Oman: Legal Analysis, Business Structures & Forms
On November 6, 1996, by Royal Decree 101/96, the Sultan established the current Constitution of the Sultanate of Oman, known as the “White Book” in the form of a basic law. The Constitution provides that Oman is an Islamic State and that Islamic Shar’ia Law forms the basis of the legislative enactments of the Sultanate. Legislative power resides with the Sultan, and the Oman Council is an advisory body. Notwithstanding the Islamic sources of Omani law, over the past twenty years, a large body of commercial statutes, largely drawn from French and Egyptian statutes, have been enacted.
Civil and criminal legal jurisdiction is exercised by the Shar’ia Courts. Appointments of judges, or kadis, to these courts are made by the Sultan. Appeals are made to the Shar’ia Chief Court in Muscat, and subsequent appeals are made directly to the Sultan who determines matters brought before him in accordance with his own notions of justice.
Arbitration and Dispute Resolution
Oman belongs to the International Center for the Settlement of Investment Disputes (ICSID). The country's Commercial Court handles most tax and labor cases and the government is insisting that foreign suppliers accept this court for arbitration.
Royal Decree 47/97, which went into effect in 1997, is Oman’s first law governing arbitration. The new law regulates any arbitration conducted in Oman or abroad if the parties expressly agree that this law should govern. Under the new law, parties may agree upon a procedure for the resolution of disputes between them. The Commercial Court will only intervene if the applicant party shows good grounds for intervention. Although the law preserves the rights of parties to agree on procedural maters, in the absence of agreement, the law imposes certain rules. In addition, proceedings must be held in Arabic. Enforcement of the arbitration judgment is vested with the Commercial Court, and, although arbitration judgements are not subject to appeal, an application can be made to the Court to nullify judgements.
Business Structures and Forms
Foreign participating Omani enterprises is governed by the Foreign Business and Investment Law of 1974 as well as the Commercial Companies Code of 1974, the Commercial Register Law and the Commercial Agencies Law as amended by Royal Decree 73/96.
The Foreign Business and Investment Law allows foreign companies to: (1) incorporate a local company; (2) establish a branch office; (3) establish a consultancy; or (4) appoint a commercial agent, provided the foreign company is engaged only in providing goods or services to be imported into Oman. Such enterprises must be approved by the Foreign Capital Investment Committee in the Ministry of Commerce and Industry. Ordinarily at least one member of the enterprise must be an Omani national and at least 35 percent of the profits and capital of the enterprise have to be owned by Omani nationals. In the public transportation, utilities and real estate sectors, at least 51 percent of the shareholdings must be held by Omani nationals.
Foreign persons or companies may participate in four types of business associations defined under the Commercial Companies Law, as follows: (1) General Partnerships; (2) Limited Partnerships; (3) Joint Stock Companies; and (4) Limited Liability Companies. The Commercial Companies Law also defines a Joint Venture.
A general partnership is an association of at least two persons and whose members are jointly and severally liable to the obligations of the association to the full extent of their personal wealth. There is no maximum limit to participation. All general partnerships must be registered in the Commercial Registrar. The agreement that sets out the relationship among the partners, as well as any subsequent agreements must be filed with the Commercial Registrar. The name of the partnership must consist of the name of one or more of the partners together with an indication that the partnership exists. Management devolves upon all partners, unless otherwise is indicated in the partnership agreement. Managers may perform all acts necessary to accomplish the objectives of the partnership, subject to limitations arising under the partnership agreement and limitation arising by operation of law. Dissolution may take place where the term of the partnership expires, the partnership accomplishes its objects, all interests are transferred to one person, bankruptcy, loss of all or most of the capital, and the creation of a members contract to dissolve the partnership. In addition, the partnership may be dissolved upon the death, insanity, bankruptcy or withdrawal of a general partner, unless the partnership contract indicates otherwise.
A limited partnership has two types of members: general partners who are involved in the management of the partnership and limited partners who merely contribute capital to the partnership. The general partners are liable to the obligations of the partnership to the full extent of their personal wealth. The liability of limited partners to the obligations of the partnership is restricted to the amount of capital contributed by the limited partners, provided the limited partners do not participate in management of the partnership or otherwise act in the partnership’s name. A limited partnership must have at least two participants, and there is no maximum limit to participation. All limited partnerships must be registered in the Commercial Registrar. The partnership agreement and any subsequent agreements must be filed at the Commercial Registration. As with general partnerships, the name of a limited partnership must include the name of one or more of the partners together with an indication that the partnership exists. Managerial structures are similar to those that exist in general partnerships save for the restrictions imposed on the limited partners to engage in management. Hence, management is confined to and exercised by the general partners. The dissolution of limited liability partnerships is based on the same principles governing the dissolution of general partnerships, but it must be emphasized that the death, insanity, bankruptcy or withdrawal of a limited partner does not warrant dissolution.
