Wednesday, June 25, 2008

The Oman Law Digest 2009 - CORPORATIONS

Commercial Companies Law [RD 4/74 as amended] provides for the formation, regulation, merger, conversion, liquidation and dissolution of general partnerships, limited partnerships, joint ventures, closed joint stock companies, public joint stock companies, holding companies and limited liability companies. Subject to licencing and other restrictions, foreign natural and juridical persons can invest in a joint venture, closed or public joint stock company and limited liability company. Foreign investment in local companies is authorised pursuant to Foreign Capital Investment Law [RD 102/94].

Joint venture is an unincorporated association in the nature of a consortium of two or more commercial entities, usually to execute a project. There is no registration requirement but a foreign company participating in a joint venture must be a licenced entity. In its functioning, a joint venture can be considered to be a de facto general partnership between participants in such joint venture. Entities in a joint venture must have a written agreement on sharing of profits and other common issues.

Limited liability company must have at least two natural or juridical shareholders referred to as partners or members. Share capital must be at least RO 20,000 if shareholders are Omanis and RO 150,000 if there are one or more foreign partners. Capital is divided into shares of equal nominal value that are not available for public subscription. Members’ liability is restricted to shareholding in the capital. The limited liability company cannot engage in the business of banking, insurance, financial guarantees or commercial aviation.

Shareholders have an effective right of preemption and right of first refusal before a shareholder sells its shares to a third party. Shares confer equal voting rights. Share certificates are not issued and shareholding is evidenced by incorporation documents including a contract of incorporation called a constitutive contract. The limited liability company must keep a membership register giving names of members and other relevant particulars. Any proposed shareholders’ action which increases financial liability requires unanimous approval of shareholders.

Management of a limited liability company is entrusted to one or more managers or a board of managers. The manager may perform acts for the company’s objects unless restricted by constitutive contract or law. Accounts must be maintained and audited in accordance with international accounting standards. Companies with a capital of over RO 50,000 or having more than ten shareholders, or so required by the contract of incorporation, must have an internal auditor.

A joint stock company with at least three shareholders must have authorized and issued share capital. The Memorandum and Articles of Association must be approved by the MCI before incorporation. Joint stock companies may be public or closed.

Public joint stock company is authorised to issue stocks to the public and must have a minimum share capital of RO 2,000,000. It is subject to a code of corporate governance and other regulations issued by the Capital Market Authority (“CMA”). Besides the MCI, registration must also be made with the CMA, Muscat Security Market (“MSM”) and Muscat Depository and Securities Registration Company SAOC (“MDSRC”). Share transfers must be effected through MSM.

Closed joint stock company is not permitted to offer shares to the public. It must have a minimum share capital of RO 500,000. Registration with MCI, which is the relevant authority for its corporate matters, is mandatory for commencement of business. Share transfer must be effected through MSM.

Nominal value of a share in a public or closed joint stock company should not exceed RO 1 and at least half of the nominal value must be paid up on subscription and the full value within three years from the date of incorporation.

Joint stock companies cannot be established without prior authorization from MCI. Application for authorisation must be signed by at least three founder members.

Founder members of a public joint stock company must subscribe for not less than 30% but not more than 60% of shares and no single shareholder may own more than 20% of shares without prior authorisation from CMA.

Management of a joint stock company must be entrusted to a board of directors comprising at least three directors for closed and five for public, who must draft bylaws for management, business and personnel affairs within one year of registration of the company. A board of directors of the company must be elected by shareholders for a renewable term of three years according to rules for electing the board issued by MCI or CMA.

The board may perform all functions except selling all or substantial parts of the company’s assets; mortgaging the company’s assets; guaranteeing third-party debts; or making donations which require authorisation from shareholders or the Articles of Association.

Holding company may be a limited liability or joint stock company exercising financial and administrative control over one or more companies in which it has at least 51% shareholding. Share capital must be at least RO 2,000,000. Its objectives should be to manage its subsidiaries; invest funds in stocks; provide loans, guarantees, etc. to subsidiaries; and acquire patents, trademarks, concessions and other intangible assets.

Pursuant to a recent amendment to the Law of Income Tax on Companies [RD 47/81 as amended], companies with up to 70% foreign shareholding are charged income tax at a rate of 12%, similar to wholly Omani owned companies.

Omani law on the accountancy and auditing professions provides that accounts of companies must be prepared according to International Accounting Standards (now the International Financial Reporting Standards) (IFRS).

Incorporation of banks and insurance companies requires additional approvals from Central Bank of Oman and CMA, respectively. They are required to be incorporated as joint stock companies.