Tuesday, February 16, 2010

GCC Unified Industrial Code

Recently, the GCC states have sought to unify the general administrative regulations of industrial establishments in the region. The objective is to speed the process of industrial development and enable integration amongst GCC nations. To accomplish these objectives, the Unified Industrial Regulations Law, RD 61/2008 (the “UIR Law”), and its accompanying Executive Regulations, MD 46/2009, were passed in Oman. The UIR Law and the Executive Regulations have set out a harmonized framework for the administration of GCC industrial projects.

First, the UIR Law and Executive Regulations provide a definition for “industrial establishment,” which includes all plants at which some sort of transformation of a product takes place. The definition includes establishments involving assembling, mixing, compiling, separating, processing or packaging, provided that machinery is involved in these steps. This defines the scope of the UIR Law and the projects to which it will apply.

In addition, the UIR Law requires anyone wishing to establish, modify, improve, expand, merge or divide an industrial establishment to obtain a license from MCI. The Executive Regulations set out the procedures and documents required for obtaining the license.

The UIR Law also provides an industrial register, similar to a commercial register, which will include information on all industrial projects.

Certain establishments are exempt from the requirements of the UIR Law, including projects that are governed specifically by special separate laws or treaties, or projects that are carried out solely by the government or any of its entities without the participation of private-sector entities. In addition, the UIR Law specifies that mineral ore extraction and oil extraction are exempt from the requirements of the UIR Law.

While this regulatory framework is new and its implications are still emerging, it should provide greater cohesion amongst large industrial projects in the GCC region and facilitate the transfer and sharing of information about projects.

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Friday, February 12, 2010

Doing Business in Oman FAQ: What is the difference between an SAOC and an LLC?

Although the most popular corporate structure in Oman is the limited liability company (LLC), there are other corporate structures that exist and may be available to businesses seeking to form an entity in Oman. One example is the SAOC, which is a closely held or “closed joint stock” company.

The SAOC is a more formal and regulated company in Oman, though it is not as formal as the public joint stock company, or SAOG. Therefore, SAOCs would be appropriate for projects or arrangements that seek more formality than an LLC, but that do not require the most formal structure available. In addition, certain types of businesses in Oman are not permitted to take the form of an LLC and must adopt an SAOC or SAOG structure, such as insurance companies, banks and investment funds.

There are several key differences between LLCs and SAOCs. First, an LLC only requires two shareholders, whereas an SAOC requires at least three. Second, SAOCs must have a board of directors composed of no fewer than three directors, but LLCs may be managed by either a board of managers or a single manager. The LLC managers are appointed by the shareholders as provided in the constitutive contract, but in an SAOC the board of directors must be elected in accordance with Omani law. Third, the required minimum capital for an LLC ranges from RO 20,000 to RO 150,000, depending on whether foreign ownership is involved, whereas SAOCs require at least RO 500,000 of capital.

The shares in an LLC are not marketable and the shares must be fully paid up at inception of the company, but in an SAOC the shares can be offered for sale and it is permissible to pay some of the capital initially and issue additional capital later on. In addition, meeting formalities are different for each structure. LLCs may have informal meetings and no board meeting is required. SAOCs, on the other hand, must have statutory meetings at set intervals in accordance with Omani law.

Ultimately, the type of project or business involved and the individual needs of the parties involved will determine whether an LLC or SAOC is the best option for a particular situation.

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Wednesday, February 10, 2010

Requirements for Offering Promotions

Companies in Oman seeking to entice new customers sometimes design shop-and-win promotions, in which the company offers a prize to the consumer based on some entry submitted by the consumer. Examples of consumer entries may include spending a certain amount of money in a store or shopping center, using a certain bank card, or purchasing a new product. While such promotions are popular, it is important for companies to be aware of the legal restrictions on these promotions before offering them.

