Egypt: 10 Key Impacts Of The Latest Amendments To The Egyptian Companies Law No 159 Of 1981 On Corporates In Egypt

Last Updated: 11 September 2019
Article by Mohamed Hashish
Most Popular Article in Egypt, September 2019

As a part of the ongoing development process of the business laws in Egypt, the Egyptian Companies Law No. 159 of 1981 (the "Companies Law"), which is the most fundamental law governing corporates in the country, was amended in 2018 by virtue of Law No. 4 of 2018 (the "Law Amendments") that are considered the most important amendments made to the Companies Law since the issuance thereof in 1981.

Based on the Law Amendments, the Executive Regulation of the Companies Law issued by virtue of the Ministerial Decree No. 96 of 1982 (the "Executive Regulation") was also amended several times by the Ministerial Decrees Nos. 16 of 2018, 256 of 2018, 32 of 2019 and 144 of 2019, respectively, (collectively the "Executive Regulation Amendments").

The Companies Law and Executive Regulation Amendments (collectively the "Amendments") involve a large number of impacts on how corporates shall operate in Egypt including, inter alia, the following 10 key summarized impacts:

  1. Joint Stock Companies ("JSC")'s name:

JSC is one of the four (4) forms of companies that may be used for doing business in Egypt. This type of companies resembles a U.S. corporation and a French societe anonyme and it can either be publicly listed or closed company.

JSCs are now allowed by virtue of the Amendments, for the first time in Egypt, to have a name that includes name(s) or surname(s) of its founder(s) noting that JSC's name shall in all cases be diverted from its business. This possibility was restricted for almost thirty-seven (37) years until the issuance of the Amendments, which restriction was preventing, inter alia, multinational corporates from having their ultimate founders as direct founders in their subsidiaries, especially in the light of the fact that there is a large number of multinational companies' name that include their founders' name such as, and for example only, Armani, AS Watson, Aston Martin, Baker International (currently Baker Hughes), Barclays and Calvin Klein that they still use name(s) and surname(s) of their founders such as Giorgio Armani, Alexander Skirving Watson, Lionel Martin, Reuben C. Baker, James Barclay and Calvin Klein, respectively.

  1. Piercing the Corporate Veil:

The Amendments, for the first time in Egypt, now recognize the concept of piercing the corporate veil for corporates' shareholders[1]. This concept is applied in certain scenarios including, inter alia, in case of the number of founders becomes less than three (3) in JSCs or less than two (2) in Limited Liability Companies ("LLC"), in which case the said concept shall apply to the remaining shareholders until the said JSCs and/or LLCs (as the case may be) legitimize their legal status by increasing the number of shareholders to reach the minimum required number.

  1. Preferred shares:

The concept of having preferred shares was already recognized under the original text of the Companies Law; however, it was not possible to issue preferred shares after the incorporation of a company in case of the original Articles of Incorporation of such company does not include this possibility. This restriction was finally lifted by the Amendments.

It is worth noting that preferred shares may grant the shareholders thereof preferences in voting, dividends or liquidation proceeds.

  1. Shareholders' Agreement:

The concept of having Shareholders' Agreement ("SHA") for a company other than its Articles of Incorporation was not recognized under the Companies Law and, therefore, entering into SHA was not valid vis-à-vis such company, any shareholder who is not a party of the said SHA and/or third parties (including the said company's creditors). However, it is now finally possible to have a SHA providing that a number of conditions shall be satisfied.

  1. Share repurchase:

No company is allowed by virtue of the Amendments to reacquire more than 10% of its own shares by any mean and for any purpose other than decreasing the capital thereof, implementing Employees or Managers Incentives Schemes or refusing a transfer of such shares' ownership (if the said company's approval is required). Furthermore, in case of any share repurchase, the said company is required to (i) notify the General Authority for Free Zones and Investment ("GAFI") with the said repurchase by no later than three (3) business days; and (ii) dispose of the reacquired shares, subject to specific conditions, by no later than one (1) year starting from the repurchase date and providing that the said disposal shall not be made to any subsidiary or related-party and subject to a specific criteria.

  1. Loss of capital:

The Amendments no longer require an approval from a company's Extraordinary General Shareholders Meeting ("EGSM") in case of losing more than 50% of the said company's issued capital in order for the said company to be in a position to continue its business. The said approval was an obstacle in the way corporates do business in Egypt, especially for companies that do have an issued capital that is much less than their profits (for example, if a Company A with an issued capital of USD 1,000 loses USD 501, then this Company A was required, before the Amendments, to obtain an approval from its EGSM even if the said Company A gains USD 1,000,000 net profits per annum).

The approval above was amended by the Amendments to be required only in case of losing more than 50% of the shareholders rights (but not 50% of the issued capital).

  1. Electronic voting:

Subject to a number of requirements, the Amendments allow shareholders of the companies that are registered under the Central Securities Depository to electronically vote during the General Assembly Meetings noting that this possibility is still subject to the issuance of its regulations by GAFI, which will definitely be very useful for multinational and large corporates operating in Egypt.

  1. LLC Management:

LLC is one of the four (4) forms of companies that may be used for doing business in Egypt. LLC corresponds to the French societe a responsibilite limitee (S.A.R.L.) and is similar to or a British private limited company or a U.S. closed corporation.

LLC is required by the Companies Law to be managed by at least one (1) manger but not a Board of Directors at least three (3) Directors such as the case of JSCs.

For the first time in Egypt since the issuance of the Companies Law and its Executive Regulation, LLC is no longer required under the Amendments to have at least one (1) Egyptian manager and it can now be simply managed by at least one manager of any nationality. Lifting this requirement is very useful to all multinational companies that they do not want nationality restrictions on the managers of their subsidiaries in Egypt.

  1. One Person Company ("OPC"):

For the first time in Egypt, the Amendments introduce OPCs that can simply be owned by either a natural or juristic person.

OPCs (same as LLCs) are not allowed, inter alia, to incorporate OPCs, or carry out any business activities related to insurance, banking, savings, receiving funds and investment management.

The liability of the sole shareholder in OPC is only limited to the paid-in capital thereof except for

the following cases, where the said liability shall be extended to any assets owned by the said sole shareholder:

- If the said shareholder in a bad faith liquidates or cease the business activities of such OPC before the end of its term or achieving the purpose thereof,

- If the financial independence of the said OPC is not separated from the financial independence of the shareholder thereof, or

- if the said shareholder enters into contacts or transactions before the incorporation of such OPC that are not necessary for the said incorporation.

  1. Spin-Off and Split-Off:

The Amendments, for the first time in Egypt, introduce both spin-offs, called as a "Horizontal Spin-Off", and split-offs, called as a "Vertical Split-Off". Before the issuance of the Amendments, it was a common practice before GAFI that split-off of company can be implemented by way of a resolution from an EGSM as well as a split-off contract. However, the Amendments now includes a number of requirements for the implementation of both Horizontal Spin-Offs and Vertical Split-Offs. The said requirements were vital to regulate and protect the interest of shareholders during Spin-Offs and/or Split-Offs as well as the creditors of the company that is subject of the said Spin-Offs and/or Split-Offs.

[1] This concept was already recognized for corporates' directors in case of certain violations such as not including a corporate's name, type, headquarters and/or issued capital in such corporate's documents including, inter alia, contracts and invoices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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