Doing Business In Comparative Guide

1 Legal framework

1.1 Does your jurisdiction have a civil law system, a common law system or a hybrid system?

Kuwait is a civil law jurisdiction which blends the principles of the French civil law system and Islamic Sharia. In this hybrid system, civil law and Islamic principles jointly serve as the primary sources guiding legal processes.

The Kuwaiti Constitution designates Kuwait as an Islamic state and provides that Islamic Sharia is the principal source of legislation under Article 2. However, the Constitution also acknowledges that separate civil laws will govern other areas of law and governance.

Moreover, the Civil Code provides in Article 1(2) that a judge making a decision is obliged, in the absence of an applicable provision in law, to exercise his or her independent judgement:

• guided by the principles of Islamic jurisprudence which are most consistent with the status and interests of Kuwait; or
• in the absence of applicable principles, according to usage and customs.

Although Kuwait is a civil law jurisdiction, Sharia law continues to significantly influence personal status matters in Kuwait.

Kuwait does not have a binding system of judicial precedent as exists in common law jurisdictions. There is heavy reliance on the Experts' Department for the determination of facts in complex disputes and the dominance of laws and internal directives governing the procedural and substantive aspects of the court system. Precedent case law plays a limited role: if a court is directed to it, it may be helpful in guiding the court in the construction of similar facts and the interpretation of similar rights and obligations. However, each case is treated on its own merits.

1.2 Which legislative and regulatory provisions primarily govern the establishment and operation of enterprises in your jurisdiction?

The establishment and operation of enterprises in Kuwait are primarily governed by a range of legislative and regulatory provisions, constituting a robust legal framework for businesses. These primarily include the following:

• Commercial Companies Law (1/2016), as amended: Regulates the formation, management and dissolution of all types of commercial entities.
• Kuwait Direct Investment Promotion Authority Law (116/2013): Provides guidelines for foreign investors, detailing the necessary procedures for obtaining approvals.
• Commercial Transactions Law (68/1980): Covers aspects of commercial transactions such as contracts, sales and commercial agencies, setting out the rights and obligations of parties involved in business transactions.
• Civil Law (67/1980): Addresses a broad spectrum of civil matters, including contracts, obligations, property and family law. It establishes fundamental principles guiding all legal relationships.
• Commercial Agencies Law (13/2016): Outlines the relationship between agents and principals, covering issues such as exclusivity, termination and compensation. It is closely connected with the Commercial Transactions Law.

The following laws are also of substantial relevance to the operation of all businesses in Kuwait:

• IP laws: Kuwait has distinct trademark, copyright and patent laws safeguarding the IP rights of businesses.
• Income Tax Law: A crucial consideration for foreign investors engaged in business transactions, which outlines their fiscal responsibilities.
• Labour Law (6/2010), as amended: Crucial for adherence to the legal standards and obligations governing the employer-employee relationship and rights and responsibilities.
• Competition Law (72/2020), together with its implementing regulations issued under Kuwait Decision 25/2022: Regulates anti-competitive behaviour relating to acquisitions.

1.3 Which bodies are responsible for drafting and enforcing these provisions? What powers do they have?

Draft primary legislation may be initiated by either the National Assembly or the Executive. Under emergency circumstances, the emir may issue decrees (which become law without passing the National Assembly or the Executive). Usually, however, all laws must be ratified retroactively by the National Assembly, which has the power to refuse to ratify such laws.

For laws (and other public notices, auctions, tenders etc) to take effect and become enforceable, publication in the official gazette, known as Kuwait Al Youm ('Kuwait Today'), is mandatory. Ultimately, all laws must also be signed by the emir. To the extent that a new law is inconsistent with a prior law, it will amend or repeal that prior law.

Secondary and subordinate legislation must be issued in accordance with the procedures laid down in the relevant piece of primary legislation. Secondary legislation usually takes the form of ministerial decisions or executive orders over their areas of responsibility. Secondary legislation must also be published in Kuwait Today in order to come into force but is not ratified by the National Assembly or signed off by the emir.

Each law that is published is to be effectively regulated and/or enforced by the appointed relevant branch of ministry or public body stipulated in the law. Such public bodies are vested with the legal and/or administrative powers to conduct such enforcement where given.

2 Types of business structures

2.1 What are the main types of business structures in your jurisdiction and what are their key features?

Businesses in Kuwait may adopt various legal structures as outlined in the Companies Law, which can be summarised as follow:

• Joint liability company: Formed by two or more individuals, who are jointly and personally liable for the company's obligations.
• Limited partnership company: Comprised of:
• • joint partners (Kuwaiti citizens) that are jointly responsible for company obligations and management; and
  • silent partners with limited liability.
• Equities partnership company: Comprised of:
• • joint partners with liability for company obligations; and
  • shareholding partners with liability limited to their capital shares.
• The company name must include 'Equities Partnership Company'.
• Public joint stock company (JSC): Capital divided into negotiable shares; shareholder responsibility limited to payment of the subscribed shares.
• Closed JSC: Share capital subscribed is limited, at the time of incorporation, to the founders. The Capital Markets Authority sets rules for dealing with the shares and regulation through integrated technical systems. The name of the company should be followed by '(Kuwait Closed Shareholding Company)' or '(KCSC)'.
• Company with limited liability (WLL): Limited to 50 partners, each responsible only for its own share of the capital. Can be adopted under a special name, followed by 'With Limited Liability' or 'WLL'.
• One-person company: Fully owned by an individual or entity; the owner is liable only up to the allocated capital. If multiple owners exist, it is converted into a limited liability company.

Other forms of legal business structure typically operating in Kuwait include the following:

• Unincorporated partnership (joint venture): Involves two or more partners with a restricted relationship not affecting third parties. The relationship between the partners is governed by the terms of the joint venture contract.
• Commercial agencies: A legal structure suitable for foreign entities wishing to operate in Kuwait without a permanent presence. Involves appointing a local commercial agent to conduct business activities on their behalf against payment of fees or commission to the local agent.
• Commercial agreements: Depending on the type of business, such business may be concluded through certain business arrangement (eg, consultancy agreements, agreements for the supply of products and other types of commercial agreements).

2.2 What capital requirements apply to these different types of business structures?

Following the issuance of the Companies Law (1/2016), the minimum capital requirement for establishing companies in Kuwait has been reduced. This adjustment, made with careful consideration for small and medium-sized enterprises, enables them to engage in a wider range of business activities without the burden of substantial capital investment.

For a company with limited liability (WLL), the minimum capital must be sufficient for the activities it engages in. Typically, the minimum working capital is KWD 1,000 for each WLL activity unless otherwise specified by law or regulatory authorities.

Shareholding companies face different minimum capital requirements, as follows:

• Closed shareholding companies: KWD 10,000.
• Public shareholding companies: KWD 25,000.

2.3 What is the process for establishing these different types of business structures? What procedural and substantive requirements apply in this regard? What is the typical timeline for their establishment?

Establishment of a legal entity: The process for establishing any legal entity typically begins with an online application through the portal of the Kuwait Business Centre, a division of the Ministry of Commerce and Industry. Although the requirements differ for each type of entity, our focus here is on the most common company type and structure adopted by foreign investors – the WLL.

The registration of WLLs usually requires the submission of the identification documents of the applicants/founders, along with their resolution to establish the company. At a later stage, a lease agreement for the proposed entity's premises is also required.

The Kuwait Business Centre does not mandate the submission of original documents. However, if any documents are issued in a foreign language, they must be accompanied by an Arabic translation. Documents issued abroad must undergo proper legalisation through the Kuwait consulate/embassy in the respective country.

Depending on the activity of the proposed entity, certain approvals and/or licences may be necessary during the incorporation process.

Once the process has been finalised with the Ministry of Commerce and Industry and all required approvals/licences have been obtained from other ministries or governmental bodies, the file will be electronically transferred to the Ministry of Justice for the execution of the memorandum of association (MoA) and articles of association (AoA) of the company. At this stage, original identification documents must be presented to the Ministry of Justice.

