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Forms of business and corporate governance

Limited Liability Company

This is the most common corporate entity in Kuwait, and the main route adopted by foreign companies or investors to enter the market.

The capital of a limited liability company must not be less than KD 7,500, though in practice the minimum capital currently required is higher than that. The required capital may in fact vary from industry to industry, and the whole of a company's capital must be paid at the date of incorporation. Payment may be in cash or in other assets valued at their fair market value.

Annual transfers of at least 10% of net profit must be made to a legal reserve until this reserves amounts to 50% of the capital of the company. The legal reserve may be used to ensure payment of a cash dividend of up to 5% in years in which profits are insufficient to justify a dividend of this size.

A limited liability company requires at least two founding members. Originally, members were required to be natural persons with at least one member a Kuwaiti. However, an amendment to law number 15/1960 in July 1995 (28/1995) allowed companies to be founding members of limited liability companies. The maximum number of members is 30. The proportion of Kuwaiti

capital must not be less than 51%, unless the venture receives approval under the FDI regulations allowing up to 100% foreign ownership. Members are not required to be resident in Kuwait. A foreign company may own a share in the capital, in the name of a resident individual acting as its nominee.

The duration of a limited liability company is determined by its founders and is not restricted by law. According to law number 26/1984 which amended the Commercial Companies Law, an existing company may extend its duration by a majority decision of the members.

If a limited liability company has more than seven members, a board of directors, consisting of at least three members must be set up. The original board of directors is named in the memorandum of association for a fixed term. Appointments and re-appointments to the board thereafter are made by the members in general meeting. Employees have no statutory rights to take part in management, or to be represented on the board of directors.

A limited liability company is normally managed by one or more managers with or without remuneration. The managers need not be Kuwaiti nationals or members of the company. If the managers are not named in the memorandum of association, they are appointed by the members in general meeting.

Shareholding Company

Shareholding companies may be either public or closed. They must have at least five shareholders. The Kuwait shareholding company (SAK or KSC) is similar to a common law limited liability company, with a board of directors and share certificates. It can engage in any form of activity, but has a higher capital requirement of KD 100,000 or more. Foreigners are allowed to participate in the formation and ownership of public shareholding companies within the 49% limit indicated above, except where 100% ownership is permitted in accordance with the foreign direct investment law. The founders of a public shareholding company are required to subscribe to at least 10% of the capital.

Closed shareholding companies

(SAKC or KSCC) are joint stock companies that do not offer their shares to the public. Regulations concerning foreign participation in such companies are broadly similar to those applicable to Kuwait shareholding companies.

A closed shareholding company may take the form of a holding company ( sharika qabida ) in accordance with law number 117/1992. A holding company may own shares in Kuwaiti and non-Kuwaiti companies, including limited liability companies and may take part in the founding of such companies, provide loans to them and guarantee them against third parties in accordance with limits specified in the law.

Partnership

The Commercial Companies Law also governs the formation of partnerships, both general and limited. A general partnership, or a joint liability company, is an association of two or more persons formed under a specific name to carry on commercial business. It has a separate legal personality, but its members are jointly and separately liable for its obligations to the extent of their entire personal property.

A joint liability company is managed by one or more managers who need not be members. Transactions concluded by managers in the company's name and within the limit of their authority are considered binding on the company, provided that the other party to the transaction deals in good faith. A creditor has the right of recourse to the company's property as well as to the private property of any person who was a member of the company when the debt was contracted.

There are two types of limited partnership: the simple limited partnership and the partnership limited by shares. A simple limited partnership consists of joint liability members (general partners), who are jointly and separately liable for the partnership debts to the extent of all their assets, and sleeping members (limited partners), who are liable only to the extent of their respective contributions. A partnership limited by shares is a limited partnership whose capital is divided into shares. Members are generally subject to the same rules as shareholders in a shareholding company.

Joint Venture

A joint venture is a commercial association formed by two or more parties. It is purely based on a contractual arrangement between the partiers and has no separate legal personality distinct from its members. The joint venture agreement is not registered anywhere. There are no limitations on foreign participation in joint ventures. It is common for foreign contractors involved jointly in a major project in Kuwait to form a construction joint venture or consortium.

Commercial Agency

The commercial agency provides a means for a foreign company to conduct organized marketing efforts without establishing a registered local presence of its own. Agency agreements and regulations are governed by laws number 36/1964 and 68/1980. These laws stipulate that only Kuwaiti individuals or companies may act as commercial agents. A commercial agency is not valid unless it is registered at the Ministry of Commerce. The application for registration must be submitted within two months of the appointment of a local agent along with the following documents:

Branch

A foreign company wishing to open an office to conduct business and commercial activities must act through a Kuwaiti agent under whose name and sponsorship the operation is carried out. A foreign company or investor may be exempted from this requirement if approval is obtained in accordance with the foreign direct investment law.


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