Monday, April 9, 2018

Know your Business Partners - Part I: Basic Due Diligence Tips

Due diligence, in the legal context, means research and analysis of a company or organisation done in preparation for a business transaction. It normally involves data rooms and complex documents to be analysed and interpreted by a variety of professional consultants to establish assets and liabilities and evaluate the commercial potential of the business.

A full due diligence is a time-consuming and expensive undertaking, usually reserved to major business transactions and not of practical use in the day-to-day business of a company. Nonetheless, in a simpler form, some research and analysis should be part of every company’s process whenever it is considering a new business partner, a new agent or any third party with which it looks to contract. A basic level of information can avoid a number of unpleasant surprises but companies, more often than not, neglect this simple task entirely.

Modern technology enables remote access to public records all over the world and this opportunity should be taken advantage of. In this article we will look at what information can and should be gathered by a foreign company considering doing business with an Omani company. A second article will focus on what information can and should be gathered by an Omani company with respect to a potential foreign business partner.

1. Ministry of Commerce and Industry (“MOCI”) 
All Omani legal entities have a unique identification number, the Commercial Registration (“CR”) number. This number may be found in the company’s letterhead, in the company seal and sometimes on the website. If you have the CR number, you can gather basic information about the entity by using the “Search Commercial Registration” section on the MOCI website (business.gov.om). If you don’t have the CR number, you may attempt a search of the entity’s name, bearing in mind that some Omani entities are registered only under their Arabic name and therefore the English name may not return results.

This search will provide basic details, including the form of legal entity, the registration date, the branches/offices of the entity and their locations and the registered activities. It will also show if the entity is “active” or “in liquidation.” The registered activities are identified by the relevant ISIC Codes i.e., the numeric codes set out in International Standard Industrial Classification of all Economic Activities, the international reference classification of productive activities. To verify what the relevant ISIC Codes correspond to and what activities the Omani company is actually authorised to carry out, the same website (business.gov.om) includes a searchable database of the ISIC Codes under Services → Find Business Information → Business Activities List (ISIC).

The information so gathered will provide a preliminary overview of the company’s experience, the existence of offices/shops in various locations, and the business activities the company is licensed to carry out. Further information, including the share capital, the names of the partners and the names of the authorised signatories are set out in the entity’s CR Certificate, which can be obtained from the MOCI. As online access from abroad is difficult, the Omani entity directly or, if preferable, another locally established contact person may be asked to procure a copy of the Certificate.

2. Muscat Securities Market (“MSM”) 
Omani companies are generally not required to publish their financial statements. An exception to this general rule relates to listed joint stock companies, locally identified by the acronym SAOG (the full company name will be “Company XYZ SAOG”). If you are considering contracting with a “SAOG,” the MSM website will provide a wealth of information, including mandatory disclosures, composition of the board and financial statements. Through the search box of msm.gov.om you will find the company’s dedicated page, where you can browse the “News” section and the “Financial Reports” section.

3. Tender Board 
If you are interested in business opportunities involving government contracts, it is recommended that you make yourself familiar with the rules applicable to public tendering in Oman. To simplify, the Omani government and its entities may issue international or local tenders. International tenders, usually for either massive projects or highly specialised contracts, are open to foreign companies regardless of the presence of an entity registered in Oman. Conversely, local tenders are reserved to companies incorporated in Oman and registered with the Oman Tender Board. If your proposed Omani partner is being selected with a view to participating together in government tenders, you should check if such partner is actually registered with the Tender Board and, if so, for which activities and with what grade. This will ensure that the partner will actually be able to purchase the tender documents and participate in the tender, usually with your company as joint venture partner or sub-contractor. Contractors, for example, may be classified in descending order from Excellent Grade to Fourth Grade; only Excellent Grade companies have access to all tenders.

The website etendering.tenderboard.gov.om publishes a list of the registered companies. It also publishes and updates a list of tenders.

4. OPAL If your interest is in the Oil & Gas sector, you may consider checking whether your proposed business partner is a member of OPAL, the Oman Society for Petroleum Services, which has, among its members, the most reputable companies of the sector. Please note that membership in OPAL is required in order to be awarded certain projects; therefore, it is useful to know whether your local partner is a member. A members’ list is available at opaloman.org. In the same sector, one should ascertain that all applicable procedures in respect of the Oil & Gas Joint Supplier Registration System are complied with (more information on this can be found on businessgateways.com).

As part of the ongoing e-government initiative, all websites mentioned in this article have an English version and are rather modern and user-friendly. Still, always allow for spelling issues (names are often transliterated between English and Arabic with variable results) and provide for assistance as some documents, such as CR Certificates, are not entirely translated into English.

Finally, from the very beginning of negotiations with a potential local partner, if you cannot find the information you need or some of your findings raise questions, do not be afraid to ask questions!