THE MOST COMMON TYPES OF COMPANIES AS PER THE EGYPTIAN LAW
Do you want to incorporate a company in Egypt? Can you choose what is the best type of companies that fit your business? Do you need help to differentiate between different types of companies?
Egypt at a Glance
Egypt is located in the north-eastern corner of Africa and south-western Asia. It is bounded on the north by the Mediterranean Sea, on the east by Palestine, on the south by Sudan, and on the west by Libya.
Due to its fantastic location, Egypt is considered a Focal point for all investors all over the world. And because investment climate is affected by many factors, including: poverty, crime, infrastructure, workforce, national security, political instability, regime uncertainty, taxes, rule of law, property rights, government regulations, government transparency and government accountability, Egypt tends to issue laws and rules that govern the economic and political conditions of the country; as it is well-known that stability is a very important factor in enhancing the investment climate because it affects whether individuals, banks and institutions who are willing to lend money and acquire a stake in the businesses operating there.
One of these laws is the Companies Law No. 159 of 1981 that regulates the company formation, the ways of investments, kinds of companies and the requirements for establishing a company in Egypt. All these points will be discussed as follows:
First: Regulatory Framework and Types of Companies:
The General Authority for Investment and Free Zones is the main regulatory body that is responsible for establishing the most common types of companies in Egypt. The Companies' law No. 159 of 1981, the New Investment Law No. 72 of 2017 and the Capital Market Law along with their executive regulations are the governing laws that regulate and manage the company starting from its establishment till its dissolution.
According to Law No. 159 of 1981, there are many kinds of companies that can be formed in Egypt, the most common legal forms used by investors in Egypt are:
(i) Branch of a Foreign Company;
(ii) Joint Stock Company (JSC); or
(iii) Limited Liability Company (LLC);
(iv) One Person Company; and
(v) Representative office.
We can sum up the main features of each kind as follows:
- A branch of a foreign company can be only registered in Egypt to carry out construction works or generally work of contractual nature according to a contract concluded with any Egyptian entity either the Egyptian Government, Public Sector or Private Company.
- Although the branch can engage in commercial, financial, industrial and contractual activities, the activities that the branch will carry out will be limited to those stated in its contract in Egypt, which means that the branch is treated as an Egyptian company in all matters except corporate governance.
Any foreign company, whatever its legal form, which carries out any commercial, financial, industrial or contracting activity in Egypt has to be registered as a branch in the Commercial Registry and General Authority for Investment and Free Zones.
b- Scope of activity:
- A branch can undertake any form of legal activity in Egypt for which it is registered in the Commercial Registry provided that it has a signed contract with an Egyptian entity to provide the services encompassed by such activity.
c- Management and control :
A branch can be managed by a foreign manager. A branch is under the full control of its parent company. Branch offices' activities are subject to review by General Authority for Investment and Free Zones to ensure compliance with laws and regulations.
d- Capital Branch offices:
- They are not subject to a requirement of minimum capital investment. However, initial capital investments must be made in foreign currency transferred to Egypt through a registered Egyptian bank.
- The net profit of a branch is subject to corporate tax at the same rate as Egyptian companies.
- Branches are bound to distribute at least 10 % of their annual net profits to their employees (not exceeding the total annual wages and salaries paid to workers and employees of the branch).
ii- Joint Stock Company (JSC):
- An Egyptian joint stock company may be a closed company or a listed company, where the liability of its partners is limited to the value of their shares in the company.
- A joint stock company must be registered in the Commercial Registry and is subject to the supervision and control of GAFI.
- The Egyptian Financial Supervisory Authority (EFSA) should be informed of the issuance of any stocks or bonds, which should only be issued if EFSA has not objected within three weeks of its notification.
- Public issues are supervised by EFSA. Furthermore, the registration of companies working in certain fields such as securities or factoring requires a license from EFSA.
b- Scope of Activities:
- A joint stock company can carry out all commercial activities subject to the limitations imposed by applicable laws and regulations except the agency and importing activities.
c- Management and Control:
- There must be at least three partners.
- The management of the company is effected through a board of directors comprising at least three members elected by the partners for a three-year term.
d- Capital Shares
- The minimum issued capital required for a company not offering its shares to the public is LE 250,000, of which 10% is to be paid at the time of incorporation, to be increased to 25% within three months, and the remaining amount of the nominal value of the shares is to be paid up within five years.
- The minimum capital of a joint stock company offering its shares for public subscription is LE 20,000,000, fully paid up. However, in the case of holding companies established for the purposes of stock dealings and investment, the minimum capital is LE 5 million, of which at least 25% must be paid on incorporation.
- Joint stock companies are subject to tax on company profits.
- Profit-Sharing At least 10% of the net profits are to be distributed to employees, provided that the amount to be distributed shall not exceed the total value of the wages and salaries annually paid to the company's employees.
- The entitlement of foreign employees to such a distribution is subject to legal debate. However, the Labor Office has taken the position that foreign employees are not entitled to such a distribution.
iii- Limited Liability Company (LLC):
An Egyptian limited liability company is a closed company where the liability of each of its partners is limited to the value of their shares in the company.
- Limited liability companies have to be registered in the Commercial Registry and are subject to the supervision and inspection of GAFI.
b- Scope of Activities
- Limited liability companies are precluded from activities in the areas of insurance, banking, savings, and investment management.
