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Ministry of Investment Posts Draft Unified Company Law on its Website: The Draft Law Welcomes Discussions: Simpler Environment is Promised by New Legislation
During the month of July 2009, the Ministry of Investment published on its website the full draft of the forthcoming Unified Company Law (hereinafter "Draft Law"). This is the version which has been reviewed by the Board of Trustees of the Investment Authority and submitted to the Ministry of Investment. Although the policy of Egypt Legal Update is to comment only on issued legislation that has come into effect, and not on any confidential or unavailable drafts, it was deemed appropriate in this July/August issue of Egypt Legal Update to comment on the Draft Company Law because it was made publicly available by the Ministry of Investment, and because by posting it on the internet, the Ministry actually intends for it to draw as much comment as possible.
Background
The most confusing aspect of the Draft Unified Company Law is the term "Unified" which suggest that the Law will be comprehensive to include all legal provisions relating to companies in Egypt. The truth is that no company law in the world can be all encompassing, and there are always aspects which must be dealt with by other laws. Accordingly, to understand what "unified" in the context of Egyptian company law means, it is important to start by understanding the current picture, in order to appreciate what this Draft Law intends to unify. This will be followed by a brief summary of the key ideas and concepts that are included in the Draft Law, and then by some concluding remarks.
The Current Scene
Currently, companies in Egypt are governed by various laws, the most important of which are:
  1. The Company Law Number 159 of 1981, which regulates joint stock and limited liability companies, and is the general company code.
  2. The provisions dealing with partnerships in the Code of Commerce, and these date back to 1883.
  3. Some provisions in the Investment Law, dealing with the establishment of companies of any legal form that are active in specific "Investment Fields". The distinction between the Investment Law and the Company Law has recently become less relevant as tax exemptions associated with the former have ceased to exist.
  4. Some provisions in the Capital Market Law Number 95 of 1992, which regulate aspects of joint stock companies that deal with the issuing of securities, listing and public subscription.
  5. The Public Business Sector Companies Law.
  6. The Public Sector Companies Law which deals with public sector companies that have not been transferred to the Public Business Sector Companies Law.
It is important, however, to note that the above are the laws affecting companies in general, and that in addition, there exists a large number of other laws and decrees, each dealing with a specific type of activity and accordingly applicable to companies from a sectoral dimension. These include laws of industry, tourism, agriculture, etc. Moreover, another set of laws which affects all companies are the laws of general application such as tax, social security, labor, banking, import and export, criminal, etc.
What the Draft Law Will Unify
The Draft Company Law, as posted on the website, will not eliminate all laws pertaining to companies. This is not possible from a legislative point of view, nor is it applied anywhere in the world. What it will do is replace all provisions that are overlapping and conflicting in items (1) to (4) above with one modern set of provisions. In other words, it will replace all of Company Law Number 159 of 1981, as well as the provisions pertaining to company formation, management, governance, corporate actions, and dissolution in the Investment Law, the Capital Market Law, and the Code of Commerce. In this manner, the Unified Company Law will deal – for the first time in Egypt's history – with all types of companies, whether partnerships, limited liability of  joint stock, that belong to the private sector but will leave out companies that are publicly owned entirely or are subject to the Public Business Companies Law. Listed companies will continue to be subject to the Capital Market Law. Moreover, other laws mentioned above, whether sectoral or of general application, will not be affected.
Key Concepts and Provisions
It is not possible in the space provided by Egypt Legal Update to describe in detail all aspects of the Draft Law. This review will accordingly outline the key concepts and provisions which form the basis of the new Draft Law:
  • Unification of company establishment – irrespective of the legal form of the company – under the GAFI system. The breakthrough here will be that partnerships become part of the same process and data base as joint stock and limited liability companies.
  • The clear demarcation of authorities between GAFI and the Egyptian Financial Supervisory Authority ("EFSA", which replaced the Capital Market Authority), whereby the former will have all powers and jurisdiction over unlisted companies, and the latter will exclusively deal with companies that are listed or have otherwise issued securities to the public.
  • Removing a significant amount of barriers limiting the freedom of partners or shareholders in the unlisted company to agree on various provisions in their articles of association or statutes. This will allow the incorporation into official documents of various provisions dealing with options, voting rights, management rules, tag along and drag along clauses, veto powers, and other terms usually stipulated in shareholders agreements but not incorporated in the formal company bylaws.
  • Introducing – for the first time in Egyptian Law – the notion of a wholly owned limited liability entity. This will allow a company or a person to establish a wholly owned limited liability project.
  • Reforming and simplifying the procedures for mergers, change of legal form, and corporate actions.
  • Reforming and simplifying the procedures for dissolution of companies.
  • Introducing – again for the fist time in Egyptian Law – the notion of a professional firm, which will allow the incorporation of companies for lawyers, accountants, consultants, engineers, etc.
  • Improving the corporate governance framework for companies and increasing the liability on company auditors.
Remarks
The Draft Law, as published on the Ministry of Investment's website will represent a real breakthrough in the whole notion and regulatory approach of companies in Egypt. It will undoubtedly lead to an easier and more investor-friendly environment, while replacing traditional procedural supervisions with a more modern regulatory approach. The Draft Law, however, is still at the early start of a long process of discussion before it reaches the issuing stage, and it is therefore unlikely to be passed by Parliament during the 2009/2010 session.