Upon execution of the MoA and AoA, the file will be referred back to the Ministry of Commerce and Industry. The applicant will then be required to submit a copy of the premises lease agreement, marking the final step towards issuing the commercial licence of the company.

Additional steps for incorporation may be involved:

• based on the type of company, such as a public JSC; or
• if the company is being incorporated through the Kuwait Direct Investment Promotion Authority (KDIPA).

Unincorporated partnership (joint venture): Joint ventures do not require any kind of registration and may be achieved through entering into a written agreement.

Commercial agencies: Commercial agencies are registered with the Commercial Agencies Department at the Ministry of Commerce and Industry. The requirements for registration include:

• the identification and/or corporate documents of each of the foreign principal and local agent; and
• legalisation of the documents of the foreign party before the Kuwait consulate/embassy.

The agency agreement, legalised before the Kuwait consulate/embassy in the country of the principal, should be submitted in its original form. All documents in a foreign language must be accompanied by their Arabic translation.

Commercial agreements: Unless otherwise stipulated in a special law, commercial agreements need not adhere to any formalities or registration requirements.

2.4 What requirements and restrictions apply to foreign players that wish to establish a business directly in your jurisdiction?

The Commercial Law (68/1980) states that a foreign entity cannot conduct business activities in Kuwait except:

• through the use of a Kuwaiti agent; or
• by participating in the ownership of a separate Kuwaiti legal entity. As per the Companies Law (1/2016), as amended, such legal entity may take the form of:
• • a shareholding company;
  • a WLL; or
  • a sole proprietorship.

Under Article 23 of the Commercial Law, a foreign entity may not establish or own a company in Kuwait unless it has a Kuwaiti partner or partners which own at least 51% of the Kuwaiti company.

In February 2024, a new amendment to the Commercial Law was introduced, allowing foreign entities to open branches in Kuwait without the need for a Kuwait agent and/or a local partner. The amendment took effect on 21 February 2024, the date of its publication in Kuwait Today. The Ministry of Commerce and Industry has not yet introduced the implementing regulations and thus, until further notice, the opening of a branch office of a foreign entity is possible only through the KDIPA and in accordance with the applicable KDIPA laws.

There is a general exception to this foreign ownership restriction which allows foreign investors to own up to 100% of business entities in non-restricted sectors, provided that an investment licence is issued by KDIPA, the relevant authority whose main function is to attract and encourage foreign and local direct investment within the State of Kuwait.

The Foreign Direct Investment (FDI) Law (116/2013) provides that an investment licence may be sought for:

• WLLs, JSCs or single-person companies;
• branch offices of a foreign company licensed to operate in Kuwait; and/or
• representative offices whose main purpose is limited to the study of markets and production.

In addition to up to 100% foreign ownership of a Kuwaiti company, the FDI Law offers certain tax exemptions and other incentives, such as:

• an exemption from income tax or any other taxes for a period not exceeding 10 years;
• an exemption from taxes, customs duties or any other fees that may be payable on imports of machinery and equipment, and their spare parts and raw materials, for a period of five years;
• the employment of foreign labour;
• the employment of required foreign manpower without being subject to local manpower requirements; and
• the allocation for use of land and real estate for investors.

Article 1 of Ministerial Resolution 75/2015 (Specifying a List of the Direct Investments which are not subject to the Provisions of Law 116/2013) sets out the 'Negative List', which specifies 10 sectors that are not eligible for a foreign investment licence, as follows:

• the extraction of crude oil;
• the extraction of natural gas;
• the manufacture of coke oven products;
• the manufacture of fertilisers and nitrogenous formulas;
• the manufacture of coal gas and the distribution of gaseous fuels through main pipelines;
• real estate activities, except for construction development projects for private operations;
• activities relating to security and investigations;
• regulations relating to the general administration, defence or compulsory social security;
• activities of membership organisations; and
• activities involving the use of labour, including household workers.

Foreign investors can apply for a foreign investment licence in Kuwait as long as their activities are not on the Negative List.

2.5 What other opportunities, using people/entities not connected with the main person, are there to do business in your jurisdiction (eg, agency, resale); and what requirements and restrictions apply in this regard?

Please see questions 2.1 and 2.3.

3 Directors and management

3.1 How is management typically organised in the different types of business structures in your jurisdiction?

Various business structures exist in Kuwait. The following offers an insight into the typical organisation of management, focusing on the most common legal structures: limited liability companies (WLLs) and joint stock companies (JSCs).

WLLs: The management of a WLL is administered by one or more managers from among the partners, or otherwise anyone as appointed by the memorandum of association (MoA). If the managers are not appointed by the company's MoA, they will be appointed by the ordinary general assembly of the partners.

The above also applies to single-person companies.

JSC: A JSC is administered by a board of directors. The MoA will indicate:

• the method of its formation;
• the number of members; and
• the term of office.

The number of the board members must be:

• at least five in public JSCs; and
• at least three in closed JSCs.

The term of office is three years, which may be renewed. The board of directors must elect a chairman and vice-chairman of the board. The chairman of the board of directors will be the official acting representative of the company before third parties and the court.

3.2 Is the establishment of specialist committees recommended or mandated for certain types of enterprises? If so, which areas should they cover?

Committees may be formed for certain enterprises, and the role and function of such committees may be included in the MoA. For example, in a JSC, the board may delegate a special committee from among its members or a third party to oversee the performance of certain activities or work of a company as stipulated in the Companies Law. The use of special committees is beneficial to address any powers to oversee certain operations and can allow for the specialist supervision of such operations by members of the board or third-party entities.

Companies operating under Islamic Sharia provisions must:

• adhere to Islamic Sharia principles in their activities; and
• establish an independent Sharia supervisory board. The board, consisting of at least three members appointed by the partners' meeting, must be detailed in the MoA. The Sharia supervisory board is obliged to submit an annual report to the company's general assembly, assessing the company's compliance with Islamic Sharia provisions.

If there are more than seven partners in a WLL, a control board must be appointed through the MoA. This board – consisting of at least three non-executive managers selected from among the partners for a renewable term of three years – is responsible for:

• examining the company's books, assets, securities and documents;
• overseeing the directors' management through regular reports; and
• monitoring the budget, profit distribution and annual report, and presenting its findings to the ordinary general assembly of the partners.

Licensed companies supervised by either the Central Bank of Kuwait and/or the Capital Markets Authority (CMA) are subject to CMA Regulations, Module 15 on Corporate Governance. This requires the board of directors to establish internal committees (eg, an audit company) from within its members and/or through third parties, to enable the board to effectively fulfil its role in accordance with the company's needs and working conditions.

3.3 Is the appointment of corporate directors permitted in your jurisdiction?

It is not uncommon for a shareholder entity to be elected as a member of the board of directors (ie, a corporate director in JSCs). In such cases, the corporate director must appoint an individual director to be officially listed on the board of directors, designated as the representative of the corporate director.

While there are no explicit restrictions on appointing corporate managers for WLLs, the prevailing practice suggests that the manager of a WLL is typically an individual (natural person).

3.4 What requirements and restrictions apply to the appointment of directors, in terms of factors such as number, residence, independence, diversity etc?

The requirements and restrictions pertaining to the appointment of directors vary based on the type of structure. Here is a general overview of factors that may be considered:

• Number of directors. Please see question 3.1.
• Residence requirements: The manager of a WLL must be employed by the WLL and thus, if the manager is not a Kuwait national, he or she must obtain a residence visa in Kuwait. For JSCs, board members are not employees and need not have a valid residency in Kuwait unless they have a different role in the company.
• Qualifications and skills: The manager of a WLL, being an employee of the company, must have at least a university degree that allows for the issuance of a work permit as a manager of the WLL. This does not apply to the members of the board of directors of a JSC and is not required by law.
• Independence: Having independent board members is not a general requirement for all companies but applies only to regulated companies under the supervision of the Central Bank of Kuwait and the CMA. These authorities:
• • set out the governance principles that apply to companies that are subject to their control, in order to ensure the best protection and strike a balance between the interests of the company's management, shareholders and other stakeholders; and
  • specify the requirements to be satisfied by the independent members of the board of directors.
• The control authorities may require companies that are subject to their control to have one or more independent, qualified and professional members, to be selected by the ordinary general assembly. Their remuneration will be specified according to the governance principles and no more than one-half of the board members should be independent. Independent members need not be shareholders of the company.
• CMA Regulations, Module 15 on Corporate Governance sets out the requirements for independent board members of licensed companies, to ensure that they can exercise unfettered and independent judgement.
• Diversity: The laws and regulations contain no provisions on diversity.

