How to keep a good corporate governance for the company (Shareholders & Board meetings requirements, banks requirements, why these requirements are important etc..) and how to keep a good corporate governance for the company.
The Legal Landscape in Egypt
What is Company mean?
It’s a collaboration between two or more people willing to share their experiences to do business and to share both, profits and losses.
What is Corporate Governance?
Corporate Governance is a set of rules, controls, policies and resolutions put in place to dictate corporate behavior.
The understanding and the implementation of corporate governance in the right manner is not only limited to respecting a set of rules and interpreting it in a restricted manner, but is also a culture and way of managing the relationship between owners of the company, its directors, and its stakeholders. Hence the interest of the whole community becomes more achievable when more people apply the code provisions.
Types of Companies in Egypt
- Sole Proprietorship/Entity
- General Partnership
- Limited Liability Partnership
- Joint Stock Company (JSC- SAE)
- Limited Liability Company (LLC)
- Limited Liability by Shares (LLS)
- One Person Company (OSP)
Sole Proprietorship/Sole Entity
- Owned by one single individual, as a sole trader or a proprietorship;
- Is an unincorporated business.
- Named after the name of the owner.
- The owner has the right to manage and deal with governmental and non governmental authorities;
- Owner may appoint any other person to perform some or all of the management, on his behalf;
- Owner may appoint employees, and may delegate some of the management rights to them, except in cases of opening bank accounts and mortgage (PoA for such acts is required).
- Consists of two or more persons who called as “partners” and they shall be considered as merchants;
- Named after the name of its partners, followed by “Co”;
- Should be a named after a real & current partner in the Partnership.
- The partnership agreement states which partner(s) will have the right to manage and sign on behalf of the company.
- The Partners may appoint a third party to act as manager and may delegate some of the management rights, except in cases of sale or mortgage and borrow. The management contract should state on such, otherwise, a PoA for such acts is required.
Limited Liability Partnership “LLP”
- The LLP consist of two or more persons, at least one of them shall be a General Partner and the other shall be a Limited Partner.
- A Limited Partner ONLY contributes in the company’s capital with the intent to share both profits and losses.
- Named after the name of its General Partners ONLY, followed by “Co”.
- The partnership agreement states which General Partner(s) will have the right to manage and sign on behalf of the company;
- A third party may be appointed to manage;
- Limited Partner cannot act as the company’s Director or sign on behalf of the company in all cases.
- Easy and cheap to setup;
- No minimum capital and;
- Less regulated form of business.
- Based on personal criteria;
- Partners cannot sell their shares, unless all other partners agreed;
- Death of one partner will lead to the dissolution of the company, (the partners may otherwise agree);
- The provisions of the Commercial Law on bankruptcy shall apply.
- Partners are bound by each other’s actions; and
- Partners are jointly and fully liable for all the company’s debts.
It can be concluded that the above-mentioned entities are NOT RECOMMENDED, whereas each partner has unlimited liability, and full responsibility for all debts and actions of a business.
Capital Companies Joint Stock Company “S.A.E”
- Consists of at least three shareholders, which could be individuals or legal entities.
- Company’s name should be derived from its purpose, it can include name/names of the shareholders (according to the new amendments in the Companies Law n. 159).
- Liability of a shareholder is limited to payment of the value of the subscribed shares, he is not liable for the company’s debt except for the amount which he contributed in the company’s capital.
- Its capital is divided into shares of equal value that can be transferable in the manner specified in the law.
- S.A.E capital cannot be less than EGP 250,000 if the company’s shares are not floated for private subscription (Private Subscription).
- S.A.E capital cannot be less than EGP 500,000 if the company’s shares are floated for public subscription (Public Subscription) and 50% at least should be paid upon incorporation.
- Capital may be paid in full 100% upon incorporation, or;
- 25% upon incorporation, and the remaining amount shall be paid within five years from the date of incorporation.
