Abolishing Minimum Capital Requirem

Capital Requirement

In April 2009, Law Number 68 of 2009 was issued, amending some provisions of Company Law Number 159 of 1981 (the amendment published in the Official Gazette on April 8th, 2009). This amendment abolishes the minimum capital requirement for limited liability companies by replacing Article 116 of Company Law Number 159 of 1981 which previously stated that such companies had to have a minimum capital of Two Hundred Egyptian Pounds with the following: “Limited Liability Companies shall have a capital determined by the partners in the Company Articles of Incorporation and divided into equal portions ...”. And since the new article does not determine a minimum value for this capital, then it may be any sum of money, even a few piastre's.

Rationale and Implications

It is necessary to appreciate some aspects of this change in order to better asses its implications, as follows;

• Until last year, the minimum capital for limited liability companies was fifty thousand Egyptian Pounds, which was then reduced to two hundred pounds by change in executive regulations. However, a further reduction of the minimum capital requirement would not have been possible without amending the Company Law itself because this time the intention is not to set a new minimum capital but to allow partners in a company to determine the capital at their own free will.
• Abolishing the minimum capital requirement does not mean that a company may be without capital altogether. Capital determination remains one of the main pillars of a company. Accordingly a company may not be without capital, and such capital may not be equal to zero. It has to have a capital, but there is no longer a requirement on its minimum value.
• The above change only applies to limited liability companies and not to joint stock companies (although partnerships have had no capital requirement anyway even prior to this change). Thus joint liability companies continue to require a minimum of two hundred and fifty thousand pounds issued capital, of which 10% must be paid upon establishment, to be completed to 25% within three months of incorporation and to 100% within three years. This, it should be noted, is without prejudice to other minimum capital requirements determined by special laws as a condition for undertaking certain licensed activities.

• The limited liability company continues to be bound by another constraint, which is that it has to have at least two partners, thus no limited liability company may have only one partner.

Implications

In light of the above, the following are the expected implications:

• Egypt should continue to progress on the World Bank Doing Business Indicator, which benchmarks ease of doing business procedures in countries around the world, as the capital requirement is one of the key indicators for starting up a business.
• The limited liability form of company will continue to be the most flexible form of incorpora­tion, and the most suitable especially for smaller enterprises.

Conclusion

The amendment will not have a big impact on those seeking to establish companies, since the two hundred pound minimum capital was not really a barrier. However, it has a bigger psychological impact because it indicates Egypt’s readiness to continue to reform and is a new signal that capital is no longer perceived as an important consideration in the formation of a company.