3.5 How are directors selected, appointed and removed? Do any restrictions or recommendations apply to their tenure?

WLL managers: The managers of a WLL are appointed during the incorporation process, as specified in the MoA. If not appointed in the MoA, the ordinary general assembly of partners can make these appointments. This also applies to single-person companies.

Managers can be dismissed by resolution of the general assembly in the same way as they are appointed. Additionally, a director may be dismissed by a court ruling, upon the request of one or more partners holding at least one-quarter of the share capital. The reasons for dismissal include:

• acts of fraud;
• significant mistakes causing damage to the company; and
• engagement in activities that conflict with the company's interests without authorisation from the ordinary general assembly.

JSC directors: The shareholders of a JSC select the board members by secret vote. The MoA may specify that no more than half of the initial board members can be chosen from among the founders. Public JSCs require a minimum of five board members, while closed JSCs need a minimum of three, serving a renewable three-year term.

Shareholders – whether individuals or entities – can appoint representatives based on their shares, with the total deducted from the elected board members. Represented shareholders cannot participate in the election of other members, except beyond the percentage used for their representatives. Shareholders can form alliances to appoint representatives, sharing equal rights and obligations as elected members. Shareholders are responsible for their representatives' actions.

An individual, including a representative, cannot be a board member in more than five public JSCs in Kuwait. A chairman cannot hold the same position in more than one company and violation of this provision will lead to the annulment of memberships. Violators will also be obliged to return all rewards and benefits.

Board members must not:

• have overlapping memberships of the boards of directors of two companies which are competitors; or
• participate in the performance of any acts deemed to be competitive to the company or trade, for their own benefit or the benefit of a third party.

Otherwise, the company may claim compensation for such act or consider the benefit received on the member's account as received on the company's account, unless the act was carried out upon the approval of the ordinary general assembly.

3.6 What are the directors' primary roles and responsibilities, and how are these exercised?

The MoA of a company should stipulate the roles and responsibilities of the directors (ie, the manager of a WLL or the board of directors of a JSC), which include carrying out all activities required for the management of the company according to its purposes. This power may only be limited to the extent specified by:

• the law;
• the MoA; or
• decisions of the general assembly.

The MoA should specify the powers of the manager or the board of directors with regard to:

• borrowing;
• mortgaging the real property of the company;
• entering into guarantees;
• engaging in arbitration and conciliation; and
• making donations.

The manager of a WLL may have wider powers and roles – for example:

• an administrative role, managing the day-to-day business of the company; and
• a representative role, as the authorised person to act on behalf of the company.

In addition, the manager of a WLL must prepare a report on the business of the company and its financial standing for the end of the fiscal year and a report on the control board, if any, and present these to the general assembly in its annual meeting.

In a JSC, the main role of the board of directors, as stipulated in the Companies Law, is to:

• represent the company in relation to third parties; and
• approve its policies and business operations.

More detailed roles of the board of directors are set out in the CMA Bylaws on Corporate Governance, which include, among many other things:

• approving the company's main goals, strategies, plans and policies;
• acknowledging annual estimated budgets and approving periodical and annual financial information;
• supervising the company's main capital charges and asset ownership, and disposing of the same; and
• ensuring the company's commitment to policies and procedures that ensure its compliance with internal applicable rules and regulations and other roles, as provided in Articles 3-7 of the bylaws.

3.7 Are the roles of individual directors restricted? Is this common in practice?

As stipulated in the Companies Law and supported by court precedent, the directors of a company may conduct all activities that are required for the management of the company according to its purposes. The scope and exercise of this power may be specified by:

• law;
• the MoA; and
• resolution of the general assembly.

Certain powers must be explicitly referenced in the MoA and/or by resolution of the general assembly – otherwise, the directors may not have the power to carry out acts such as:

• borrowing;
• mortgaging the property of the company;
• entering into guarantees;
• committing the company to arbitration or conciliation; and
• making donations.

3.8 What are the legal duties of individual directors? To whom are these duties owed?

Please see question 3.6.

3.9 To what civil and criminal liabilities are individual directors primarily potentially subject?

Article 105 of the Companies Law provides that the directors of WLLs are jointly liable for any violations of laws or the MoA or instances of mismanagement. This provision underscores their duty to act in the best interests of the company, partners and third parties, holding them accountable for any breaches of legal or ethical standards. Article 105 adds that the provisions on the liability of the board of directors of the JSCs also apply to the managers of WLLs.

For JSCs, Article 201 delineates the accountability of the chairman and board members. They are held liable for:

• acts of fraud;
• abuse of power;
• law violations; or
• mismanagement.

Notably, even if the general assembly votes to discharge the board from liability, this does not prevent the institution of a liability action. Moreover, board members are prohibited from participating in voting on decisions related to their liability discharge or personal benefits, ensuring impartiality in governance.

Article 202 elaborates on the nature of liability, specifying that it can be either personal or joint. All board members bear joint liability for damages, except for those who object to the decision causing liability – a provision aimed at:

• safeguarding dissenting voices; and
• promoting accountability within the boardroom.

In the event of mistakes that cause damage to the company, Article 203 empowers the company to file liability actions against board members. In case of company liquidation, the liquidator assumes responsibility for initiating such legal proceedings, ensuring that corporate assets are protected and that shareholders' interests are safeguarded.

Article 204 extends the right to initiate liability actions to shareholders, allowing them to individually file claims on behalf of the company in the event of default or damage. This provision empowers shareholders to hold directors accountable for their actions, reinforcing the principles of shareholder democracy and corporate transparency.

Finally, Article 205 establishes a timeframe for the expiration of liability actions, stipulating that they will be forfeited five years after the general assembly's decision to discharge liability or prove error. However, where the actions of board members constitute a crime, the expiry of the lawsuit is contingent upon the conclusion of the criminal case, ensuring that legal accountability is not evaded.

4 Shareholders/members

4.1 What requirements and restrictions apply to shareholders/members in your jurisdiction, in terms of factors such as age, bankruptcy status etc?

The requirements and restrictions that apply to shareholders will depend on:

• the type of company; and
• the subsequent liability that the shareholder holds.

For instance, in companies such as companies with limited liability (WLLs) and public joint stock companies (JSCs), where the liability of shareholders is generally limited to the extent of their shares subscribed, there are no such restrictions on the age of shareholders. While such restrictions do not exist in law, in practice, a minor who has shares in a company will need to be represented by his or her natural guardian. The natural guardian is determined according to the principles of Sharia. If no natural guardian exists, the courts may in certain circumstances assign a legal guardian to the minor. A similar principle applies to bankruptcy: the bankruptcy of a company does not constitute the personal bankruptcy of a shareholder of that company, as shareholders are liable only to the extent of their shares.

In other cases – for example, for a joint liability company or limited partnership – the restrictions will differ. In a limited partnership, one shareholder will be jointly liable while the other holds limited liability. Where a shareholder is jointly liable in either a limited partnership or a joint liability company, he or she must be of age and have legal capacity (ie, 21 years old).

As stipulated in the Companies Law, each partner in a joint liability company acquires the status of a merchant. The status of merchant means that a partner will be deemed to be involved in acts of commerce under the company's name. As such, a declaration of bankruptcy of the company will result in the bankruptcy of all partners thereof.