- Apart from the preceding areas of
activity, limited liability companies can carry out legal
commercial activity similar to other business entities, subject
only to the general limitations of applicable laws and
c- Management and Control
- There is no express provision indicating a maximum ceiling for ownership of capital by foreigners. Hence, a limited liability company may be 100% foreign owned.
- However, it should be noted that, under Egyptian law, a limited liability company cannot be wholly owned by one entity. Consequently, there must be at least two partners. With respect to management, it is carried out by managers appointed by the partners.
- There may be one or more managers. In all cases, there must be at least one Egyptian manager.
- There is no minimum capital for a limited liability company. Shares can be issued for non-cash consideration with the approval of a partners' meeting. However, a formal valuation is required in certain cases where the value of the capital exceeds LE 1,000,000.
- Limited liability companies are subject to tax on companies profits.
- As long as the capital of the limited liability company does not reach LE 250,000 (which is the minimum capital for a joint stock company), there is no obligation for the distribution of part of the profits to employees.
- If the capital reaches the aforementioned figure, 10% of the net profits is to be distributed to employees, provided that such 10% does not exceed the annual total value of salaries and wages payable to such employees.
iv- One Person Company
A-Definition of a One Person Company
- One Person Company is a company that is wholly owned by a single person, whether natural or juristic, within the purposes that it's established for, and the founder of the company shall not be liable for the company's obligations unless within the allocated shared capital.
- This company may be, initially, established by one partner, or may be transformed into a one-partner company with one partner remaining. And in that way, it is considered an exception to the principle, which should have at least two parties because the company, in general, is a contract that is concluded by two or more persons, however a one-person company is a company consisted of only one person.
- The limited liability of the founder or the owner of the company means that he has specified part of his patrimony for the company's activity, and therefore he shall be liable only to the extent of his shares in the company's capital. Accordingly, any losses arising from the business shall not exceed to the founder's funds, and the founder of the company shall enjoy limited liability vis-a-vis third parties. The company shall be fully responsible for any liabilities to others.
B-Characteristics of One Person Company
- one-person company needs only one partner or founder, so it gives the opportunity to a large number of small investors to have a company without the need to obtain a certain number of partners or shareholders. Since a one-person company is the owner-partner in which is liable for his share only by the amount of the company's capital, the presence of limited liability of the partner leads to credit impairment. Therefore the others who deal with the one person company take this into account.
- One more advantage of establishing a One Person Company is the ease of decision making within the company as the owner of one-person company exercises all the powers that granted to the board of directors and the powers of the ordinary and extraordinary general assembly, being the only partner. It is not limited to taking the approval of anyone. Therefore, it is granted to the owner of the company to manage it in a distinct manner. And be independent in the management, control and the issuance of decisions will be easily and quickly and gives a sense of the value of the effort and care of that company and the development of his funds.Besides the ease of conversion of the company to be transformed its position or merger with others because of its easy decision-making as we mentioned earlier.
C-Conditions of establishment and work of a one person company
1 - The company of one person shall be established by one natural or legal person only. Therefore, if the number of founders or partners is more than one, it shall not be one person company, but any other type of companies.
If the founder of the company is one of the persons of public law, the approval of the Prime Minister or the competent minister, as the case may be, must be obtained by the company.
2 - The company of one person shall be established with an application submitted by its founder or his representative to the Authority. The one person company shall have its internal regulation that includes its name, purposes, the data of its founder, duration, how it is managed, the address of its head office, branches, the amount of its capital and the company liquidation rules. And any other data specified by the Executive Regulations.
3 - The company's capital shall be paid in full upon the establishment of the company.
4 - The founder of the one person company shall, in the case he dealt with the whole capital to another natural or legal person, take measures to amend the company's data and the commercial register within a period not exceeding three months from the date of disposal, in accordance with the procedures and rules specified by the Regulations. In all cases, the act shall not be effective against third parties except from the date of registration in the commercial register.
v- Representative Offices
- Foreign companies are permitted to establish representative or liaison offices, scientific or technical offices and other offices for the purpose of carrying out market surveys or studying the feasibility of production without entering into any commercial operations or commercial agency activities.
- A foreign company may register the establishment of a representative office either under the Companies Law or the Commercial Agencies Law which shall in both cases require submitting an application to the Companies Department of the General Authority for Investment and Free Zones.
- Such application must specify the name, nationality, company objectives, capital and head office abroad, the nature of the office to be established in Egypt, its activities, capital and address in Egypt, together with certain information relating to the manager.
- The representative office shall be managed by a manager(s) who does not need to be an Egyptian national(s).
c- Compliance with Egyptian Law
- The representative offices of foreign companies must comply with Egyptian laws, including those governing companies, taxation, labor, social insurance and foreign exchange control, whilst particularly taking the following into account: It should be noted that representative offices may not engage in taxable commercial activities, such as invoicing the services rendered or trading in the company's products.
d- Filing & Accounting
- A representative office must submit annual filings with the Companies Department setting out the following information in respect of its employees including: names, positions, nationalities, salary and total payroll earned by its Egyptian employees. Certain additional details regarding the representative office's activities during the year may also be requested.
Second: The main required Documentary for establishing a company:
1- A Non-confusion certificate authenticated from the commercial registry (It can be extracted electronically from the electronic gate of GAFI (http://www.gafi.gov.eg)
2- A banking certificate by the capital depositing;
3- Copies of the power of attorneys and its original for reviewing purposes;
4- Copies of the partners and Egyptian managers IDs (passports for foreigners); and
5- An original copy of the auditor account
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.