On 8 September 2025, the Kingdom of Bahrain enacted Decree-Law No. 38 of 2025, introducing significant amendments to the Commercial Companies Law of 2001. These reforms should not be viewed as a mere technical exercise in statutory amendment. Rather, they represent a deliberate recalibration of Bahrain's corporate law framework, balancing the sometimes competing objectives of accountability, flexibility and competitiveness. In an increasingly globalised commercial environment, where investors are mobile, reputational risk is acute and regional competition for capital is intense, these amendments mark an important assertion of Bahrain's intent to modernise and to bring its corporate governance environment into closer alignment with international norms.
Managerial Liability and the Concept of the "Shadow Manager"
Perhaps the most consequential innovation is the extension of liability beyond formally appointed directors and managers to those who, in substance, exercise managerial influence without holding office, the so-called "shadow managers". The amendment abandons the previous prescriptive list of misconduct that could trigger liability and replaces it with a more principle-based standard, capturing negligence, breach of statutory duty or violation of the company's constitutional documents.
The implications of this are far-reaching. First, the law now recognises the reality that corporate power is not always exercised by those with formal authority. In many Bahraini companies, investment vehicles and structures with nominee directors, decision-making often emanates from individuals outside the boardroom. By attaching liability to influence rather than title, the amendment ensures that those pulling the levers of control cannot evade responsibility by remaining behind the curtain.
Second, the reform raises important questions of legal certainty. The definition of a "shadow manager" is inherently elastic and its application will likely be shaped through judicial interpretation. Influential shareholders who give informal guidance to management, senior executives without board appointments and even external advisors might, in certain circumstances, fall within its ambit. The absence of precise statutory parameters creates potential for both enhanced accountability and increased litigation risk. As such, those with significant influence must consider adopting more formalised governance roles or ensuring their involvement is carefully structured to mitigate exposure.
Regulatory Oversight and the Role of the Ministry
The enhanced investigatory powers conferred on the Ministry of Industry and Commerce complement the extension of managerial liability. The Ministry may now compel the production of company documents not only from directors and managers, but also from auditors and shadow managers. This represents a deepening of regulatory reach, placing all those materially involved in governance under the Ministry's scrutiny.
From a policy perspective, this is a logical extension: broader liability without corresponding investigatory power would render enforcement toothless. Yet for companies, the practical impact is considerable. Record-keeping must now be treated as a compliance imperative rather than a procedural formality. Informal arrangements, often prevalent in the region, may need to be regularised. Where shareholder influence crosses into management, documentation should evidence decision-making to prevent regulators from drawing adverse inferences.
In this respect, the Bahraini reforms are consonant with international trends, echoing the post-financial crisis emphasis on transparency and regulatory empowerment. They serve as a reminder that Bahrain, like its regional peers, is seeking to reassure both investors and international watchdogs that its corporate governance regime is rigorous and enforceable.
Digitalisation of Governance
Another striking reform is the statutory recognition of digital governance. Virtual shareholder and board meetings, together with electronic voting, are now permitted by default, subject to safeguards prescribed by ministerial regulation. This change reflects a broader global acceptance that corporate processes need not be anchored in physical presence.
The benefits are obvious. Multinational investors can now participate without incurring disproportionate travel or logistical costs. Boards may act with greater speed and efficiency, unhampered by the requirement for physical meetings. Yet this development is not merely about convenience. It also speaks to inclusivity: shareholders dispersed across jurisdictions, or smaller investors lacking resources to attend in person, are afforded a practical means of engagement.
Nevertheless, the reform is not without its challenges. Verification of participants, the integrity of records and the prevention of technological exclusion are all concerns that must be addressed by ministerial regulation. Companies will need to invest in secure platforms, adapt their constitutional documents where necessary and train their boards to manage the dynamics of virtual decision-making. In time, disputes concerning the validity of electronic meetings and votes may reach the courts, testing the robustness of these provisions.
Structural Flexibility: Single-Shareholder Closed Joint Stock Companies
The ability to form a closed joint stock company with a single shareholder introduces a measure of structural flexibility that aligns Bahrain with global practice. This is particularly relevant for private equity sponsors, sovereign wealth funds and family offices, where a single investor may wish to deploy capital through a corporate vehicle offering limited liability, continuity and recognised governance standards.
By reducing the need for artificial shareholder arrangements, where second shareholders were often introduced merely to satisfy statutory form, the law simplifies structuring and reduces transaction costs. The single shareholder assumes the role of both founding and general assembly, thereby consolidating authority. While some might question whether this undermines the checks and balances traditionally embedded in multi-shareholder structures, the reality is that such entities will remain subject to statutory governance requirements, including the oversight of the Ministry and the obligations of directors and managers. In this respect, the reform is both practical and commercially sensible.
Continuity and Stability in Partnerships
The new provisions allowing companies to continue upon the death, withdrawal or bankruptcy of a partner further reinforce commercial stability. Previously, the dissolution of a company in such circumstances created unnecessary disruption, particularly for long-standing family or professional partnerships. Now, provided either the articles so provide or the remaining partners unanimously agree within ninety working days, continuity may be preserved.
This reform reflects a shift towards respecting the underlying economic enterprise rather than rigidly adhering to form. It acknowledges that dissolution in the face of partner change is rarely in the interests of creditors, employees or the broader economy. The measure therefore balances private autonomy with commercial pragmatism and will be welcomed by practitioners advising on succession planning and restructuring.
Rationalisation of Company Forms
The abolition of the "Partnership by Participation" (Sharikah al-Muhasah) is, in truth, less revolutionary than symbolic. The form was rarely used and its continued existence served little purpose. Its removal simplifies the corporate landscape and eliminates a structure that could confuse or mislead investors unfamiliar with its peculiarities. The short transitional period of three months, however, does require urgent attention from any entities still operating in this form. Their conversion or restructuring will need to be effected swiftly, with professional guidance to ensure compliance and mitigate disruption.
Concluding Remarks
Taken together, these amendments form part of a broader trajectory: Bahrain's ongoing project to modernise its commercial law framework and position itself as a credible, investor-friendly jurisdiction. They represent a sophisticated balance between tightening accountability, through expanded liability and enhanced regulatory oversight, and granting flexibility, through digitalisation and simplified corporate forms.
For practitioners, the message is twofold. First, governance structures must be revisited, not only to ensure compliance but to anticipate potential exposure under the shadow manager provisions. Second, opportunities exist for clients to take advantage of the new flexibilities, whether through structuring single-shareholder closed joint stock companies or adopting digital governance mechanisms that enhance participation and efficiency.
The reforms are evolutionary rather than revolutionary. They do not rewrite the fundamentals of Bahraini company law, but they do refine and modernise it in ways that will have tangible impact on practice. For international investors accustomed to sophisticated governance standards, the changes will be read as evidence that Bahrain is serious about maintaining competitiveness in a crowded regional market. For domestic businesses, they are both a challenge and an opportunity: a challenge in adapting to heightened scrutiny and an opportunity in the greater flexibility afforded to corporate structuring and operation.
Ultimately, the amendments are best understood as part of a continuing dialogue between Bahrain and the global business community: a dialogue in which the Kingdom signals its willingness to hold managers to account, while simultaneously offering companies the tools they need to thrive in a modern, digital, and international economy.
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