4.2 What rights do shareholders/members enjoy with regard to the company in which they have invested?

The rights of shareholders in all types of companies may be summarised as follows:

• receiving dividends once the company is making a profit;
• attending and voting at general assembly meetings and participating in decision making, including decisions relating to the appointment of managers and/or members of the board of directors;
• for JSCs, appointing representatives to the board of directors to act on their behalf in proportion to the shares owned by them and/or voting to elect board members;
• reviewing and approving the company's financial statements and management reports;
• disposing of their shares and subscribing to new shares, bonds and sukuk, according to the provisions of law and the memorandum of association (MoA) of the company (in JSCs); and
• acquiring a share of the company's assets on liquidation following repayment of company debts.

4.3 How do shareholders/members exercise these rights? Do they have a right to call shareholders' meetings and, if so, in what circumstances?

WLLs have a general assembly of all partners which meets at the invitation of the manager of the company.

The manager can:

• invite the general assembly to meet at any time; and
• convene the general assembly at the request of:
• • the control board;
  • the auditor; or
  • a number of partners that together own at least 10% of the capital of the company.

Similarly, in JSCs, the board of directors will convene the assembly at the substantiated request of a number of shareholders that together own not less than 10% of the capital of the company or the auditors, within 21 days of the date of such request.

4.4 What influence can shareholders/members exert on the appointment and operations of the directors?

Please see questions 4.2 and 4.3.

4.5 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders/members?

The shareholders of a company must generally comply with the following:

• the settlement of instalments due on their shares at the time of maturity and the payment of damages for any default in settlement;
• payment of the expenses borne by the company for the purpose of collection of unsettled instalments from the amount of their shares (the company may enforce against the shares to satisfy its rights);
• implementation of the decisions of the general assembly;
• avoidance of any act which may incur damage to the financial or moral interests of the company, and compensation for any damage that may arise from any violation; and
• observance of the rules and procedures on the trading of shares.

In a joint liability company, the company's creditors:

• will have the right to have recourse against the assets of the company; and
• may have recourse against the personal assets of any partner of the company at the time of its incorporation.

All partners will be held jointly liable towards the creditors of the company.

For a public JSC, the following implications and liabilities exist under the Companies Law:

• The chairman of the board of directors and its members will be liable towards the company, shareholders and third parties for:
• • all acts of fraud and abuse of power; and
  • any violation of the law or the MoA of the company or mismanagement.
• A vote of the general assembly to discharge the board of directors from any liability will not prevent the institution of a liability action. The members of the board of directors may not participate in the vote of the general assembly on their discharge from liability.
• This liability will be either:
• • personal liability that is attached to a specific member; or
  • joint liability between all members of the board of directors.
• In the latter case, all members will be jointly liable for any damages, unless some of them have objected to the decision through which the liability is incurred, in which case this objection should be mentioned in the minutes.
• If a shareholder of a public JSC appoints a representative to act on its behalf on the board of directors of the company, the shareholder will be liable for the acts of that representative towards the company, creditors and shareholders.

4.6 To what civil and criminal liabilities might individual shareholders/members be subject?

The Companies Law provides for the imposition of penalties including imprisonment for up to three years and a fine not less than KWD 10,000 on:

• anyone who:
• • includes in bad faith, in the MoA of the company and its statute, a public offering prospectus or any other publication or document addressed to the public, statements that are false or contrary to the law; or
  • signs, distributes or promotes such documents while knowing of their invalidity;
• anyone who invites the public to subscribe to shares or bonds issued in the name of non-JSCs; and
• any member of a board of directors, director, auditor or liquidator who has participated in preparing a balance sheet, financial status or statements issued by the company that are false, while knowing of such fact.

Moreover, a company which fails to rectify violations stated in the Ministry of Commerce and Industry's report, which is presented to its general assembly, within the time limits specified by the ministry, will be subject to a fine of between KWD 5,000 and KWD 50,000.

In all companies, lawsuits filed by creditors of the company against the partners will not be heard once five years have elapsed since:

• termination of the company; or
• the withdrawal of a partner, with respect to lawsuits filed against that partner. If a debt fell under the liability of the company before the partner withdrew but becomes due after such withdrawal, the five-year period will begin to run as from the maturity date.

A public JSC may file a civil/liability action against the members of the board of directors due to any mistakes that may cause damage to the company. If the company is in liquidation, the liquidator will be responsible for filing the lawsuit. If the act attributed to the members of the board of directors is punishable under the criminal law, then the civil/liability lawsuit shall not lapse except by the lapse of the criminal lawsuit.

4.7 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?

According to the Companies Law, various types of companies may not issue securities.

The partners' shares in a joint liability company may not take the form of negotiable securities. The incorporation or increase in the WLL's capital may not be performed through public offering. An invitation addressed to the public to participate in the company, either directly or indirectly, will be considered to constitute a public offering. The partners' shares may not take the form of negotiable shares and the WLL may not borrow money through the issuance of negotiable securities.

Shareholding companies may perform various activities, including the investment of their funds to trade in shares, bonds and other securities. As per the Implementing Regulations of the Companies Law, such companies whose purpose relates to securities or the issuance of collective financing offers based on securities will be subject to the regulatory controls issued by the Capital Markets Authority (CMA).

Under the CMA's Executive Bylaws, Module 11 on Dealing in Securities, no securities may be issued, either directly or indirectly, offered or cancelled unless approved by the CMA. The bylaws also set out rules governing applications for the issuance or offering of securities submitted to the CMA, which must be accompanied by:

• the corporate documents of the company, such as its memorandum;
• a copy of the meeting of the board of directors, including a recommendation regarding the issue of securities and a statement of pre-emptive rights; and
• any other internal approvals stipulated according to the company's articles.

Rights of pre-emption are also set out under the Companies Law. In the case of closed JSCs, these operate as follows:

• The MoA of a closed JSC may include this right as a limitation on the shareholders' right to dispose of their shares. The shareholders have the right of pre-emption to acquire such shares intended to be sold. This is to the exclusion of companies listed on Boursa Kuwait, whose shares will be up for public offering.
• If the company's memorandum of association includes a pre-emption right, a shareholder must notify the company of the terms of sale before disposing of its shares.
• A shareholder may dispose of its shares effectively once 10 days have elapsed since the date of notification, if the other shareholders have made no offer in the meantime.
• If another shareholder applies to purchase the shares, the sale will take place at the price mentioned in the terms of sale.

In the case of WLLs, the pre-emption rights operate as follows:

• The shareholders have a vested right under the Companies Law to redeem any shares disposed thereof where the assignment is made to non-partners.
• Shares may be assigned to non-partners only with the approval of the remaining partners.
• If no offer is made by the other partners within 15 days, the assignor may then dispose of its shares.
• If more than one partner makes an offer, the shares must be divided among them in proportion to their share capital.

4.8 Are there any rules on the public disclosure of levels of shareholding and/or stake building?

Under the CMA's Executive Bylaws, Module 11 on Dealing in Securities, if a shareholder, alone or in alliance with another, hold more than 5% of the shares in a company which is listed on Boursa Kuwait and desires to increase its shareholding (up to 30%), it must do so in compliance with the rules on public disclosure set out in the CMA's Executive Bylaws, Module 10 on Disclosure and Transparency.

Those persons are deemed as interested persons. Under Module 10, interested persons must:

• disclose to the CMA, Boursa Kuwait and the listed company within five business days of acquiring the interest; and
• disclose any change occurring to its interest that exceeds 0.5% of the listed company's capital within 10 ten business days of the date of the change. Notification is also mandatory where the change results in a decline of interest below 5% of the listed company's capital.

The template for such disclosure must include the following information:

• the name of the interested person;
• the date on which the threshold was reached;
• the name of any person(s) associated with the acquisition or financing of the interest;
• the purpose of the acquisition;
• the type of interest acquired; and
• the percentage of the previous interest in comparison with the percentage of the disclosed interest.

5 Operations

5.1 What are the main routes for obtaining working capital in your jurisdiction? What are the advantages and disadvantages of each?

