February 1, 2018

Substantial Amendments to Egypt’s Companies Act

A new law is issued in Egypt to amend the Joint Stock Companies, Partnerships Limited by Shares and Limited liability Companies, known as the Companies Act no. 159 of 1981 (the "Law"). The amendments are effective as of 17 January 2018.

This report will summarize the main amendments introduced.

Single-Shareholder Companies

For the first time, the law allows the incorporation of single-shareholder companies, or what is known as the sole proprietorship. Subject to certain variations, all provisions applying to limited liability companies will apply to the single-shareholder companies.

There is no restriction on the nationality of the single-shareholder. A requirement to have one Egyptian manager may however apply.

The single-shareholder company is authorized to do all kind of business with the exception of certain activities, such as issuing shares, operate in the field of financial services or establish another single-shareholder company.

For incorporation, an application should be submitted to GAFI (General Authority for Free Zones and Investment) together with the memorandum and articles of associations. 

Capital of the company is required to be fully paid in advance; the executive regulations of the Law will set the required minimum amount of the capital.

The advantages of a single-shareholder company include, inter alia, the following:

  • Limited liability protection for the owner as the company constitutes an independent legal entity and its finances are separate from those of its owner. This separation can however be pierced in case of fraud or mingling between the owner’s personal funds and those of the company.

  • The owner will be empowered alone to hold general meetings, take decisions relating to increase or decrease of its capital, appoint and replace managers as well as convert the company to another type or liquidate it.

This amendment is expected to encourage the registration of entrepreneurship and corporatization of small and medium business.

Key Highlights

Shareholders Agreement

The Law for the first time provides that shareholders agreements (SHA) it will be binding on all shareholders if it is approved by a number of shareholders owning at least 3/4 of the company’s capital in an extraordinary general meeting. 

A SHA can be concluded at the time of incorporating the company or anytime during its lifetime.

Capital Increase Procedures

A decision to increase the issued capital of a company can now be taken in an ordinary rather than extraordinary shareholders meeting as was required before the amendment. 

Issuance of Preferred Shares

It is allowed now for companies to increase its capital, anytime during its life time, by issuing preferred shares. Issuance of preferred shares must be approval in an extraordinary general meeting by 3/4 of the shareholders of the company before the capital increase.

Preferred shares can give certain privileges in relation to voting rights, dividends or liquidation proceeds. 

The amendments, however, provided that it is not allowed to combine between privileges as to the voting right and the liquidation proceeds. 

Proxy in Shareholders Meeting

An individual shareholder can now delegate a non-shareholder to attend on its behalf in the company’s ordinary and extraordinary general meetings. 

Delegation has to be in writing either in the form of an official power of attorney or signed proxy.

Minority Shareholders Rights

Minority shareholders who own at least 10% of a company’s capital are now entitled to get all information they may request and copies of all documents in relation to transaction concluded between the company and a related party.

Accumulative Voting

The amendments introduced for the first time the possibility for shareholders to distribute their votes between candidates when voting for a company’s directors in what is known as accumulative or proportional voting. Every shareholder will be given a number of votes equivalent to the number of the shares it owns.  Accumulative voting is optional and must be allowed in the company’s statutes.

Electronic voting in Shareholders Meeting

Companies which shares are centrally deposited at MCDR are allowed to communicate with shareholders electronically and conduct virtual shareholder meetings.

Liquidation for Company’s Loss

The board of director is now required to call for a shareholders meeting in case the company’s losses reach half the value of the shareholders’ rights, rather than half the value of its issued capital as was stipulated before the amendment.

Legal Representative of the Company

Either the chairman or the chief executive officer (CEO) can now be the legal representative of the company. The company’s statutes as well as its internal bylaws will specify the authorities of each one of them.

Company Split

New articles are added to the Law to regulate the procedures and requirements for splitting companies.

A split is a corporate restructure in which a single business is broken into components, either to operate on their own, to be sold or 

to be dissolved. A split allows a large company to create separate legal entities to handle different operations.

A decision to split a company shall pass by shareholders owning 3/4 of the company’s issued capital in an extraordinary general meeting. Shareholders who do not approve the split decision can apply to exit the company and get refund of the value of their shares.

The new company resulting from the split may take the form of a joint stock company or a limited liability, and it will take over the rights and liabilities of the parent company relating to the assets transferred thereto as clarified in split decision.

If you have any questions regarding this paper, feel free to contact us.

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