Egypt

3 Chapter Corporate Law

    • Kinds of Corporate types

       

      Joint Stock Company

      -Minimum amount of founders is three (normal individuals or legal entities).

      -Minimum issued capital is 250,000 EGP, (10% at the incorporation, and 25% during the first three months of the company's establishment).

      -Foreigners can be partners at a 100%, but there are exemptions on activities limited to Egyptians.

      -Is managed by a board of directors, the minimum number directors is three (No nationality requirements)

      -Bylaws can stipulate multiple legal representatives in the Board of Directors, each representative is taken into consideration for the creation of the Board of Directors, quorum of its meetings and in voting.

      Limited Liability Company

      -Usually used for small projects that do not require major financing such as companies involved in internal trade and services activities.

      -The minimum number of partners is two and cannot exceed 50 from individuals or legal entities.

      - The minimum capital is determined by the partners in the Articles of Incorporation and is divided into equal shares fully paid by the incorporation.

      -Partners or some of them may provide in-kind shares (the cash part should not be less than 25%)

      -Foreigners can be partners at a 100%, but there are exemptions on activities limited to Egyptians.

      -At least one of the directors must be Egyptian.

      Representative Office

      -This type of establishment is limited to market study, no commercial activity can be practiced.

      -No partners are required but a manager has to be appointed by the head office abroad for administrative work, the manager can be Egyptian or abroad.

      -There are no minimum capital requirements but there must be a transfer of 1000 USD to the representative office at the establishment.

      -All expenses must be met by the head office.

      -The representative office is not liable to corporate tax but liable for employment taxes, stamp duty and local withholding taxes.

      Branch

      -Limited to the implementation of a specific contract.

      -No partners are required but the head office has to appoint a manager entitled to perform administrative work, the manager has no nationality requirements.

      -There are no capital requirements but a deposit of 5000 EGP is required.

      -The branch has to deduct 10% from its taxable income to the head office (not subject to withholding taxes). Besides this the branch is subject to regular taxes.


    • Corporate System

       

      Corporate System in Egypt is regulated by Investment Guarantees and Incentives law

      no. 8/1997, the Companies Laws No.159 from 1981 and the Capital Market Law No. 95/1992 and Executive regulation. The Joint stock Corporation system is the most common type of company in Egypt, and used when there is a manufacturing project requiring a major investment. This type of corporation has a more organized management structure and more governance requirements.

      Usually there are no restrictions on the activities a Joint Stock Company can undertake, the incorporation process usually takes between 3 to 4 weeks after this the company can open a bank account and get a bank certificate.


      　　　　　　　　

    • General Shareholders Meeting.

       

      Includes all company's shareholders according to the percentage of shares being held. All shareholders have the right to attend the general Assembly despite of their number of shares, personally or by proxy. The Ordinary Meetings requires attendance of one quarter of the Capital in order to be valid. The decisions of the Meeting must be taken by absolute majority of the votes represented. The Board of Directors must be attending the Meeting or at least the members required to form quorum.

       

      　　　

      The General Shareholders Meeting can be convoked by the Auditor if he considers it necessary. General Shareholder Meeting must take place every year within the six months succeeding the end of the financial year of the Company.

    • Obligation and rights for shareholders.

       

      • Shareholders representing 5% of the capital may call a shareholder´s meeting (GSM) and add items to the GSM´s agenda.

      • The right to nominate directors and enjoy pre-emptive rights in case of a capital increase.

      • The right to access corporate documents.

      • Every Shareholders attending a General Shareholders Meeting has the right to discuss the items of the Agenda.

      • Every Shareholder attending a General Shareholders Meeting also has the right to call the members of the Board of Directors and the Auditors  to answer questions related to them.


    • A process for having GSM

       

      The General Shareholders Meeting may be convoked by the chairman of the Board of Directors  at the time and place stated in the Company's By-Laws, a General Shareholders Meeting should be held at least once a year within the six months succeeding the end of the financial year of the Company.


      The Agenda of the Shareholders Meeting must contain

      • Appointment or revoking of the members of the Board of Directors.

      • Report of the Board of Directors regarding their actions, the activities of the Company and a their liberation from any liability.

      • Approval of the budget, general balance sheet, statements of results and the rest of documents that integrate the Financial Statements.

      • Approval of the distribution of profits.

      • Any other matter that the Board of Directors or the Shareholders representing at least 5% of the shares, considers important to discuss in the Meeting.


    • Requirement for deciding

       

      Voting decisions should be recorded in case of disputes and disagreements. In case of voting dispute there should be a recount of votes.

      Cumulative Voting: Every shareholder should hold a number of votes equal to the number of shares he holds. The shareholder might allocate all the votes to a single board nominee or distribute his votes amongst such number of nominees as decided by the said shareholder without repeating those votes.