The capital of a company can be provided by the founders either in cash or in kind. If shares in kind are included in the capital, they must be evaluated by an approved audit office. Cash capital can be obtained through loans or other financial arrangements. While cash capital provides immediate liquidity for business activities, it can burden founders if obtained through loans. In-kind shares may not provide immediate working capital but can be advantageous if assets provided – such as vehicles for a delivery business – directly contribute to business operations, turning potential disadvantages into advantages.

5.2 What are the main routes for the return of proceeds in your jurisdiction? What are the advantages and disadvantages of each?

Businesses can process the return of their proceeds via bank transfers electronically or may do so through trade finance instruments, such as bank guarantees, to process returns for such businesses that may be engaged in international trade.

5.3 What requirements and restrictions apply to foreign direct investment in your jurisdiction?

Please see question 2.4.

5.4 What exchange control requirements apply in your jurisdiction?

There are no significant restrictions on foreign currency movements, except for safeguards to combat money laundering as stipulated and strictly implemented by the Central Bank of Kuwait (CBK). Therefore, capital, equity, dividends, loans, interest, profits, royalties, fees and savings may be freely remitted by foreign investors through banks, investment companies and currency exchange companies, albeit strictly monitored by the CBK.

5.5 What role do stakeholders such as employees, pensioners, creditors, customers and suppliers play in shaping business operations in your jurisdiction? What other influence can they exert on an enterprise?

Stakeholders – including employees, customers and shareholders – may all have an interest in and influence over a business's success, operations and expectations. This interest may influence an enterprise's decision, strategy and corporate governance and sustainability initiatives. Kuwait has many family-owned businesses, which may also play a role in influencing decisions and business operations when shareholders have a common personal interest.

Banks, financial institutions and creditors generally play an important role in a business's financing and operations, so maintaining and managing working relationships with such entities is important. This includes:

• meeting financial obligations on time; and
• maintaining a reputable and reliable status quo.

5.6 What key concerns and considerations should be borne in mind with regard to general business operations in your jurisdiction?

At the regulatory level, it is important to navigate Kuwait's legal and regulatory framework, which requires compliance with regulatory requirements and processes. This can include meeting the regulatory requirements relating to:

• specific commercial licences and/or industry-specific regulations;
• the registration and rights of employees;
• certain financial institutions such as banks; and
• company law and taxation policy, where applicable.

At the social and operational level, Kuwaiti society adheres to the importance of social relations which may significantly influence the business climate. Maintaining credibility, compliance and efficient operational and social harmony requires smooth dealing with key players in any business – whether customers, suppliers or distributors – as part of the day-to-day management of business operations.

6 Accounting reporting

6.1 What primary accounting reporting obligations apply in your jurisdiction?

There is no mandatory accounting system in Kuwait. However, companies must generally conduct their accounting reporting in a way that:

• complies with International Financial Reporting Standards; and
• adheres to the rules and controls on accounting systems as stipulated in the Companies Law and by regulatory bodies such as the Ministry of Commerce and the Capital Markets Authority (CMA).

Under the Commercial Law, a company must keep the commercial books required by the nature of its business, as a record of its financial position and the debts and obligations it has incurred. At minimum, it must keep the original company journal and its inventory book. All records in the last fiscal year and an overall statement thereof must be registered in the inventory book; as must a copy of the company budget for each fiscal year, unless this was registered in another book.

Each page of the journal and the inventory book must be numbered and stamped by a notary public. A company must submit these books to a notary public within two months of the end of the fiscal year.

The current practice, however, is for companies to keep integrated accounting systems that process their company records and documents online, which is in line with the CMA Corporate Governance Bylaws, rather than keeping all records as hard copies that must be notarised.

Shareholding companies must prepare, at the end of each fiscal year, a consolidated balance sheet and profit and loss statements for the company and all subsidiaries, together with clarifications and information specified according to International Accounting Standards (IAS).

Under the Implementing Regulations of the Companies Law, a company's registers, books and documents that are prepared at its place of business must also include information on:

• the partners' names, nationalities and places of residence; and
• the number of shares owned by each partner and whether they are in cash or in kind.

Under Article 3-10 of the CMA Corporate Governance Bylaws, the company must have an integrated accounting system which keeps books, records and accounts that reflect in detail and accurately the financial statements and income accounts, which ensure that the company's assets and financial statements can be prepared in accordance with IAS approved by the CMA.

6.2 What role do the directors play in this regard?

The managers of a company – particularly a company with limited liability (WLL) – are responsible to the company and the government authorities, and as such are obliged to ensure that the company's records and documents are all kept in accordance with the requirements.

6.3 What role do accountants and auditors play in this regard?

Accountants are tasked with:

• keeping the company's books and records; and
• ensuring that these are in line with regulatory rules.

The auditors review the company's books and ensure that they are in order and accurate.

The auditors of a public joint stock company have the right to:

• examine all books, records and documents of the company at any time;
• request statements when needed; and
• verify the assets and obligations of the company.

The auditors' report, which is submitted to the ordinary general assembly, will confirm whether the data contained in the board of directors' report is consistent with the company's books which they have reviewed.

The main responsibility for keeping the company accounts, however, rests with the directors (or the manager of a WLL); and the same applies to shareholding companies. Although the board of directors is tasked with establishing an auditing committee, it remains responsible for:

• overseeing the work of the auditors; and
• ensuring that the company complies with the applicable rules.

6.4 What key concerns and considerations should be borne in mind with regard to accounting reporting in your jurisdiction?

Companies should ensure that they comply with the book-keeping requirements as stipulated by law.

7 Executive performance and compensation

7.1 How is executive compensation regulated in your jurisdiction?

Unlike those in positions of executive management, such as the chief executive officer and company executives, the members of the board of directors are not employees of the company and thus do not have a normal monthly payroll.

As per Article 198 of the Companies Law, the memorandum of association (MoA) specifies how remuneration is determined for the chairman and members of the board of directors. The total remuneration may not be more than 10% of the net profits after:

• the deduction of redemptions and reserves; and
• the distribution of profits of at least 5% of the capital or any higher percentage specified by the MoA.

Nevertheless, an annual allowance of no more than KWD 6,000 may be distributed to the chairman of the board of directors and to any board members as of the date of incorporation of the company until the realisation of profits allowing such distribution of allowances, according to the preceding paragraph. The independent members of the board can be excluded from the upper limit of these rewards by resolution of the ordinary general assembly Moreover, as per Article 183 of the Companies Law, the company's sole chief executive officer (or more) must be appointed by the board of directors, which will specify his or her allowances and powers.

Under Article 4-1 of the Capital Markets Authority's (CMA) Corporate Governance Bylaws, the board of directors is tasked with forming a nomination and remunerations committee, which consists of at least three members. Article 4-2 states that, without prejudice to the provisions of the Companies Law and its Implementing Regulations, the company must establish a remuneration policy which includes the determination of the remuneration of the board chairman and board members. Independent members of the board of directors may be excluded from the referred maximum remuneration rate by resolution of the ordinary general assembly.

7.2 How is executive compensation determined? Do any disclosure requirements apply?

Please see question 7.1.

Article 198 states that the board must submit its annual report to the ordinary general assembly for approval. The report must include a precise statement of all amounts, interests and benefits of any nature or name obtained by the board members.

Under Article 8-6 of the CMA Corporate Governance Bylaws, the board of directors must regulate the disclosure processes relating to the board members, executive management and potential investors.

The company must keep a record that includes:

• disclosures of the members of the board of directors, the executive management and the managers; and
• all data relating to compensation, salaries, incentives and other financial benefits granted directly or indirectly by the company or its subsidiaries.

All shareholders of the company have the right to access this record during the normal working hours of the company without any fees or charges. In addition, the company must update this record periodically to reflect the reality of the conditions of related parties as defined in the bylaws.