Joint Stock Companies
A joint stock company is a business association with fixed capital divided into negotiable shares and is approximately equivalent to an English public company. The minimum capital requirement is RO 25,000. Shares may be made available for public subscription. Shares of different classes are permitted. Subject to certain conditions, a joint stock company may issue debentures as well. It is important to note that the Muscat Securities Market Law requires that all Omani joint stock companies be members of this Market. Additionally, a 1989 amendment to the Commercial Companies Law states that where a joint stock company under establishment has capital in excess of RD 500,000 or where a joint stock company increases its capital above that amount, at least 40 percent and no more than 70 percent of the shares must be offered to the Omani public. A joint stock company must have at least three shareholders. The liability of shareholders is confined to the nominal value of their shares in the registered capital.
All joint stock companies must be registered in the Commercial Registrar and must have the prior approval of the Minister of Commerce and Industry. Articles of association and other incorporation documents must be filed in the Commercial Registrar. The name of a joint stock company must not be misleading as to the objectives of the company and must include an indication of limited liability.
The management of a joint stock company is vested in the Board of directors, comprising of three to twelve members. Joint stock companies are bound by all acts of their directors acting within the scope of their registered powers within the legal restrictions. The directors are liable to the company, the shareholders and third parties for any fraud, negligence or illegality in their acts as well as for failure to act as prudent persons in the relevant circumstances.
Dissolution may take place where the term of the company expires, the company accomplishes its objects, all interests are transferred to one person, bankruptcy, loss of all or most of the capital and the creation of a members contract to dissolve the company.
Limited Liability Companies
A limited liability company is a business association with fixed capital divided into negotiable shares. It is similar to an English private company, and, more so, to a French SARL and is particularly suitable for foreign participation. The minimum capital requirement is RO 10,000. A limited liability company must have at least two shareholders and no more than thirty shareholders. The liability of shareholders is confined to the nominal value of their shares in the registered capital.
All limited liability companies must be registered in the Commercial Registrar and must have the prior approval of the Minister of Commerce and Industry. Articles of association and other incorporation documents must be filed in the Commercial Registrar. In practice, a standard form of constitutive contract is required for all limited liability companies, and members possess preemptive rights on the transfer of shares by other members to third parties. The name of a limited liability company must not be misleading as to the objectives of the company and must include an indication of limited liability.
The management of a limited liability company devolves upon one or more managers who may not be members of the company. The managers’ authority to act on the company’s behalf is limited by their registered powers and is confined to restrictions arising by operation of law. As in joint stock companies, all authorized acts performed by the managers bind the company, and the managers are liable to the company, the shareholders and third parties for any fraud, negligence or illegality in their acts or for failure to act as prudent persons in the relevant circumstances. The dissolution of limited liability companies is dictated by the same principles governing dissolution of joint stock companies.
A joint venture is a business association that establishes a legal relationship among its members without affecting third parties. Since there is no legal relationship with third parties, members of a joint venture incur no liability unless the joint venture discloses the existence of the joint venture to a third party who is thereby induced to enter into an agreement with the joint venture or one of its members. In such a case, the liability of the joint ventures is to the full extent of the ventures’ wealth.
A joint venture must have at least two participants, and there is no maximum limit to participation. Joint ventures are not subject to registration requirements. The agreement that sets up the joint venture must define the objectives of the joint venture, the rights and obligations of its members and the distribution of profits and losses.
Dissolution of joint ventures may take place where the term of the venture expires, the venture accomplishes its objects, all interests are transferred to one person, bankruptcy, loss of all or most of the capital and the creation of a members contract to dissolve the venture.
As discussed below in the section on Investment Incentives, foreign entities are required to retain an Omani agent in order to conduct business in Oman, unless working on a government contract. Agents must be Omani citizens, and agencies must be majority Omani-owned and controlled. Agents must also be members of the Omani Chamber of Commerce and Industry. Commercial agency relationships must be registered, and a principal place of business must be maintained in Oman.
Royal Decree 73/96 amended the Commercial Agencies Law. The amendment became effective September 25, 1996. The amendment eliminated the requirement of territorial exclusivity.
These amendments affect the legal claims of the agent regarding the principal. Ordinarily, unjust termination of an agreement for both limited and unlimited duration agency places liability upon the terminating party who is required to pay suitable compensation. The right of the agent to claim compensatory damages for breach of contract remains unchanged. In light of the new amendments, however, the principal is able to appoint other agents, and the agent is unable to prevent the registration of such appointment. Consequently, the agent’s claims for compensatory damages for a breach of contract may be reduced.
Principal-agent disputes are arbitrated by the Authority for the Settlement of Commercial Disputes. Certain classes of goods require a special license (e.g. firearms, alcohol, narcotics). Documents in English and Arabic must include a certificate of origin signed by the Chamber of Commerce or another authorized body.
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