Monday, March 9, 2015

Myths and Facts Regarding the Registered Capital of a Company in Oman

Lawyers are often asked to advise client entities about their registered capital requirements. In Oman, most companies without foreign shareholding can be established with a registered capital of just RO 20,000. The minimum capital requirement varies depending on the type of the company, the shareholding pattern, name and activities. For example, Omani companies, regardless of whether these are limited liability or joint stock companies, require a minimum capital of RO 500,000 if they have ‘Oman’ in their name and RO 2 Million if they are established as a ‘holding’ company. Similarly, limited liability companies with up to 70% foreign shareholding generally need a minimum capital of RO 150,000.

The amount of the registered capital also depends on whether the company wants to bid for large contract/projects, in particular for Government entities, as one of the pre-qualification requirements for such tenders normally is that the bidding company should have a minimum registered capital of RO 100,000 (for tenders reserved for First grade companies) or RO 250,000 (for tenders reserved for Excellent grade companies). The following table shows the minimum capital requirement for different grades of companies in Oman:

Capital (RO)
250,000 and above
100,000  to  249,999
50,000  to  99,999
25,000  to  49,999
Up to 24,999

It is important to bear in mind that the minimum registered capital for closed joint stock companies is RO 500,000; therefore, the above mentioned grades are mainly for the purpose of classifying limited liability companies. In addition to advantages related to pre-qualification for large contracts, Excellent and First grade companies are also better positioned in relation to their dealings with the Ministry of Manpower relating to matters such as the review of their expatriate employee visa application requests.

There is a general impression that the registered capital of a company just needs to be deposited in a bank account at the time of incorporation of the company and can subsequently be withdrawn by the shareholders and perhaps used for matters unrelated to the company.

However, shareholders and companies need to be very careful about this practice as such actions can result in a situation where the annual audited financial statements of the company show an eroded capital position. It is important to note that if the registered capital of a company has been eroded, the company and its shareholders will not be able to make any changes to the commercial registration of the company. This means that the Ministry of Commerce and Industry will not approve applications for transfer of shares, change of authorised signatories, change of commercial activities etc. until a statement has been provided by the company’s auditors that the registered capital of the company has been restored by additional (pro-rata) capital contributions by the shareholders of the company.

Accordingly, companies should be careful about registering a high initial share capital or increasing the share capital to higher levels just to achieve First or Excellent grade classification if they don’t really require such higher capital for the purposes of undertaking their business activities.