the social funds for development.
The principal forms of companies under the Corporate Law No. 159 of 1981 are: the joint stock company and the limited liability company. These two forms of companies are the preferred form of incorporation for foreign investors.
Joint stock companies working under the umbrella of the Investment Law No. 8 of 1997, may be wholly controlled by a foreigner. Also, limited liability companies may be 100 percent foreign owned provided that at least one of the general managers is an Egyptian national.
Joint Stock Companies
The joint stock company (JSC) is a company the capital of which is divided into shares of equal value; the liability of the shareholder is confined to the value of the shares to which he subscribes, and he is not liable for the debts of the company except within the limit of those shares. The JSC must have at least three founders. The founders are jointly responsible for the obligations they undertake. When the company is established in accordance with the Investment Law, founders may be foreigners. Each share may not be less than £E 5 and may not exceed £E 1000.
The capital of the JSC is divided into nominal shares of equal values. At least 49 percent of the shares of JSCs should be put to public subscription at the time of their foundation or at the time of increase of their capital. Such subscription should be restricted to Egyptians for a period of one month, unless the Egyptians already own the 49 percent of shares. If this percentage has not been satisfied after being put to public subscription, the company may be founded without the total or partial completion of this percentage.
In companies that put their shares to public subscription, the issued capital shall not be less than £E 500,000. The founders cannot subscribe less than £E 250,000 in the issued capital or, 10 percent from the authorized capital, whichever is the highest amount.
In companies that do not put shares to public subscription, the issued capital may not be less than £E 250,000. A quarter of this amount must be paid at the company's foundation, and the remaining amount should be paid within ten years.
The shares in the JSC are characterized as follows: (1) negotiable shares and in kind shares; (2) capital shares and enjoyment shares; (3) common shares and preference shares.
Limited Liability Companies
The limited liability company (LLC) is a company in which the number of shareholders does not exceed fifty. Each shareholder is only responsible within the limit of his portion of the shares. The foundation of the company, the increase of its capital or borrowing to its account is not permissible through public subscription. The LLC is not allowed to issue negotiable shares or bonds. The transfer of the shareholders' portions shall be subject to recovery from the other shareholders, in compliance with special conditions laid down by law. The company may adopt a particular name, which may be derived from its purpose and may include the name of one or more of its partners.
Features of the LLC are: the limited liability of each shareholder; a minimum of two shareholders; prohibition on public subscription; issuance of negotiable shares or bonds; restrictions for the assignment of shareholders' portions; transfer of the portions due to the death of a shareholder.
The capital of the company may not be less than £E 50,000, divided into equal shares of not less than £E 100 each, to be paid in full. There is no maximum for the portion's value, although there is for the shares' value. The shares of an LLC are indivisible; representations of the shares by negotiable bonds are not allowed, and every share will have a vote even if it is otherwise prescribed in the statutes.
Mergers and Acquisitions
Mergers and acquisitions are governed by the Corporate Law No. 159 of 1981. A merger may take place by combining one or more companies into an existing company or by the consolidation of two or more companies.
The offering of assets from one company to another company, specially established for such purpose is not considered a merger. Following a merger, the merged company's shareholders should be accepted into the merging company. If the shareholders obtained bonds, foundation shares or cash money in lieu of company shares, a merger has not taken place.
A merger requires the dissolution of two existing companies or at least one of them. The purchase of one company by another is not considered a merger. The purchaser may only enjoy the right to representation in the general assembly within the limits of its shares. In this case, each company will keep its legal personality.
A merger requires the unification of the companies' purposes in order to achieve certain goals, including the focusing of projects, the termination of competition, the reduction of general costs, the unification of management or the strengthen the merging company's credibility.
A merger requires that the following conditions be met: (1) the merger is effected by a resolution of the executive general assembly of both the merged and merging companies; (2) the merger is effected by a resolution of the competent minister after obtaining the approval of the Committee for Examination of the Applications for Foundation of Companies (CEAFC); (3) shareholders who object to the merger during the meeting or who, for a plausible reason, demand to exit from the company and recover the value of their shares, may do so by a written demand which should reach the company within thirty days from the date of publishing the resolution to merge.
The value of the shares or portions will be decided according to agreement or by the court, taking into consideration the current value of all the assets of the new company. The uncontested value of these shares, or portions, must be settled with their owners before finalizing the merging procedures. The court will decide the amount the company must pay to compensate concerned parties who have sustained damage as a result of the merger. The compensation amounts decided upon will have priority over all the assets of the merging company.
As a result of the merger the manager of the dissolved company will no longer have any authority to represent the company. The merging company will inherit all the merged company's obligations and rights within the limits agreed upon in the merger agreement, without prejudice to the creditors' rights. The projects within the purposes of the merged companies, which were already in operation, will not be dissoluted. These projects will be transferred to the merging company. The founder of the merged companies will be considered founder in the merging company. The merging companies and their shareholders, as well as the merged company or the new company, will be exempted from all taxes and fees that become due as a result of the merger. The creditors of the merged company and its bondholders will be considered creditors to the merging company. They may protest the merger before a competent court.
Finally, it is permissible by a decision of the competent minister, after approval of the CEAFC, to authorize JSCs, the two types of partnership companies, limited liability companies and the collective companies, whether Egyptian or foreign-owned companies exercising their main activities in Egypt, to be merged into Egyptian JSCs or to merge with such companies into a new Egyptian company. Branches, agencies or establishments of these companies are considered merging companies.