First, before offering a prize promotion, it is necessary to obtain permission from the relevant consumer protection authority. The Consumer Protection division of the Ministry of Commerce and Industry (MCI) is the government body that reviews and approves such promotions. The company seeking to offer the promotion must write a letter to MCI requesting a license to offer the promotion at least 15 days prior to the start of the promotion.

The license application to MCI must include the following information:

  • The type of promotion and how it works;
  • The proposed duration of the promotion;
  • The locations where the company will offer the promotion;
  • A list of the number and types of prizes given to winners;
  • Receipts proving that the offered prizes have been purchased;
  • The time, date and place of the final draw; and
  • The mechanism for the draw, e.g., whether by lot or by an electronic draw.
Last, if MCI allows the company to offer the promotion, the company also must display reasonably the terms and conditions at the place(s) where the promotion is taking place.

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Tuesday, February 9, 2010

Selling Shares in a Limited Liability Company

Shareholders owning shares in a limited liability company (LLC) may seek to sell or transfer the shares at some point during the life of the company. In such a case, there are specific legal requirements in the Commercial Companies Law of Oman pertaining to such a sale or transfer.

Specifically, the shareholder wishing to sell his shares first must give notice of his intention to the manager(s) of the LLC and the other shareholders in the LLC. Each shareholder in an LLC has a right of first refusal, meaning a right to purchase the shares on the same terms, but before they are offered to a non-member of the company.

The non-selling members of the LLC may choose to purchase the offered shares before allowing those shares to be sold to an outsider. Issues may arise in cases where more than one shareholder is interested in purchasing the shares that are being offered. In such a case, the shares will be allocated between the members seeking to purchase such shares according to their proportional ownership in the LLC.

The specific procedures for selling the shares in an LLC are outlined as follows:

  • The seller of the shares must give written notice to the manager of the LLC of his intent to sell. The notice must specify the number of shares, the name, nationality and address of the proposed purchaser, and the terms of the sale.

  • The manager must acknowledge receipt of the notice and send a copy of the notice to each shareholder in the LLC. The manager must also notify the shareholders of their rights to purchase the shares according to the terms in the notice.

  • If the shareholders wish to purchase the shares, they must give notice to the manager of the LLC and deposit the full amount of the purchase price within 45 days of the receipt of the notice by the manager.

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Tuesday, February 2, 2010

Omanisation for US Companies Under the US-Oman Free Trade Agreement

While the tariff and market access benefits of the US-Oman Free Trade Agreement (“FTA”) are well known, a lesser known aspect of the FTA is the implications on Omanisation for American companies.

While all companies are subject to Omanisation requirements, American companies are subject to a separate regime. The requirements for American companies are set out in Annex 11.12 of Chapter 11 of the FTA. Specifically, Annex 11.12 states that Oman reserves the right to require up to 80% of the employees of a “covered investment” (meaning, in this case, a wholly American owned company in Oman) to be Omani nationals. However, this 80% threshold does not include managers, members of the board of directors, or “specialty personnel.” This means that American companies may employ as many non-Omani nationals for the positions of managers, members of board of directors, and specialty personnel as desired, and the 80% threshold would apply only with respect to the total number of employees outside of these positions.

Annex 11.12 also includes a broad definition for “specialty personnel,” which states that specialty personnel “means natural persons who are employed to use their expert or proprietary knowledge of a covered investment’s services, equipment, techniques, or management and may include, but are not limited to, members of licensed professions.”

Annex 11.12 further states that, regardless of the 80% threshold, a non-Omani national may be employed if the company cannot locate a qualified Omani for the relevant position.

Therefore, the provisions of Annex 11.12 set out a separate, and generally less restrictive, Omanisation regime for American companies that supersedes the Omanisation requirements applicable to non American companies.

While the provisions of the FTA are clear, this is a regime that has been in place for only one year and is therefore largely unfamiliar to the relevant players. Thus, the process for implementing this separate regime for an American company initially may not be entirely smooth.

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