Joint Stock Company “S.A.E”
- Cannot exceed ten times the issued capital if the company’s stocks are floated for private subscription (not listed in the Stock Market)
- Cannot exceed five times if the company’s stocks are floated for public subscription (listed in the Stock Market)
- Cannot be less than EGP 500,000 if the company’s stocks are floated for public subscription
- Cannot be less than EGP 250,000 if the company’s stocks are floated for private subscription
- Paid capital cannot be less than 25% of the issued capital.
- The remaining amount should be paid no later than 5 years from the date of incorporation-
Management: Board of Directors “BoD”
- The Board of Directors shall have the widest authorities in the management of the company. The BoD shall be the main body that manages the company’s activities to achieve the purpose for which it was established, except as provided by a special provision in the Law or Articles of Association “AoA” of the company.
- Members of the Board are chosen by the General Assembly of the company;
- At least 3 members (“AoA” determines the maximum number);
- Appointment duration is for 3 years, and could be renewed for additional periods, (5 years for the first board)
- The one who’s responsible for submitting the tax reports and the financial statements.
- The General Assembly should appoint an auditor, who has to be present in the General Assembly Meetings or the meetings would be null and void.
- The auditor should be invited to attend the Board of Director’s meeting where the budget, and calculation of profit and losses is being discussed.
Ordinary General Assembly Meetings (OGM):
Convening & quorum of the OGM:
- The OGM shall held once at least every 3 month following the end of each fiscal year;
- Held by the Board of Directors, and every shareholder who represent a 5% of the capital and the company’s auditor may ask the board to call for it whenever necessary;
- Attendance quorum shall be 25% of the capital, and decisions shall be made by an absolute majority (51%) of the shares represented at the meeting;
Functions of the OGM
- Elect, appoint and dismiss the members of the BoD and determine the remuneration, allowances and salaries of members of the BoD;
- Approval of the distribution of profits;
- The appointment of the auditor;
- Approve the financial statements.
Extraordinary General Assembly Meetings (EGM)
Convening & quorum of the EGM:
- Held by the Board of Directors, and every shareholder who represent a 10% of the capital may ask the Board to call for it whenever necessary;
- Attendance quorum shall be 50% of the capital;
- Decisions shall be made by an 75% of the capital represented by the shareholders attending the meeting (in case of merger, amending the company’s activity, or the dissolution of the company) and 2/3 of the shareholders attending the meeting in any other matters;
Functions of the EGM:
- Competent to discuss and take decisions in certain issues (amending the AoA in general).
- If the Company’s losses reaches 50% of the issued capital, the Board of Directors shall call for an Extraordinary General Assembly Meeting to consider the on going concern.
- Limited Liability: you will be responsible only for the amount of the contribution in the company’s capital.
- Capital: generally a Joint Stock Company has the opportunity to raise huge capital than other types of business.
- Transferability of Shares: the shares in a JSC are transferable and a shareholder can transfer his shares without the consent of the other shareholders
- Stability: Shareholders death, retirement, or sale of their shares will not lead to the dissolution of the business.
- The minimum capital of JSC companies is EGP 250K;
- Management complexity
- The JSC is responsible for submitting the tax reports and the financial statements upon the completion of every financial year, and keeping its legal books in good standing.
Limited Liability Company “LLC”
Consists of at least two shareholders, which could be individuals or legal entities and shall not exceed 50, if owners are more than 50 at anytime, company shall be converted to Joint Stock Company.
Company’s name may include the name of one/or more of the partners.
Manage by one or more managers (at least one Egyptian manager in case of foreign shareholders)
OGM and EGM, attendance quorum shall be 50% of the capital, and decisions shall be made by an absolute majority of the shares represented at the meeting, except the matters of capital increase/decrease shall be 75%.
Liability of a shareholder is limited to payment of the value of the subscribed shares, he is not liable for the company’s debt except for the amount which he contributed in the company’s capital.
No minimum capital.
- You will be responsible only for the amount of contribution in the company’s capital;
- There is no minimum capital;
- There is no need for a bank certificate;
- Easy to manage.
- There is no Board of Directors
- if the partners are more than 50 at any time, company shall be converted to Joint Stock Company.
- The LLC is responsible for submitting the tax reports and the financial statements upon the completion of every Financial year, and keeping its legal books in good standing.
