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The kinds of business firms allowed in
Egypt are determined by the Law of Commerce No. 17 of 1999
and the Companies Law No. 159 of 1981. The Law of Commerce
deals mainly with the sole proprietor and the simple partnerships,
whereas the Companies Law regulates in detail joint stock
companies, limited partnerships by shares, and limited liability
companies. Each of these structures will be discussed below
in details.
Sole Proprietorship
Formation
A sole proprietor (or sole trader) is a natural person,
who engages in a commercial activity for his or her own account.
To be licensed as a sole proprietor, the person should apply
to the competent Commercial Registration Office for registration
in the Commercial Register. The important requirements for
this registration are:
a. The applicant should be of at least 21 years
old
b. The applicant should be of Egyptian nationality
unless he or she will carry out his or her activity under
the Investment Law (at present law no. 8 of 1997), or will
engage in exporting activity.
c. The applicant should use his or her own name
as a trade name. This trade name should appear on his or her
business firm or shop and its branches (if any), and in all
his or her business correspondence;
d. The applicant should provide the Commercial Registration
Office with other relevant important data such as the nature
of his or her trade or business, the trade capital (no minimum
capital is required), the addresses of the main firm, shop
or branches (if any) and details of trademarks or copyrights
(if any).
Financial Requirements
The Law of Commerce requires from the sole proprietor whose
trade capital is L.E.20,000 or more to keep proper accounting
books.
The annual profit (taxable profit) of the sole proprietor,
together with any other taxable incomes he or she may have
from other sources, shall be subject to the unified income
tax at the following annual rates:
- The first L.E. 2500 at
20%
- The second L.E. 4500 at 27%
- The third L.E. 9000 at 35%
- In excess of L.E. 16000 at 40%
Also the same taxable profit is
subject to a complementary tax called the development of state
resources duty whose rate is 2% on amount of profit in excess
of L.E. 18000.
The sole proprietor should also enroll himself or herself
in the state social insurance system as a self-employed person.
Simple Partnerships
Formation
The partnership is a kind of a business firm formed between
two or more partners who are usually natural persons. There
are two kinds of partnerships: the general partnership and
the limited partnership. In the general partnership all the
partners are considered as traders, and are jointly responsible
to meet all the business liabilities or obligations without
any limits. This means that if the partnership funds cannot
meet its liabilities, creditors can recover their debts from
the partners' private properties. The general partnership
should have a trade name derived from the name(s) of one or
more of its partners.
After concluding the partnership agreement
the following is required to complete registration:
a. A copy of the partnership
deed is published at the Court of First Instance where the
partnership head office is located.
b. The partnership deed is published
in two daily newspapers of wide circulation.
c. The partnership deed is registered
in the Commercial Register (please refer to commercial registration
requirements under the sole proprietor).
After completing the above registration,
the partnership can start its commercial activity.
Management
In the limited partnership at least one of the partners
is a general partner who is active and is considered a trader
with full responsibility to meet the partnership's liabilities
or obligations without any limits. Other partners, who are
called limited partners, are inactive or sleeping partners,
and their liability in meeting the business liabilities or
obligations is limited by the amount of capital they have
invested in the partnership, and no more. The trade name of
the limited partnership is derived from the name(s) of one
or more of its general partners.
Foreigners can participate in partnerships, but they do
not have the right to manage the partnership nor to sign on
its behalf, and their share in its capital cannot exceed 49%.
Financial Requirements
No minimum capital is required. Regarding taxation, the
general and limited partnerships are subject to the same tax
provisions. The profit of the partnership itself as a legal
entity is not taxable, but the share of each partner (general
or limited) of this profit together with any other taxable
incomes he or she may have is subjected, separately from other
partners, to the unified income tax at the progressive rate
scale applicable to sole proprietors, i.e. between 20% and
40% in addition to the state resources duty at 2%. Again each
partner of a partnership is required to enroll himself or
herself in the state social insurance system as a self-employed
person.