During the month of July 2009, the Ministry of Investment published on its website the full draft of the forthcoming Unified Company Law (hereinafter "Draft Law"). This is the version which has been reviewed by the Board of Trustees of the Investment Authority and submitted to the Ministry of Investment. Although the policy of Egypt Legal Update is to comment only on issued legislation that has come into effect, and not on any confidential or unavailable drafts, it was deemed appropriate in this July/August issue of Egypt Legal Update to comment on the Draft Company Law because it was made publicly available by the Ministry of Investment, and because by posting it on the internet, the Ministry actually intends for it to draw as much comment as possible.
Background
The most confusing aspect of the Draft Unified Company Law is the term "Unified" which suggest that the Law will be comprehensive to include all legal provisions relating to companies in Egypt. The truth is that no company law in the world can be all encompassing, and there are always aspects which must be dealt with by other laws. Accordingly, to understand what "unified" in the context of Egyptian company law means, it is important to start by understanding the current picture, in order to appreciate what this Draft Law intends to unify. This will be followed by a brief summary of the key ideas and concepts that are included in the Draft Law, and then by some concluding remarks.
The Current Scene
Currently, companies in Egypt are governed by various laws, the most important of which are:
  1. The Company Law Number 159 of 1981, which regulates joint stock and limited liability companies, and is the general company code.
  2. The provisions dealing with partnerships in the Code of Commerce, and these date back to 1883.
  3. Some provisions in the Investment Law, dealing with the establishment of companies of any legal form that are active in specific "Investment Fields". The distinction between the Investment Law and the Company Law has recently become less relevant as tax exemptions associated with the former have ceased to exist.
  4. Some provisions in the Capital Market Law Number 95 of 1992, which regulate aspects of joint stock companies that deal with the issuing of securities, listing and public subscription.
  5. The Public Business Sector Companies Law.
  6. The Public Sector Companies Law which deals with public sector companies that have not been transferred to the Public Business Sector Companies Law.
It is important, however, to note that the above are the laws affecting companies in general, and that in addition, there exists a large number of other laws and decrees, each dealing with a specific type of activity and accordingly applicable to companies from a sectoral dimension. These include laws of industry, tourism, agriculture, etc. Moreover, another set of laws which affects all companies are the laws of general application such as tax, social security, labor, banking, import and export, criminal, etc.
What the Draft Law Will Unify
The Draft Company Law, as posted on the website, will not eliminate all laws pertaining to companies. This is not possible from a legislative point of view, nor is it applied anywhere in the world. What it will do is replace all provisions that are overlapping and conflicting in items (1) to (4) above with one modern set of provisions. In other words, it will replace all of Company Law Number 159 of 1981, as well as the provisions pertaining to company formation, management, governance, corporate actions, and dissolution in the Investment Law, the Capital Market Law, and the Code of Commerce. In this manner, the Unified Company Law will deal – for the first time in Egypt's history – with all types of companies, whether partnerships, limited liability of  joint stock, that belong to the private sector but will leave out companies that are publicly owned entirely or are subject to the Public Business Companies Law. Listed companies will continue to be subject to the Capital Market Law. Moreover, other laws mentioned above, whether sectoral or of general application, will not be affected.
Key Concepts and Provisions
It is not possible in the space provided by Egypt Legal Update to describe in detail all aspects of the Draft Law. This review will accordingly outline the key concepts and provisions which form the basis of the new Draft Law:
  • Unification of company establishment – irrespective of the legal form of the company – under the GAFI system. The breakthrough here will be that partnerships become part of the same process and data base as joint stock and limited liability companies.
  • The clear demarcation of authorities between GAFI and the Egyptian Financial Supervisory Authority ("EFSA", which replaced the Capital Market Authority), whereby the former will have all powers and jurisdiction over unlisted companies, and the latter will exclusively deal with companies that are listed or have otherwise issued securities to the public.
  • Removing a significant amount of barriers limiting the freedom of partners or shareholders in the unlisted company to agree on various provisions in their articles of association or statutes. This will allow the incorporation into official documents of various provisions dealing with options, voting rights, management rules, tag along and drag along clauses, veto powers, and other terms usually stipulated in shareholders agreements but not incorporated in the formal company bylaws.
  • Introducing – for the first time in Egyptian Law – the notion of a wholly owned limited liability entity. This will allow a company or a person to establish a wholly owned limited liability project.
  • Reforming and simplifying the procedures for mergers, change of legal form, and corporate actions.
  • Reforming and simplifying the procedures for dissolution of companies.
  • Introducing – again for the fist time in Egyptian Law – the notion of a professional firm, which will allow the incorporation of companies for lawyers, accountants, consultants, engineers, etc.
  • Improving the corporate governance framework for companies and increasing the liability on company auditors.
Remarks
The Draft Law, as published on the Ministry of Investment's website will represent a real breakthrough in the whole notion and regulatory approach of companies in Egypt. It will undoubtedly lead to an easier and more investor-friendly environment, while replacing traditional procedural supervisions with a more modern regulatory approach. The Draft Law, however, is still at the early start of a long process of discussion before it reaches the issuing stage, and it is therefore unlikely to be passed by Parliament during the 2009/2010 session.