    • Minutes

       Minutes have must include a full summary on the debates of the General Assembly, and everything that took place on the meeting, decisions with number of shareholders agreeing and disagreeing. The minutes have to be recorded in a regular manner after each meeting, numerated in serial manner and stamped with a notarial seal. A copy if the minutes shall be sent to the competent administrative authority within one month from the date of the meeting.

    • Board of Directors

       

      The Board of Directors will be in charge of managing the Company strategies and objectives, the members must divide the work between them and care for the best interests of the company.

      The Board should prepare an annual report to be presented to the Shareholders including:

      • An Overview of the Company's operational and financial status.

      • Prospective vision of the Company's activities for the coming year.

      • Subsidiaries activities and operational status (if any).

      • A summary about changes in the company's capital structure.

      • The extent of compliance with monitoring and applying the Corporate Governance Regulations, including adequate information about the board and its various committees.

      • The company's Corporate Social Responsibility activities.


      The Board of Directors should have the Ordinary Shareholders Meeting approval for transactions involving any company's asset that exceeds 20% of its total assets.


    • Requirement for director

       

      The Board of Directors must have five members at least, which majority should be independent non-executives with technical and analytical skills that will benefit the Company. The Board of Directors shall appoint its Chairman from one of its members, and a deputy to replace him in his absence.

      The Board of Directors also is able to appoint a General Manager for the Company, they must consider not to appoint the same person as Chairman and General Manager.


    • Election and Dismissal

       

      The election of the members of the Board of Directors shall be done via Cumulative Voting, a brief  biography of the nominee shall be presented to the shareholders when they are called for the board´s election.


    • Corporate Auditor. Internal Audit.

       The company must have an internal audit department, the control must be done by management and the audit committee and accepted by the board. This department should be managed by a full-time officer and among senior executives, the board should create a decree with all duties and objectives and requirements in the audit department. Internal Audit´s systems and procedures should be set on projections and a study of the risks faced by the company.

    • External Audit

       

      The external Auditor is appointed by the general assembly in its annual meeting. The decision of reappointing the external auditor and feed is responsibility of the annual general assembly only, the nomination of the external auditor must be based on the audit committee's recommendation, the auditor must meet all stipulated conditions by law, the auditor must have experience in accounting and audit and be totally independent from the company and its board and adhere to the Egyptian auditing standards and the professional code of ethics in terms of content.


    • Number of auditors.

       

      The Audit committee should be formed by at least three independent members where one of them should be a financial and accounting expert.


    • Obligation of auditor.

       

      The auditor must carry out the examination of all the books, registers and documents of the company and to demand information and explanations which he deems essential for the fulfillment of his duties. Also, the auditor is entitled to check the assets and liabilities of the company and the Board of Directors must support him to achieve it. The Auditor shall attend the General Shareholder Meeting to read his report, express his opinions and concerns regarding his observation during his activities and specially when approving the budget. The Auditor is forced not the disclose any of the information learned during his activities and will face compensation of the harm caused to the Company if he commit any mistake during his activities, in case of more than one auditor they shall be jointly responsible.


    • Kinds of Shares

       

      Capital is divided into nominal shares of equal values, shares are indivisible and cannot be issued at less than its nominal value (exemptions indicated in the executive regulation) The Bylaws fix the nominal value of the share provided that it be not less than 1 EGP and not exceeding 1000 EGP (or equal amount in foreign currencies). This provision is not applicable on standing companies on the date of promulgation of this law and its entry in application. The authorized share capital may not exceed ten times the issued share capital. Shares can only be issued after receiving the approval of the Egyptian Financial Supervisory Authority EFSA, and can be registered as well at the Stock Exchange.


    • Dividend.

       

      Dividends paid to resident or non-resident entities are subject to withholding tax rate of 10%. Or in case the ownership is above 25% of the paid-up capital, in this case is 5% of withholding tax or if the shares are been held for two years.


    • Capital increase.

       

      Companies can increase its capital at any time during its life time, by issuing preferred shares that must be approved by the extraordinary general meeting by three quarters of the company's shareholders. A decision to increase can now be taken in an ordinary rather than extraordinary shareholders meeting as was required before the amendment.

      The Limit of a Company's capital will be set by GAFI (General Authority For Investment and Free Zones), Companies are allowed to increase their capital according to their needs, however it is good to  have in mind advising the GAFI of any significant increases.


    • Capital decrease.

       

      The GAFI (General Authority For Investment and Free Zones) must be notified of this decision, explaining the reasons of the decrease and a Company's financial statements on the date of the capital decrease. Authorization shall be obtained after the approval of the economic performance sector.


    • Dissolution.

       

      The Directors must submit an order to the general assembly for dissolution in case of loss of half the capital. The majority must be available for the issuance of the dissolution´s order. If there is a loss of three quarters of the capital, partners in possession of a quarter of capital can demand the dissolution. If the loss involves a decrease of capital below the limit prescribed by the executive regulation, any party interested in the matter can request the dissolution.

      If the company decides to liquidate, the authorities need to be notified within 120 business days from the date the request is submitted.