Registration of a partnership requires concluding an agreement
(the deed) between the partners determining the partnership
capital and the share of each partner (general or limited),
the object (activity) of the partnership, its duration, and
the appropriation of its profits or losses, etc.
Joint Stock Companies
Formation
The Egyptian joint stock company is similar in its main
features to the same kind of companies existing anywhere else
in the world. Thus, it is a regulated company whose capital
is divided into shares, the liability of each shareholder
is limited to the value of his or her shares, and the shares
can be traded in the stock exchange.
The number of founders of a joint stock company should not be less than three
founders, and consequently the number of shareholders cannot
go below three at any time.
The shares of a joint stock company, private or public, can be fully owned
by foreigners, but they have to pay the value of their shares
in the company in foreign convertible currencies.
To form a joint stock company, the founders (or an attorney on behalf of them)
should submit an application to the Companies Department with
the following documents required:
a. A list of the founders names and details.
b. For founders who are corporations, a resolution from each corporate
body indicating participation in the new company.
c. For founders who are of foreign nationalities, relevant data is
required in authenticated or legalized form such as nationality,
address, work or activity, documents of incorporation, etc.
d. The memorandum of association and the draft of the articles of association
of the new company.
e. A certificate from the Egyptian bank receiving the share capital
payments, which shows that each founder and ordinary shareholder
has paid at least 25%
*This
25% can be paid on two installments: 15% before applying to
the Companies Department, and the remaining 10% within three
months following the registration of the company in the Commercial
Register.
The Companies Department will submit the application and attached documents
to a Special Committee for Company Formation which will review
the application and the documents. If the application and
documents are complete and within the requirements of the
Egyptian law and public order, the Committee will issue a
resolution approving the formation of the new company, and
accordingly the memorandum and articles of association of
the new company are published in the Companies Bulletin.
Subsequently, the founders will apply to the Commercial Registration Office
to register the new company in the Commercial Register, after
which the company will be fully incorporated and can start
its activity. The incorporation of a joint stock company usually
takes 4 to 5 weeks to complete.
Financial Requirements
The minimum issued share-capital of a closed or private
joint stock company (i.e. the company which does not offer
its shares for public subscription) is LE 250 000, and that
of a company which offers its shares (or part thereof) to
public is LE 1000 000 of which at least 50% must be subscribed
by the founders. At least 25% of the share-capital is
to be paid during foundation and the rest over a maximum of
five years.
The shares of a joint stock company, whether it is a private or a public company,
can be traded in the Egyptian Stock Exchange. However,
in-kind shares and founders shares cannot be traded in the
Stock Exchange before the lapse of two financial years from
the incorporation of the company. A foreign shareholder can
sell his shares in the Egyptian Stock Exchange and can repatriate
the proceeds of the sale abroad without any restrictions,
and free of any taxes or duties.
The accounts of any joint stock company should be audited by an Egyptian certified
auditor appointed by the shareholders in their annual general
meeting. Banks and mutual funds should have at least
two certified auditors.
The annual net profit of a joint stock company has to be appropriated in accordance
with the provisions of the Companies Law and the related executive
regulations as follows:
a. At
least 5% of the net profit is set aside as legal reserve;
adding to this reserve will cease when its amount reaches
50% of the issued share-capital.
b. At
least 5% of the paid-up capital is payable to shareholders
(and employees) as a first distribution. Of the remaining
profit, a maximum of 10% is deducted as remuneration to the
board of directors. The remaining profit may be distributed
to the shareholders (and employees) as a second distribution,
carried forward to next year, or set aside in a special reserve
account.
c. The
employees are entitled to receive, as part of profit-sharing,
10% of the first and second distributions mentioned above,
but with a maximum of 100% of their annual salaries.
