Egypt: Corporate Governance: Part 1 - Joint Stock Companies

Last Updated: 21 March 2019
Article by Andersen Tax & Legal Egypt
Most Read Contributor in Egypt, September 2019

INTRODUCTION

The contents of the book intend to describe the accounting and legal obligations imposed on joint stock companies after formation, to allow them to remain in operation in accordance with local regulations.

AFTER ESTABLISHMENT.

General Assembly

1) Composition of the General Assembly

A General Assembly shall be composed of all shareholders of the company, each according to his/her portion of shares. While the company's articles of association may stipulate that only shareholders with a specific number of shares may attend the General Assembly, this provision shall be deemed an exception to the rule that allows any shareholder to attend these meetings, and shall only apply when the number of shareholders is so large that it makes it difficult for the company to arrange for a place for the meeting. More importantly, it should be emphasized that the foregoing provision should not be used as a means to ignore or exclude the minority shareholders.

2) Participation in the General Assembly

Shareholders should be encouraged to attend the General Assembly. To this end, arrangements should be made for facilitating their participation, including, inter alia, choice of the appropriate place and time. Companies with a large number of members can use electronic means and different communication systems, according to the international best practices, for online transmitting or recording of the proceedings of the meeting for shareholders abroad or at home. Equally crucial is the facilitation of shareholders' participation procedures, provided that the company's bylaw and articles of association should be observed, in respect of the procedures of calling for the General Assembly and the method of running the meeting.

3) Voting in the General Assembly

Voting on the General Assembly's resolutions should be accurately recorded. If a dispute arises about the validity of some votes on all or any resolutions of the General Assembly, voting shall be taken, rendering such votes valid for one time, and invalid for another time.

Subject to applicable laws and the company's articles of association, minority shareholders holding not less than 5% of the company's share capital are entitled to place items on the General Assembly's agenda, and to raise objections with the administrative body on any General Assembly resolution. In turn, the administrative body shall suspend those resolutions passed in favor of the majority shareholders against the minority shareholders. Additionally, the General Assembly must be called when 3 % or more of shareholders make a request, as specified by law within the framework of protecting the minority shareholder rights.

The General Assembly secretary shall record in the minutes of the meeting all the discussions, events and resolutions brought about by the meeting. The company should disclose the resolutions passed and the material events occurred, to all shareholders simultaneously. Minutes of the company's General Assemblies should be posted on the company's website, and shall be made available to the public as much as practicable.

BOARD OF DIRECTORS.

The board's (BOD) main role centers on maintaining the affairs of the business on behalf of its shareholders. The board is directly accountable to the shareholders and must therefore provide periodic reports to shareholders on the performance of the company, as well as create strategies on the ways in which performance can be enhanced. The board is not responsible for the day to day running of the company.

Authorities

Egyptian Companies Law identifies the role of the board of directors as:

  • Managing the company.
  • Implementing regulations related to administrative, financial and personnel affairs.
  • Implementing specific regulations for the organization of works, and meetings, and for the distribution of the authorities and liabilities.
  • Dealing in the company's name to concude all contracts and transactions, in particular the appointment, suspension and isolation of employees of the company and determining their salaries, wages and bonuses, and the receipt and payment of all amounts. Additionally, the BOD has the right to purchase all materials, equipment, goods, movables and loans through credit, as well as having the right to borrow from banks and mortgage the company's funds and loans. Finally, the BOD has the right to authorize or delegate any person to carry out the above-mentioned matters on its behalf.

Composition

Subject to the law and the company's articles of association, the Board of Directors shall be made up of an adequate number of members that enable it to perform its functions and duties, including formation of committees. The majority of members must be non-executives, and at least two of them are independent members with technical and analytical skills for the benefit of the Board and the company. Guided by international best practices, the Board composition should ideally be made up of a diverse and unbiased mix. In all events, when electing independent non-executive members, consideration should be taken that a member can devote the necessary time and care to the company, and that there is no conflict of interest with any other commitments.

Sufficient information, data and description about the company should be furnished to incoming Members of the Board upon their appointment to ensure that they become acquainted with all the general aspects of the company and identify its strengths, weaknesses, administrative structure, budget elements, and anything else they may need to adequately fulfill their duties.

The board may choose a chairman and a managing director if they prefer to not give these two positions to the same person. However, this must be justified in the company's annual report. The managing director will then be responsible for managing the company and reporting to the board. The chairman is to manage the board of directors and ensure that it works no achieving its goals. They are also responsible for evaluation the performance of the board members, either personally or by using specialized bodies. Neither the chairman nor the board is to interfere with the day to day management of the company. Further, the chairman is responsible for ensuring that members of the board are familiar with the Egyptian Corporate Governance Regulations and their application by creating a training plan. The board is then to set out their mechanisms and methods for guaranteeing that the company abides to applicable laws and regulations, based on objective standards.

Terms

An executive member's term of contract should not exceed three years. The remuneration of the executive board members should be determined by a committee formed of three independent or non-executive members, negotiated with the executive board members, and in consultation with the managing director. The remuneration of the independent and non-executive members is to be determined by the general assembly.

Meetings

The board should meet at least once every three months. These meetings should be held at a venue and timing convenient for board members. They should be given adequate information regarding the topics to be discussed at the meeting, unless the matter is urgent. The board should also frequently revise the company's internal systems to ensure that they are updated and efficient. The board cannot carry out transactions involving more than 20% of the company's total assets without an ordinary general assembly.

The board can also create different committees, made up of its members as well as third party consultants, to carry out specific tasks for specific periods. The duties of these committees must be laid out clearly. Committees should include an audit committee, a risk committee, an investment committee, and remuneration, nomination and incentives committee.

It should also appoint a corporate secretary in charge of managing board files, meeting minutes, and reports. The secretary is to attend meetings and take minutes. The secretary is to act as a permanent link between the board members and the company, ensuring that both are provided with the information they need. The board must hence provide the secretary with the adequate authorization in order to allow them to fulfill their duties efficiently.

Annual Report

The board is to present an annual report to the shareholders, which should include:

  • A comprehensive overview of the company's operation and financial status;
  • A prospective vision of the company's activities for the upcoming year;
  • The activities and operation status of subsidiaries, if any;
  • A summary of any changes in the company's capital structure;
  • Information on the board and its committees, including insurance of their compliance with Corporate Governance Regulations;
  • The company's Corporate Social Responsibility (CSR) activities.

This list is non-exhaustive, as the more information may be required by industry-specific laws to be included in the report.

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