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Shareholding Company (KSC) Participation in a Joint Stock (shareholding) company is restricted. The law states that every Shareholding Company incorporated in Kuwait shall be of Kuwaiti nationality, and its members shall be Kuwaitis and its place of the registered office shall be Kuwait. Subject to the provision that the Kuwaiti proportion of the company concerned is not less than 51%, a non-Kuwaiti (other than a bank or an insurance company) can be a member of a Shareholding Company if his or her membership in that company supplies a need for foreign capital or foreign expertise. The approval of the Ministry of Commerce and Industry must be obtained before proceeding with the formation formalities. Closed Shareholding Company (KSCC) A Shareholding Company, other than a company holding a concession or a monopoly, the shares of which are not to be offered to the public for subscription, may exceptionally, be formed without the issue of a decree, by an official instrument in writing signed by all the (intending) founders, who shall be not less than five in number...". The capital of a Closed Shareholding Company must be at least KD.7,500. It is unlikely that a company would be registered by the Ministry, unless it was adequately capitalised. Limited Liability Company (WLL) Limited Liability Companies, known locally as WLL's ("With Limited Liability') may also be formed. These are the equivalent of the French SARL, a German GMBH or a United Kingdom Limited (LTD.) company. The principal features are as follows:
A Kuwaiti company having foreign participation is often referred to loosely in the business community as a Joint Venture company. Sole Proprietorship This form is reserved solely for Kuwaiti citizens apart from small traders such as shopkeepers, and is not dealt within the Company's Law. General Partnership A General partnership is an association of two or more persons who are liable jointly for partnership debts to the extent of their personal assets. It is a separate legal entity and can transact business in its own name. This partnership is formed by drawing up a Memorandum of Association and Articles of Association and registering the partnership in the Commercial Register. Each partner is required to contribute to the capital and it is not sufficient to contribute only according to one's influence or financial standing. The Kuwaiti share of capital must always be at least 51%. A partner may only transfer his share to a third party if the Memorandum of Association allows this or if he obtains the consent of his partners. A partner may, however, transfer the benefit of his share to a third party, but an agreement for such a transfer is only effective if the other members of the partnership agree. Limited Partnership A Limited Partnership has two categories of partners, general partners who have unlimited liability, otherwise referred to as a Simple Limited Partnership, and limited partners who are liable for partnership debts only to the extent of their investment in the partnership, in other words a partnership limited by shares. A Simple Partnership is governed in the same way as a General Partnership, subject to certain special rules. At least one of the general partners must be Kuwaiti and therefore his share in the partnership must be at least 51%. A partnership limited by shares is governed in the same way as Simple Limited Partnerships, subject to certain special rules. The total capital must be divided into shares, and the position of the limited partners is governed by the rules relating to shareholders in a Joint Stock company. This type of partnership must have a Supervisory Board consisting of at least three people, who may, but need not necessary, be partners. Although these are common forms of business organisations used by Kuwaitis, particularly in family groupings, they are not appropriate for use by foreign investors. Joint Ventures A Joint Venture may be formed by two or more persons, who are jointly and severally liable. It is usual for the objects and terms to be set out in a Joint Venture contract. A Joint Venture is not a legal entity and does not require registration in the commercial register. Joint Venture partners are separately registered in their own names. It is common for a number of foreign contractors involved jointly in a major project to form a construction Joint Venture or Consortium. Setting Up Foreign Companies Amendments have been submitted for approval where foreigners will be allowed to set up and own companies in specific areas exclusively under special permits issued by the Government provided they fulfill certain conditions. Currently, the existing Kuwait Corporate Law does not allow foreigners to own more than 49% of any business. Also some key Government figures are devising a plan aimed at approving the foreign investments bill without forwarding it to the National Assembly Finance Panel. Agencies The relevant law relating to the Kuwaiti agent is No. 36 of 1964 on commercial agencies : this is the basis for all existing agency agreements. If a foreign company wishes to trade in Kuwait without setting up a Kuwaiti registered entity (e.g. a Kuwait Shareholding Company) it may only do so through a Kuwaiti agent. Law 36 of 1964 is used in practice to regulate : Commercial agents, who undertake to promote a product for a principal, negotiate deals on his behalf, and possibly conclude such deals and carry them out. Distributors, who promote, import