The limited liability company (the LLC) is the most commonly incorporated form of company in Oman by both foreign investors and Omanis alike.
LLCs are typically preferred by investors to other types of Omani companies as they are subject to lower capitalisation requirements, a simpler regulatory regime and are, by comparison to other types of Omani companies, more straightforward to establish.
Key changes for managers of LLCs
The new Commercial Companies Law (promulgated by Sultani Decree No. 18/2019) became effective on 17 April 2019 (the New CCL) and repealed the old Commercial Companies Law (Law no. 4/74).
Managers under the New CCL retain largely the same roles and responsibilities. Pursuant to Article 264 of the New CCL and subject to the restrictions in the New CCL, managers may carry out all acts necessary for pursuing the LLC's objectives, unless their authority is limited by the LLC's constitutive documents.
However, the New CCL does introduce a number of provisions that extend or alter the responsibilities of managers. A summary of the key provisions introducing these changes is set out below:
- Register of partners – Article 247: There is a new requirement for LLCs to maintain a register of partners. Ownership of membership interests in an LLC will not be effective unless details of the partners and their interests are listed in the register. Managers are jointly liable for maintaining the register and for the validity of its data.
- Liability of managers – Article 265:
With respect to liability, managers of LLCs are now subject to the
same provisions governing the members of the board of directors of
joint stock companies. From our analysis of the law, the key
provisions relating to directors of joint stock companies that
managers are now subject to are:
- Article 202: Managers shall not exploit their positions for personal or third-party gain. Managers who breach this provision will be liable to the company, its partners and third parties for any losses suffered and will be required to reimburse the company for any gains, even if no loss is suffered by the company.
- Article 203: Managers shall not take part in the management of another company that is conducting similar business, shall not carry out any business similar to that of the company for their own personal gain or that of third parties, and shall not use the company's assets for their personal interest or the interest of third parties without the prior approval of the partners at a general meeting. Any manager violating these provisions shall be liable for losses suffered by the company.
- Article 206: Managers are jointly liable towards the company, shareholders and third parties for losses suffered due to their unlawful joint actions, ultra vires acts, fraud, forgery or wrongdoing committed in the course of performing their duties, as well as for failing to act as a prudent person when performing their duties.
- Conflict of interest – Article 266: Managers must now declare any personal conflict of interest to the partners of the LLC at partners' meetings.
- Discharging debtors – Article 267: Managers are now prohibited from discharging debtors' payment obligations to the company or settling disputes with debtors without the prior unanimous consent of all partners (unless expressly permitted to do so by the company's constitutive contract).
- Partner inspection rights – Article 270: Any partner who is not a manager may, at any time, request company information and may examine the company's books, records, accounts and other documents. In the event of obstruction of these inspection rights, the partner(s) have the right to file a claim for damages against the managers for any loss suffered.
- Limitation period – Article 271: Claims against the managers under Articles 269 and 270 may only be brought within five years from the date on which a manager's misconduct becomes known by the effected party.
- Loans and guarantees – Article 272: Managers and partners are prohibited from obtaining loans or guarantees from the company for themselves, their spouses or relatives (up to the third degree). Any loan or guarantee granted by the company contrary to this provision is to be considered null and void.
- Dismissal – Article 273: Managers can now be dismissed and replaced by way of a partners' resolution passed by partners representing at least 75% of the company's capital; a partner may also apply to the court to dismiss a manager.
- Voluntary reserve account – Article 274: The requirement to deduct 10% of the company's net profits from each financial year for the purpose of a legal reserve until the legal reserve reaches one-third of the company's capital remains. However, managers may now voluntarily deduct up to 20% of the net profits for the purpose of the legal reserve account.
Furthermore, managers should also be aware of the penalty regime under the New CCL which is considerably more severe in parts than the old Commercial Companies Law – this will be the subject of a future client alert from Dentons Muscat.
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