Additionally, the nomination and remunerations committee must prepare a report on the total remuneration granted to the board members and executive management of whatever nature and name – whether cash, benefits or privileges – directly or indirectly through the company or subsidiaries. The report must be prepared in accordance with the Structure of Corporate Governance Report Form template provided under the CMA bylaws. The form specifies the data to disclose, such as the renumeration and all benefits of members of the board.

The remuneration committee should meet at least once annually and must record the minutes of its meeting.

7.3 How is executive performance monitored and managed?

In a company with limited liability, the general assembly will examine the performance of the management and monitor the powers of the managers. The powers of the managers may also be limited if this is decided on by the general assembly.

In shareholding companies, the board of directors generally exercises the powers required to run the company and oversee the performance of executive management. Article 3-2 of the CMA Corporate Governance Bylaws states that the board of directors' decisions play an important role in the company's overall performance, and as such the board must have mechanisms that enable it to effectively monitor the performance and works of executive management. Having effective oversight and information over the performance of managers and executive management is necessary for the board to make resolutions.

The board has responsibilities that allow it to perform the following tasks without limitation:

• Audit and supervise the performance of executive management members and ensure their accomplishment of all assigned roles;
• Ensure that the work of the executive management is in accordance with policies and conditions approved by the board;
• Hold periodic meetings with executive management to discuss work issues and discuss important information relating to the activities of the company; and
• Set performance measures for executive management consistent with company goals and strategy.

7.4 What key concerns and considerations should be borne in mind with regard to executive performance and compensation in your jurisdiction?

Key considerations with regard to executive performance and compensation in Kuwait include the following:

• Regulatory compliance: Kuwait has its own laws and regulations relating to corporate governance, executive compensation and financial reporting. Remuneration and benefits must be determined in accordance with the Companies Law and the rules of the CMA. Employers must also comply with the Labour Law and its provisions.
• Transparency and disclosure: Disclosure of compensation packages – including base salary, bonuses and other benefits – is important to adhere to the corporate governance rules set by the CMA and the standards to ensure high performance.
• Corporate governance: Companies must ensure that:
• • they comply with the CMA Corporate Governance Bylaws and implement them effectively for all matters relating to executive renumeration and the disclosure thereof; and
  • board members exercise effective oversight of the performance of executive management to ensure strong corporate governance.

8 Employment

8.1 What is the applicable employment regime in your jurisdiction and what are its key features?

The primary legal framework for employment in Kuwait is the Labour Law for the Private Sector (6/2010). This law governs the rights and obligations of both employers and employees and sets the minimum legal standard of employee rights, which may not be reduced, even with the employee's consent.

Employment contracts – a cornerstone of this legal framework – detail terms such as job duties, working hours and compensation. Standard working hours are set at 48 hours per week over six days, with overtime subject to additional compensation. During the holy month of Ramadan, working hours are reduced to 36 (six hours per workday).

The law outlines various aspects of employment – including holidays, leave entitlements and compensation and benefits – to strike a balance between the rights of employers and those of employees. Additionally, it addresses:

• termination conditions;
• severance pay; and
• the prohibition of discrimination based on gender, religion, nationality or disability.

Work permits are mandatory for non-Kuwaiti nationals and employers are responsible for obtaining them. Employers must provide a safe working environment in compliance with occupational health and safety regulations.

8.2 Are trade unions or other types of employee representation recognised in your jurisdiction?

The Labour Law recognises and permits the establishment of organisations or unions by either employers or employees. According to Article 98, the law guarantees the right to establish unions for employers and syndicates for workers, applicable to both the private sector and workers in the public and petroleum sectors, as long as this does not conflict with other relevant laws. Article 99 provides that Kuwaiti workers have the right to form syndicates to:

• safeguard their interests;
• enhance their financial and social standing; and
• represent them in various matters.

Simultaneously, employers have the right to form unions for similar purposes.

8.3 How are dismissals, both individual and collective, governed in your jurisdiction? What is the process for effecting dismissals?

Article 41 of the Labour Law outlines the grounds on which an employer may dismiss a worker without notice, compensation or gratuity. These include:

• serious mistakes that cause damage to the employer;
• fraud;
• disclosure of confidential information;
• criminal convictions;
• breach of public morality;
• assault;
• repeated violation of instructions; and
• failure to fulfil obligations.

Workers who are dismissed for the reasons outlined in the Article 41 above have the right to appeal against the dismissal decision and, if the dismissal is deemed arbitrary, are entitled to an end-of-service gratuity and compensation. In all cases, the employer shall notify the Ministry of Social Affairs and Labour of the dismissal decision and reasons.

Article 42 permits employers to consider a worker as having resigned if he or she is absent for seven consecutive days or 20 interrupted days without acceptable reasons.

Article 44 allows either party to terminate an indefinite term contract with prior notification, with specific notification periods depending on the worker's remuneration. Failure to respect the notification period requires payment of compensation. Workers have the right to be absent to search for other jobs during the notification period.

Article 48 grants workers the right to terminate the employment contract without notice in various cases, such as:

• employer non-compliance;
• assault;
• threats to safety or health;
• fraud;
• wrongful accusations; or
• breach of morals.

Article 49 stipulates that the employment contract ends upon the worker's:

• death;
• incapacity; or
• depletion of sickness leave due to certified illness.

The termination of a collective labour contract is governed by a set of regulations outlined in the Labour Law. According to Article 111 of the Labour Law, these contracts establish the working conditions between workers' syndicates or unions and employers or their representative unions. The contractual agreement, as mandated by Article 112, must be in written form and bear the signature of the worker, with approval sought from the general assembly of both workers' and employers' organisations as per their respective statutes. Additionally, Article 113 specifies that such contracts are initially valid for a maximum term of three years, with an automatic one-year renewal unless otherwise stipulated. If one of the parties wishes not to renew the contract after its expiration, Article 114 mandates that written notification be provided to the other party and the Ministry of Social Affairs and Labour at least three months before the termination date. Importantly, the termination of the contract by one party does not affect the continued validity of the contract for other involved parties.

8.4 How can specialist talent be attracted from overseas where necessary?

Attracting specialist talent from overseas requires the implementation of strategic policies and incentives at both:

• the regulatory macro level, to facilitate a more diversified economy through the issue of new laws and adaptable regulations; and
• the micro level, for individual enterprises to help set themselves apart from competitors.

Features can include:

• competitive salary benefits;
• the integration of talent in areas that have not yet been tapped into in the local market and population; and
• industry-specific conferences, events and networking opportunities which attract attention to business opportunities in the country.

8.5 What key concerns and considerations should be borne in mind with regard to employment in your jurisdiction?

Work permits and residency visas are essential for non-Kuwaiti nationals, with employers typically responsible for navigating and facilitating these processes according to the applicable regulatory procedures in order to ensure that their employees are working legally in the country. Employment contracts must be executed in writing and registered with the Public Authority for Manpower; and the regulations on employee visas, salaries and rights and obligations must be adhered to in order to avoid legal issues.

9 Tax

9.1 What is the applicable tax regime in your jurisdiction and what are its key features?

Kuwait exempts companies that are wholly owned by Kuwaiti nationals or those from other Gulf Cooperation Council (GCC) countries (Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates) from corporate income tax (CIT). However, GCC companies with foreign ownership are subject to taxation based on the extent of their foreign ownership. CIT is applicable solely to the profits and capital gains of foreign corporate entities that engage in business or trade within Kuwait, whether directly or through an agent.

Income generated from activities within Kuwait is deemed taxable in Kuwait as Kuwait-sourced income. If a contract involves work performed both within and outside Kuwait, the entire contract revenue must be declared for taxation in Kuwait, even for work conducted outside Kuwait.

Although Kuwait does not have a withholding tax regime, all public and private entities doing business in Kuwait must retain 5% of the total contract value of any payments made to any company (whether that company is inside or outside Kuwait) until a tax clearance certificate issued from the Ministry of Finance is presented by the recipient.

Zakat is levied at a rate of 1% on the net profits of all publicly traded and privately held Kuwaiti shareholding companies.