and distribute the principal's products in their own name. Service Agents/Sponsors, a foreign company that wishes to carry out Government contract work is required to appoint such a Kuwait sponsor (Article 24 Law of Commerce, No. 68 of 1980). The only entity that can be registered in Kuwait is a Kuwait company acting as agent or sponsor. A foreign company cannot independently register a branch in Kuwait and get a separate commercial registration number - it can only exist through the medium of an agency agreement. It is often convenient to refer to the principal's operations in Kuwait as being those of a branch, and this is the usual arrangement, (although this is not its legal form). The agency or sponsorship agreement between the Kuwaiti and the foreign company must be registered with the Ministry of Commerce and Industry. All new agencies or sponsorship agreements are published weekly in the Government's official Gazette. Al Yawm, an Arabic publication widely translated in English and available commercially. Registration of an agency should not take more than two weeks from the time the documents are prepared in Arabic. An agreement will normally contain a description of what the responsibilities of either party are. The extent to which the agent is liable needs legal advice. Similar legal advice is required on the extent to which a principal is legally bound. Careful attention should be paid, in particular to agency agreements that deal with, taking orders on commission or for a distributor importing on his own behalf. It is important to redefine the responsibilities and obligations of both parties even though, those obligations are already included in Commercial Law. The remuneration of the agent is a matter of agreement between him and his principal; typically the agent is paid either a fixed fee or a commission. If an agency agreement is terminated by the principal, it may become necessary to compensate the agent; the termination of an agency or distributor agreement can be a costly matter. Industries According to the studies published by the Public Authority for Industry and the Gulf Organisation for Industrial Consultancy, Kuwait has good scope for industrialization and could easily establish basic or even advanced petrochemical industries based on its massive oil reserves which are estimated at 96.5 billion barrels. Geological surveys in Kuwait have shown the existence of 10 to 15 million cubic meters of sand pebbles and abundance of limestone used in the construction industry. It also indicated that some stone structures in the northern part of Kuwait could be used to manufacture cement. In 2003, the Industrial Bank of Kuwait cut the interest on loans given to Industries from 5% to 3.5%. This move, implemented after endless deliberations, will definitely boost Industrial activity in Kuwait though over an extended period of time. Agriculture has a very limited scope as less than 0.5 per cent land in Kuwait has been earmarked for agriculture. However, the studies show that the existent scrap metal offers a potential for melting and forging industry and animal skin from slaughter houses can support leather industry in Kuwait. Public Authority for Industry (PAI) PAI is responsible for issuing industrial licenses and developing local industry. Its objectives include encouraging, protecting and supporting the local industry. Its functions include drawing up an industrial plan, proposing industrial sites, providing the necessary infrastructure and industrial services. PAI is responsible for rules and procedures regulating the granting or cancellation of industrial licenses. It supervises the compliance with the Kuwaiti, Gulf and International standards and specifications dictated by the regulations for imported and local products. It is also responsible for verifying the compliance of any industrial project with the domestic and international rules governing the environment protection. Its functions include carrying out studies relevant to the industrial activity and ways to support it and determine the means for protection of domestic products. Industrial Areas and Plots Clause (1), Article (15) of the Industrial law allows industries to apply for land plot to set up the industry. Such applications may be submitted to the competent authority which allocates these land plots with the consent of the Ministry of Commerce and Industry. While the preparation and provision of infrastructure and services cost the government more than 1KD per sq. meter the subsidised offer to industries may be only 5 - 10 fils per sq. meter for periods up to 50 years. In Sabhan and Mina Abdullah areas the subsidised cost is about 200 fils per sq. meter. Consultants And Other Professionals Professional rules relating to legal practice by non-Kuwaitis apply to Kuwaitis. For foreign legal firms to operate in Kuwait they are required to have a Kuwaiti partner. Consultants must be registered with the 'Consultants and Physical Plan' Department of the Ministry of Planning, to be considered for Government contracts. The registration list of the consultancy should be detailed and updated regularly. Although there is no legal requirement to form an association with a Kuwait consultancy, bids requiring a local input will benefit. More often than not the Government stipulates that bids should be made by local consultants in association with international firms. It is quite common for foreign consultants to tie up with a local practice on a project by project basis. |