The liquidation of companies is regulated by the Companies Law (Law No. 159). In case of loss of half the capital of the company, the directors are required to submit to the General Assembly an order for dissolution of the Company. The issuance of such an order requires the majority of the shareholders' votes necessary to modify the company's articles of incorporation.
In addition, a court order for dissolution of the company may be demanded by shareholders in possession of a quarter of the capital if the loss attains three-quarters of the capital, and by any interested party if the loss entails the decrease of the capital below the minimum share capital.
After its dissolution, a company is considered to be in a state of liquidation. The General Assembly will nominate one or more liquidators and fix their remuneration. In case a court order is issued ordering the dissolution, the court shall indicate the mode of liquidation and will nominate the liquidator and fix his remuneration.
The company organs will remain standing during the period of liquidation, but their powers will be confined to the affairs that are not in the competence of the liquidator.
The liquidator shall fulfill all the duties requisite for the liquidation, including: paying the company's debts, selling the company's assets and representing the company in court. The liquidator shall execute all that is needed for the conservation of the funds and rights of the company. He should also take all actions necessary to obtain all the company's rights from others. The liquidator is not allowed to establish new business unless such business is requisite for previous affairs.
The company is bound by every disposal that is necessary for liquidation and that the liquidator fulfills under its name even if it surpasses the restrictions included in the authority of the liquidator and unless those who contracted with the liquidator are ill intentioned.
The liquidator must terminate the liquidation within the time period fixed in the document of his nomination. If this period is not fixed, every shareholder or partner may bring the matter to court, for fixation of the period in which the liquidation should be ended. The liquidator shall present to the General Assembly or to the group of partners a provisional account on the business of the liquidation followed by a final account. The liquidation is to be concluded by ratification of the final account. After termination of the liquidation, the liquidator shall demand the removal of the company from the commercial registrar. The liquidator will be responsible toward the company for damages caused to the company by his mishandling of its affairs.
Two or more persons (individuals or legal entities) may form a general partnership. Such a business association is governed by the terms of the partnership contract as well as by civil and commercial laws. The partnership contract must be notarized and registered with the Ministry of Finance. Unless otherwise specified in the contract, all partners have equal rights, liabilities and powers, and they are jointly and severally liable for the debts of the partnership to the extent of their entire wealth.
In a simple limited partnership, there are two types of partners. General partners are liable for partnership debts to the extent of their entire personal wealth, and limited partners are liable to the extent of their investment in the partnership. Establishment requirements are similar to those governing general partnerships.
Partnership Limited by Shares
In a partnership limited by shares at least one partner must assume unlimited liability for the debts of the partnership. The liability of the other partners is restricted to their respective capital contributions represented by negotiable shares. Partnerships limited by shares are subject to most provisions that apply to joint stock companies, apart from capital participation requirements and certain matters concerning the board of directors.
Converting a Partnership into a Joint Stock Company
A decree from January 1995 enables the conversion of a partnership into a JSC, subject to the procedures of preliminary foundation, providing the company's assets and liabilities shall be valued by means of a committee to be formed for that purpose.
A contractual or unincorporated joint venture is formed
when two parties, one of whom is Egyptian, join with one another in a venture for their mutual benefit. If the parties choose not to set up a company for the venture's purposes, the legal aspects of their cooperation will be dictated by the contractual relationship between them. This form of business association is particularly popular in natural resources development projects. It is notable that contractual joint ventures are often treated as partnerships for taxation purposes.
The parties to the joint venture may include all the terms and conditions contained in the joint venture agreement in their articles and statutes. The parties may add to these forms any additional clauses provided that such additions shall not violate the public order.
Branches and Representative Offices
Branches are subject to the system of dividend distribution to workers as mentioned in Law No. 159 of 1981. They are subject to exemption from taxation for a period of ten years if they exercise their activities in new urban communities and employ a certain percentage of Egyptian nationals as specified in the Companies Law.
Representative offices are prohibited from the exercise of any trading activity. Approval of the foundation of such offices may take as long as eight weeks. Foreign companies or establishments may not establish scientific, technical, consultative or other service offices, unless these companies or establishments have an appointed commercial agent in Egypt, according to the provisions of the Commercial Agents Law No. 120 of 1982.
Such companies, establishments or offices may not exercise any trade representation (agency) activities or middleman works, except through a commercial agent and middleman register provided for the purpose at the Ministry of Economy and Foreign Trade.
Commercial Agency and Representation
Egypt's foreign trade system (importation and exportation) is based upon commercial agency and representation. Special registries for commercial agents, importers and exporters are arranged by laws and decrees, including Law 120 of August 5, 1982 and its executive regulations, concerning agents and distributors, and Law 121 of 1982, and its executive regulations, concerning importers.
According to Law 120, only Egyptian legal entities, individuals born to Egyptian fathers and long-standing naturalized Egyptians may represent foreign principals in importing goods into Egypt. Commercial agents and mediators must be approved by and registered with the Ministry of Foreign Trade. Corporate and partnership representatives must be 100 percent Egyptian owned and managed. If the partner is a juridical person, it must be an Egyptian entity, the majority of whose capital is owned by Egyptians. In case of naturalized Egyptians, ten years must have passed since acquiring Egyptian nationality.
Yet, in compliance with the Egyptian government's efforts to attract foreign investment, an important exemption has been provided for investment projects, enabling them to import their requirements and export their products directly.
© 2000 Mena Report (www.menareport.com)