Therefore, the actual dividends to the shareholders would
be the total of the first and second distributions excluding
the employees' profit sharing. The dividends are payable to
the shareholders free of any taxes or duties.
d. The
dividends of the foreign shareholder can be repatriated abroad
through one of the accredited banks in Egypt without any restrictions,
and free of any taxes or duties.
e. The net profit of
the joint stock company, adjusted according to the provisions
of the tax Law, will be subject to the Egyptian corporate
tax whose standard rate is approximately 42%. However,
profits of industrial companies from manufacturing, and profits
from exports are subject to the tax at a reduced rate of 34%.
Management
A joint stock company is managed by a board of directors
composed of an odd number, which is not less than three. The
board members, including the chairman, can be of foreign nationalities.
The directors represent the shareholders in managing the company,
and therefore are considered as attorneys or agents to the
shareholders and not as employees of the company.
Each board member should own a
number of the company shares called "directors shares" of
a value equal to L.E. 5000 unless the company's articles of
association require a higher value. The value of the shares
is based on the share's current value in the stock exchange,
but if the shares are not on the stock exchange trading lists,
the nominal value of the share will be the base for valuation.
The directors' shares are deposited at one of the accredited
banks in Egypt as a guaranty for good management, and cannot
be disposed of as long as the board member is on the board.
The remuneration of the director,
after certain deductions, is subject to an income tax called
the tax on income from movable capital whose rate is approximately
34%. Directors should enroll themselves in the state social
insurance system as self-employed persons
Joint stock companies are supervised by the Companies Department
to ensure its compliance with the Companies Law. However,
companies dealing with securities (e.g. mutual funds, holding,
venture capital and portfolio management companies) are supervised
by the Capital Market Authority.
Limited Partnerships
by Shares
Formation
The limited partnership by shares, or the "societe en commandite
par actions" as called in France, is similar to the joint
stock company with the exception that at least one of the
founders has unlimited liability in meeting the company's
financial liabilities. The company is prohibited from conducting
the business of insurance, banking, or savings or investing
funds on other people's behalf (Article 5 of the Commercial
Companies Law).
Management
The company is managed by the founder(s) of unlimited
liability without any direct participation from the other
founders or ordinary shareholders of limited liability. The
founder(s) of unlimited liability who is managing the company
is called the "manager", but his or her legal status is similar
to the director of the joint stock company and the provisions
applicable to these directors apply as well to the managers
of limited partnerships by shares. The name and scope of such
partner manager's authority must be specified in the Memorandum
of Association (Article 110 of the Commercial Companies Law).
The company must have a Supervisory Board made up of at
least three persons, whose purpose is to supervise the actions
of the manager(s). As such, this Supervisory Board may
not be chosen from the partner manager(s). (Article 112 of
the Commercial Companies Law).
Thus, each manager should allocate part of his or her shares
of no less than L.E. 5000 for good management, and these shares
should be deposited at one of the accredited banks in Egypt,
and cannot be disposed of as long as the unlimited founder
is a manager of the company. The remuneration of the manager
(excluding the dividends on his or her shares) after certain
deductions or reliefs is subject to an income tax called the
tax on income from movable capital whose rate is approximately
34%.
In the limited partnership by shares, there should be a
supervisory board composed of at least three shareholders,
or outsiders who are chosen by the shareholders. The supervisory
board will monitor the actions of the manager(s) in running
the company. In this respect, the supervisory board will have
the right to ask the manager(s) to provide it with management
reports, and it can review the company's accounting records,
and count the cash, the inventories and other company assets.
The supervisory board will also give opinion regarding matters
that the manager(s) may seek the board's opinion on. In addition,
the general meeting of shareholders cannot amend the company's
deed without the approval of the manager(s), unless the deed
stipulates differently.
In case of the manager's death, the company will dissolve,
unless the company deed stipulates that it will continue.
Apart from the above differences, the provisions related
to joint stock companies will apply to limited partnerships
by shares.
Financial Requirements
The minimum share capital required of a limited partnership
by shares is LE 250,000. The capital is divided into
two categories: (1) shares owned by founder partners, and
(2) shares of equal value belonging to shareholders.