Additionally, all Kuwaiti shareholding companies must allocate 1% of their net profits, after transferring to the statutory reserve and offsetting carried-forward losses, to the Kuwait Foundation for the Advancement of Sciences, which promotes scientific advancement.

9.2 What taxes apply to capital inflows and outflows?

Please see question 9.1.

9.3 What key exemptions and incentives are available to encourage enterprises to do business in your jurisdiction?

• The Law on Leasing and Investment Companies (12/1998) allows for the establishment of investment and leasing companies headquartered in Kuwait, with shareholders that may be Kuwaiti or foreign nationals. Non-Kuwaiti founders and shareholders of such companies are entitled to a five-year tax exemption, beginning from the date of the company's establishment.
• The Foreign Direct Investment Law (116/2013) offers several incentives to foreign companies, including:
• • streamlined processes facilitated by the Kuwait Direct Investment Promotion Authority, a one-stop-shop authority responsible for evaluating and granting licences and approvals for foreign companies operating in Kuwait, which replaced the previous committee and Council of Ministers;
  • increased flexibility allowing foreign companies to establish and operate through 100% foreign-owned branches or representative offices in Kuwait;
  • tax credits for a specified duration;
  • a full or partial exemption from customs duties on imports; and
  • permission to recruit necessary foreign labour.
• These incentives are applicable to activities within specific economic sectors and are contingent upon the fulfilment of certain requirements, including:
• • transferring advanced technology to Kuwait;
  • contributing to the local market by engaging local suppliers for operational purchases; and
  • creating employment opportunities for Kuwaiti nationals.
• Taxes paid in a foreign country with which Kuwait has a treaty for the avoidance of double taxation may be eligible for a foreign tax credit, up to the maximum amount of Kuwaiti tax that would have been payable on such income.

9.4 What key concerns and considerations should be borne in mind with regard to tax in your jurisdiction?

According to Circular 50/2002 issued by the Department of Income Tax, on the treatment of tax-exempted companies under tax law, special laws and tax treaties, exempted companies must adhere to the submission of tax declarations, inspection processes and assessment procedures similar to other companies in order to qualify for an exemption.

10 M&A

10.1 What provisions govern mergers and acquisitions in your jurisdiction and what are their key features?

The main laws governing mergers and acquisitions in Kuwait are:

• the Companies Law, which sets out the requirements for the transfer of shares and the rights associated with the ownership of shares for the various types of legal entities (eg, including pre-emption rights);
• the Competition Law and its Regulations.
• Law 7/2010 of the Capital Markets Authority (CMA) on the Establishment of the Capital Markets Authority and Regulating Securities Activities and its executive bylaws issued by Resolution 72/2015, which regulate securities businesses and the transfer of shares; and
• the Rule Book of Boursa Kuwait, the operator of the Kuwait stock exchange, which also addresses the sale and acquisition of listed companies.

10.2 How are mergers and acquisitions regulated from a competition perspective in your jurisdiction?

The Competition Law applies to:

• any situation deemed to constitute an economic concentration (defined as a situation involving a permanent change of control in the relevant market), arising by way of merger or takeover; and
• the establishment of a partnership between two or more persons that provide an economic activity independent of them on a permanent basis.

As per Article 10 of the Competition Law, the following are deemed to constitute an economic concentration:

• a merger between two or more persons by way of absorption or combination, or a combination of parts of persons that may lead to control or increased control;
• the acquisition of direct or indirect control by one person in all or parts of another person or persons, whether by:
• • the acquisition of assets, ownership rights or beneficiaries;
  • the purchase of shares, stock or liabilities; or
  • any other means; and
• the existence of a partnership between two or more persons that leads to a permanent and independent economic or commercial activity, regardless of the legal form or activity exercised.

Any transaction that may involve a merger and/or acquisition must thus be notified to the Competition Protection Authority (CPA), which will advise whether further filing and/or actions are required.

10.3 How are mergers and acquisitions regulated from an employment perspective in your jurisdiction?

The Labour Law (6/2010) is silent on the direct effect of a merger or acquisition on employment contracts. However, as foreign employees (ie, non-Kuwaiti or Gulf Cooperation Council citizens) must be sponsored by their employers in order to issue their residency visa, if there is a change to the employer's entity (eg, in the case of a merger), this may result in:

• the effective termination of the current employment contracts; and
• a requirement to rehire the employees to the new entity.

10.4 What key concerns and considerations should be borne in mind with regard to M&A activity in your jurisdiction?

As M&A transactions involve the consolidation or purchase of companies for large amounts of money, due consideration should be given to the following:

• Due diligence: Include thorough financial and legal due diligence in the preliminary stage of any transaction, to assess:
• • the financial, operational and legal compliance of the target; and
  • the potential risks of the transaction prior to proceeding.
• Regulatory and compliance: Ensure compliance with the regulatory requirements and legal frameworks governing M&A, including those of the CMA and CPA laws and regulations.
• Employee consideration: Recognise the impact of the M&A on employees of the concerned entities and develop strategies to retain key talent and adapt to the structural changes accordingly.
• Drafting: When drafting M&A agreements, pay careful attention throughout the entire process, starting with the initial term sheet or agreement and plan of merger, and continuing until signing of the share purchase agreement and/or merger agreement. It is very important to:
• • incorporate confidentiality and exclusivity clauses; and
  • clearly define the governing law and dispute resolution mechanisms in each agreement.

11 Financial crime

11.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction?

The main instruments regulating money laundering and financial crime in Kuwait are:

• the Money Laundering Law (106/2013); and
• Ministerial Decision 37/2013, setting out its implementing regulations.

Together, the Money Laundering Law and its implementing regulations set out the regulatory framework governing:

• reporting obligations;
• precautionary measures; and
• penalties for non-compliance.

Both financial institutions and non-financial business professions must notify the Kuwait Financial Intelligence Unit without delay of any transactions, regardless of their value, where there is sufficient evidence to suspect that such transactions is connected with money laundering or terrorist financing crimes.

Other supervisory authorities tasked with ensuring the compliance of the provisions of the law include:

• the Central Bank;
• the Capital Markets Authority;
• the Ministry of Commerce;
• the General Administration of Customs; and
• the Ministry of Interior.

The Ministry of Commerce also has an online anti-money laundering and terrorist financing department services portal which allows companies to notify their transactions through the digital service. The service can also audit and analyse a company's financial data. The Audit and Analysis of Financial Data Section ensures that companies comply with the provisions of the Money Laundering Law, while preparing the necessary financial reports and referring them to the competent authorities.

11.2 What key concerns and considerations should be borne in mind with regard to the prevention of financial crime in your jurisdiction?

Some of these considerations may include the following:

• Regulatory: Supervisory authorities at all levels tasked with combating financial crimes in Kuwait must conduct comprehensive risk assessments and studies in order to identify and mitigate potential vulnerabilities relating to financial crime. This involves assessing risks associated with:
• • customers;
  • products;
  • services; and
  • particular geographic locations.
• Moreover, such authorities should continue to release bylaws and circulars in order to strengthen the regulations and controls regarding financial crimes.
• Employees: Financial institutions should develop and refine mandatory training programmes to enable employees to recognise and prevent financial crime. This includes:
• • educating staff about the latest trends in financial crime; and
  • continually adapting to them in light of advancements in technology and cybercrime.
• Technology and systems: Advanced technologies and data analytics tools should be used to detect and prevent financial crime, similar to the online portal of the Ministry of Commerce. These digital tools may be very useful in implementing monitoring systems to identify suspicious transactions and behaviours and give companies a more accessible way to oversee such transactions themselves.

12 Audits and auditors

12.1 When is an audit required in your jurisdiction? What exemptions from the auditing requirements apply?

As a rule of thumb, all companies operating in Kuwait must submit their annual financial statements to the Ministry of Commerce within three months of the end of the fiscal year. These statements must be audited and approved by a certified auditing firm. As per the Companies Law, the director will call the ordinary general assembly annually within three months of the end of each fiscal year to examine and decide on several matters, including approving:

• the company's financial statements;
• the directors' report on the company's financial standing; and
• the auditors' report on the financial statements of the company.