One Person Company “OPC”
Owned by one individual or legal entity (LLC-JSC).
Company’s name may include the name of the S-Corp owner.
At least EGP 50,000 and should be paid in full upon the incorporation.
Manage by one or more managers (at least one Egyptian manager)
OGM and EGM (same as the LLC)
Liability of the S-Corp owner is limited to payment of the capital, he/she is not liable for the company’s debt except for the amount which he/she paid in the company’s capital.
Without prejudice to the forgoing, the S-Corp owner may be liable personally in the following cases:
- If he/she dissolves the S-Corp in a bad faith; or
- If he/she ceases the S-Corp prior to the end of its term or its purpose; or
- If he/she did not separates between the business and the personal finances; or
- If he/she concludes a contract on behalf of the S-Corp under incorporation and such contract is unnecessary.
- Owned by one individual/legal entity;
- Limited Liability;
- Easy to manage.
- There is no Board of Directors
- You cannot sell part of your shares (If such, should be amended to LLC or JSC)
- Death/dissolution of the S-Corp owner will lead to the dissolution of the S-Corp, unless the inheritors otherwise agree.
- The capital must be paid in full upon the incorporation.
- The S-Corp is responsible for submitting the tax reports and the financial statements upon the completion of every Financial year, and keeping its legal books in good standing.
- At least 3 shareholders for the JSC – at least 2 shareholders for the LLC – at least one owner (individual or legal entity);
- IDs & PoAs;
- Certificate of non confusion;
- Bank certificate (Capital), except the LLC;
- Lease contract for new company “under incorporation”;
- Auditor Certificate (you will need to have a registered auditor);
Making the Decision
Choosing the best legal structure for your business
Documents obtained after incorporation
- Commercial Register;
- Articles and Certificate of Incorporation;
- Tax Card;
- Investment Gazette; and
- The Company’s Statutory Books:
- JSC: [GA Meetings, Shares Register, and BoDs Meeting];
- LLC: [GA Meetings and Shares Register]; and
- S-Corp: [GA Meetings and Shares Register].
What are the Advantages of having a registered company?!
- You will have a employment contract with your employees;
- Saving your rights by registering your IP rights (trademark, copyrights [source code, artworks or patent]);
- Dealing with Banks;
- Negotiate with Investors;
- Contracting with Public and Private entities;
- Scaling your business nationally and globally;
- Taxation rates are determined.
EGYPTIAN LABOUR LAW
As of January 1st, 2014, the new government decided to raise the minimum monthly salaries of all employees from 700 Egyptian pounds to 1,200 Egyptian pounds
The minimum obligatory annual increase is set at no less than 7% of the basic salary;
In Egypt, employees should not work more than eight hours a day or forty-eight hours over a six-days working week. Usually Sunday to Thursday, leaving Friday and Saturday as the weekend.
The duration of the employees’ annual leave is 21 days per year if they have worked one year for the employer. For employees who have worked for more than 10 years, serving one or more employers.
Minimum Number of Nationals
The Companies Law stipulates that only 10% of the employees in each company can be foreigners with salaries that shall not exceed 20% of the total salaries.
How Can I Give Equity to Investors?
Co-founder – by direct equity (through capital increase of transfer of shares) or shares to be vested.
Investor – by direct equity (through capital increase of transfer of shares) – convertible note
Employees – Pool Option – shares to be vested
What is Next?!
You will may need to the following agreements:
- Non-Disclosure Agreement “NDA”;
- Memorandum of Understanding “MoU”;
- Employment Agreement;
- Freelance Agreement;
- FAST Agreement
- Loan Agreement;
- Shareholders’ Agreement;
- Commercial/Services Agreement (according to your business – SAAS Agreement for instance).
- Open an insurance file for your company’s employees;
- To be in compliance with Egyptian Laws (OGMs – EGMs);
- Register your IP rights (trademark, copyrights [source code, artworks or patent]);
- Get an advice from your auditor in respect of taxes;
- Get your licenses if needed;
- Get a proper legal advice before signing any kind of documents.
KEEP YOUR COMPANY IN A GOOD LEGAL STANDING!</p