The founder partners have unlimited liability while the shareholders'
liability is limited to the value of their respective shares
(Article 3 of the Commercial Companies Law).
Limited Liability Companies
Formation
The Egyptian limited liability company is a closed company
where the liability of each of its partners is limited to
the value of his or her shares (called quotas) in the company.
The number of partners of a limited liability company cannot
be less than two persons and cannot exceed fifty. The shares
or quotas of the limited liability company cannot be traded
in the stock exchange. The trade name of the limited liability
company is usually derived from its object, but may also include
the name(s) of one or more of its partners. Additionally,
the words "Limited Liability Company" must be included in
the name (Article 61of Ministerial Decision Implementing the
Commercial Companies Law.)
The founding shareholders of the company must submit an
application requesting permission to incorporate a limited
liability company. The ministerial decision implementing
the Commercial Companies Law outlines the mandatory provisions
that must be included in the Memorandum of Association.
The company is incorporated once it is registered in the
Commercial Register. The company must also maintain
a Register of Partners in its head office, which must contain
the names, nationalities, domiciles and occupations of the
partners; the number of shares owned by each partner; the
sum paid by each; and the assignment or transfer of shares
and related relevant information (Article 275 of the Commercial
Companies Law).
Limited liability companies cannot raise funds (as capital
or as loan) through public offering. Also such companies
may conduct a variety of business activities, with the exception
of insurance, banking, savings, receiving deposits or investing
funds on behalf of others. (Article 5 of the Commercial
Companies Law.)
Management
The management of a limited liability company may be assigned
to one or more managers. At least one manager must be
of Egyptian nationality (Article 281 of the ministerial decision
implementing the Commercial Companies Law). The manager(s)
must be named in the Memorandum of Association but need not
be a shareholder(s). The manager(s) may be appointed
for a definite term (which must be specified in the Memorandum
of Association) or for an indefinite term. The manager(s)
shall have full authority to represent the company; unless
such authority is limited by the Memorandum of Association.
The manager of the limited liability company has the same
legal status of the director of the joint stock company. The
remuneration of the manager, after certain deductions, is
subject to an income tax called the tax on income from movable
capital whose rate is approximately 34%. Managers also have
to enroll themselves in the state social insurance system
as self-employed persons.
If the number of the partners of a limited liability company
exceeds ten, the partners should form a supervisory board
consisting of at least three of them. The supervisory board
has the right to check the accounting records of the company,
ask the managers to provide reports upon request, count the
company's cash and other assets, and review the company's
financial statements before being submitted to the partners
general meeting.
Apart from the above, the provisions related to joint stock
companies apply to limited liability companies.
Financial
Requirements
The minimum equity capital of a limited liability company
is L.E. 50,000. The equity capital should be fully paid up
on foundation. The nominal value of the share or quota cannot
be less than L.E. 100.
The
quotas cannot be traded in the stock exchange, however, any
partner can sell his or her quotas to outsiders, given that
he has already offered them to the other partners and they
declined to buy them.
Foreigners
can own 100% of the equity capital of a limited liability
company, but they have to pay the value of their shares in
foreign convertible currencies.
If
a foreign partner(s) in a limited liability company wishes
to repatriate his or her capital out of Egypt, he or she has
to sell his or her quotas or liquidate the company (if he
or she actually owns all or most of it), deposit the proceeds
of sale or liquidation in an account at one of the accredited
banks in Egypt, and the bank will realize the required repatriation
of the funds, free of any taxes or duties.
A
limited liability company which has a share-capital equal
to or exceeding the minimum share-capital of a closed joint
stock company (i.e. LE 250 000) has to allocate at least 10%
of the profit to be distributed among its partners to its
employees as profit-sharing, but with a maximum of 100% of
their annual salaries. Limited liability companies incorporated
under the Investment Law are exempted from this requirement.
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