The auditing requirements may not apply for certain entities, such as branches of foreign companies that operate in Kuwait. Such branches are not subject to the obligations to report and submit audited financial statements.

For companies licensed by the Capital Markets Authority (CMA):

• the internal audit unit of the company must prepare a report which evaluates the internal audit systems applied in the company; and
• an independent audit firm will be assigned to evaluate the internal audit systems and prepare a report in this regard, which must be submitted to the CMA annually.

12.2 What rules relate to the appointment, tenure and removal of auditors in your jurisdiction?

In companies with limited liability (WLLs), the company's manager will call the ordinary general assembly for its annual meeting within three months of the end of the fiscal year, in which the appointment of the auditor for the following fiscal year will be examined and decided. This decision is based on the review of the previous auditor's report and can either reappoint the same auditor or appoint another auditor for the next fiscal year.

The memorandum of association of a WLL must include the appointment of one or more auditors to audit the accounts of the company. The auditors' responsibilities, dismissal and resignation will be subject to the same rules and provisions as the auditors of a joint stock company (JSC) under the same law.

A JSC must have one or more auditors, who will be appointed by the ordinary general assembly, after receiving approval from the Central Bank of Kuwait. The auditors must keep all data acquired during their work confidential both during and after termination of service. If the auditors violate this obligation, they may be dismissed and held liable for compensation, where applicable.

For CMA licensed companies, the ordinary general assembly must appoint the company auditors, based on the recommendation of the audit committee submitted to the board of directors.

Companies must also have their own internal auditing unit, with a manager appointed based on the nomination of the audit committee. The board of directors will also specify the membership term of the members of the audit committee.

The audit committee will provide the board of directors with recommendations on the appointment, reappointment or replacement of external auditors for the company. The committee also recommends the appointment of an internal audit manager, as well as his or her transfer and removal.

12.3 Are there any rules or recommendations that limit the scope of services as regards the provision of non-audit services by an auditor?

Yes, under Article 5-7 of the CMA Executive Bylaws on Corporate Governance, the audit committee of the company observes certain tasks and responsibilities, one of which is to follow up on the work of the external auditors and ensure that no services other than those relating to audit functions are provided to the company. Moreover, Article 5-8 states that one of the conditions for appointing the company external auditor is verification that:

• he or she is independent of the company and its board of directors; and
• no services other than those relating to the audit functions are provided to the company which may affect the auditor's neutrality or independence.

12.4 Are there any rules or recommendations which cap the remuneration of an auditor as regards payment for the provision of non-audit services?

There are no rules or recommendations on renumeration for the provision of non-audit services that we are aware of.

13 Termination of activities

13.1 What are the main routes for terminating business activities in your jurisdiction? What are the advantages and disadvantages of each?

Businesses may terminate through different methods, which may be summarised as follows.

Sale of shares: Shareholders may choose to pass on the proceeds from the sale of all their shares in the company to other investors and exit the business.

Advantages to this strategy include:

• greater control over price negotiations and set terms of sale;
• access to the proceeds from the sale;
• effective closure of the business; and
• enhanced market reputation through the successful sale of the company, which may attract more future investors and partners.

The disadvantages include the loss of the right to participate in the company and benefit from future proceeds and instead having another investor enjoy such benefits.

Initial public offering (IPO): An IPO exit allows the company to offer its shares as stock publicly, thus terminating private ownership and transitioning to public ownership.

The CMA Bylaws on Listing Rules regulate applications and controls for public listings.

The advantages of this process include:

• access to a broader pool of capital which can assist the company in raising funds;
• enhanced credibility and reputation in the eyes of investors; and
• higher valuations.

The disadvantages include:

• the need to comply with strict regulations and obligations such as disclosure and reporting;
• the loss of the founders and management's ownership and control over the company's management and activities; and
• additional financial reporting obligations.

Dissolution and liquidation: A company can be dissolved in various ways, including by:

• unanimous agreement of the partners to dissolve the company prior to the termination of its duration, unless the memorandum of association stipulates that a certain majority is sufficient;
• merger of the company into another company; or
• a declaration of bankruptcy of the company.

The advantages include:

• the ability to clear debts in an organised manner in order of priority; and
• the swifter resolution of legal disputes involving the company among stakeholders.

The disadvantages include:

• a loss of business reputation, trading licences and assets;
• the risk that debts may not be repaid in full, which can lead to disputes and problems with creditors; and
• job losses.

Merger: Even if in liquidation, a company may merge with another company of the same legal form or any other form through:

• the dissolution of one or more companies and the transfer of their financial liabilities to another existing company; or
• the dissolution of two or more companies and the incorporation of a new company, to which the financial liabilities of the merged companies are transferred.

The advantages include:

• increased market share; and
• the potential to eliminate competition, resulting in reduced prices.

The disadvantages include:

• difficulty in creating synergies;
• potential job losses; and
• a loss of company identity.

13.2 What key concerns and considerations should be borne in mind with regard to the termination of business activities in your jurisdiction?

However a company chooses to terminate, given its financial circumstances, it is important to remain diligent and aware of:

• the regulatory and practical processes and implications associated with each method of termination; and
• information relating to:
• • timeframes;
  • costs;
  • liabilities; and
  • legal controls.

14 Trends and predictions

14.1 How would you describe the current landscape for doing business and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The current landscape in Kuwait reflects certain characteristics and trends, such as the following:

• Legal reforms: Kuwait continues to consider new legislative reforms aimed at enhancing the business environment. Current initiatives are targeting:
• • investment laws;
  • corporate governance regulations; and
  • other directives aimed at attracting and increasing foreign investment.
• Investment opportunities: The Kuwait Direct Investment Promotion Authority continues to provide business opportunities for foreign investment across various industry sectors, including:
• • construction;
  • logistics; and
  • oil and gas.

Overall, Kuwait continues to adapt to ever-changing requirements and standards in order to attract business and foreign investment. However, navigating the regulatory environment and addressing gaps within the law remains an essential challenge for the country's further advancement.

The new Law 1/2024, which allows foreign companies to open branches in Kuwait without a local agent, was only recently enacted and the implementation details are still awaited. It thus remains to be seen how this may affect foreign investment in the future.

Moreover, the Ministry of Commerce and Industry continues to issue new resolutions relating to the regulation of various enterprises. One recent development allows micro-enterprises to operate by only having a post office box as opposed to a physical office space. For companies whose activities are of a 'special nature', a residential home address is enough to satisfy this requirement.

It is thus crucial that legal professionals and both local and foreign business actors keep up to date with all regulatory and legislative reforms and economic developments in Kuwait – whether they be developments in commercial law, employment law or taxation.

15 Tips and traps

15.1 What are your top tips for doing business smoothly in your jurisdiction and what potential sticking points would you highlight?

Businesses should consider the key features of the business landscape in Kuwait in order to be able to do business smoothly and stay ahead of changing trends. Some of these features are as follows:

• Legal and regulatory: Businesses in Kuwait must conform to a variety of financial, legal and labour regulations. Understanding the frameworks which are relevant to specific enterprises is important; as is keeping up to date on any new developments which impact businesses, foreign investment or the economy. Businesses must also ensure compliance with all applicable anti-bribery and corruption legislation and rules.
• Contractual disputes: All contracts should be drafted clearly and include all necessary terms and conditions.
• Competition: Kuwait's market can be competitive, especially in sectors such as oil and gas, construction and finance. It is important for businesses to keep up with trends and differentiate their services and offerings in order to stand out.
• Bureaucracy: Kuwait has certain bureaucratic processes that can be complex and time consuming in some respects. It is important for businesses to familiarise themselves with the navigation and services of different government departments in order to obtain relevant approvals and licences.
• Social relationships: A key feature of doing business in Kuwait is the investment that people make in social business relationships and reputation building. Invest time in building relationships with local partners and clients

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.