Monday, November 9, 2015

Director's Duties in Oman

The functions and powers of a director of a joint stock company and a manager of a limited liability company (“LLC”) are provided for in a company’s articles of association (“articles”) or constitutive contract and the Commercial Companies Law as promulgated by Oman Royal Decree (“RD”) 7/1974 (as amended) (the “CCL”). In addition, the board of directors (the “Board”) of a public joint stock company (SAOG) will be subject to the Code of Corporate Governance (the “Code”), which shall become effective on 22 July 2016. However, the Code shall come into effect for each SAOG upon the expiration of the validation period of the Board, even if the validation period is before 22 July 2016.

The Code provides a framework for the management and control of SAOGs listed on the Muscat Securities Market, and outlines the composition of the Board (Principle 2) in Omani companies, as well as the functions and powers attributed to them (Principle 3).

The primary concern for the Board is the company’s interest above all else, and it must ensure quality performance on its part by implementing accountability measures such as monitoring members’ performance to ensure active participation. It is also important that the Board make certain that there is a level of effectiveness and adequacy of internal control systems throughout the company as well as approve internal regulations that deal with the management of company affairs; however, it is not to interfere with the management’s day-to-day activities and any sort of operational activity.
The Code also details minimum requisites the Board should carry out and these include but are not limited to:
defining the company’s vision with relevance to its objectives and implementing methods to measure performance and keeping these updated regularly;

  • monitoring the performance of the executive management, adopting a reasonable policy to delegate powers, determining the functions and powers they are to possess, and appointing rights and responsibilities of certain positions of the executive management; 
  • approving financial statements and commercial and financial policies in respect to its business activities; and
  • establishing specialized committees and assessing the performance of the Board’s specialized committees and executive positions at least once a year.

Within the Code, the Code of Business Conduct highlights how each director on the Board is to conduct itself at all times, namely by means of (1) professionalism; (2) prudence and due diligence; (3) integrity; (4) conflict of interests; (5) compliance with the law; and (6) access to information. A summary of the key provisions are provided below.

In accordance with professionalism, each director of the Board must:

  • be aware of developments and advances in his domain of knowledge, the areas related to his directorship and the company’s business activity;
  • be aware of the company’s affairs, activities and operations; and 
  • act in accordance with the Corporate Governance Charter.

In accordance with prudence and due diligence, each director of the Board must:
  • assist in improving the company’s performance in order to achieve the company’s objectives and protect and enhance the interests of shareholders; and
  • act prudently and cautiously, exercising due diligence in the performance of his functions as director.
In accordance with integrity, each director of the Board must:
  • act honestly, in good faith, and with the best interest of the company in mind; and
  • maintain independence in his judgment at all times and avoid any situation that will compromise this.
In accordance with conflict of interests, each director of the Board must:
  • act transparently at all times and avoid situations in which personal interests come into conflict with professional interests and must disclose all contractual interests involving the company, whether directly or indirectly;
  • not improperly exploit his position to achieve direct or indirect gains or personal privileges for himself or for any related person;
  • disclose any actual or potential conflict of interests to the Board; and
  • not benefit from his directorship and shall, in particular, keep strictly confidential all the information he receives while on the Board and shall not make any improper use of such information.
In accordance with compliance with the law, each director of the Board must take all necessary steps to ensure that each director and the company are compliant with relevant laws and regulation.

Director’s and Manager’s duties under the CCL

Similar to the Code, the CCL also outlines the duties expected of a company’s Board, and is applicable to both public and closed joint stock companies (SAOGs and SAOCs) as well as LLCs.

Joint Stock Companies

In accordance with Article 102 of the CCL, the Board of an SAOG and SAOC shall have full authority to perform all acts required for the management of the company for achievement of its objectives and for the implementation of resolutions adopted at the company’s General Meeting. Such authority shall not be limited or restricted except to the extent as provided by law or by the articles.

In addition, Board members of joint stock companies are not permitted to participate in the management of any business competitive with that of the company, take advantage of any information accessible to them, or have any direct or indirect interests in the transactions or contracts concluded by the company, unless an exception applies.


A “Board of Directors” does not exist within a LLC; instead, executives are referred to as “managers” and it is these managers who are entrusted with the management of the company. As provided for by Article 152 of the CCL, managers may perform all acts in pursuance of the company’s objectives, unless their authority is limited by the company’s constitutive contract or a subsequent agreement is made between all members of the company and registered in the Commercial Register.

Despite being allowed to perform all acts necessary for the management of the company in order to achieve its objectives, the Board of an SAOG or SAOC and managers of an LLC are not to:
  • make donations, other than in small amounts that the business may require;
  • sell all or a substantial part of the company’s assets;
  • mortgage or pledge the assets of the company; and
  • guarantee the debts of third parties.
It is evident that directors and managers of a company have an important stake in acting in the best interests of the company. Directors and managers can be held liable if they do not comply with the law by not fulfilling their necessary duties; for example, Article 8 of the CCL states that a member of the Board shall not use the company’s assets or properties for their own benefit or for the benefit of third parties, or enter directly or indirectly into any agreement with the company for their own account, other than usual contracts of the type which the company enters into with its customers in the ordinary course of business. If it is found that a member of the Board is in breach of this provision, he may be liable to either a fine or imprisonment.