Kuwait's updated Companies Law is good for business

Businesses across the Gulf are watching closely as the Kuwaiti Government passed the long-awaited Companies Law just last week.
The regulatory system in Kuwait is dynamic and businesses need to constantly monitor developments. Romeo Gacad / AFP
The regulatory system in Kuwait is dynamic and businesses need to constantly monitor developments. Romeo Gacad / AFP

Businesses across the Gulf were watching closely as the Kuwaiti government passed the long-awaited Companies Law just last week. Published after more than 23 years of discussion and debate, the new law is a game-changer in terms of the way commercial entities will operate in Kuwait. But the wider debate is around the potential ripple effect the adoption of these new principles might have, as other markets such as Bahrain, Qatar and Saudi Arabia watch and learn.

The new Companies Law replaces the Commercial Companies Law of 1960 and brings with it a raft of new concepts and principles that without doubt will help increase the number of businesses we see setting up and investing in the Kuwaiti economy.

The law's reforms are far-reaching and significant. Drafted over the past two months - following an initiative by the minister of commerce and industry, Anas Al Saleh - by representatives of the ministry of commerce and industry, the central bank of Kuwait, the Capital Markets Authority, the Kuwait Investment Authority, private industry representatives, academics and lawyers, the new law should streamline, encourage and support the growth of commercial entities in the country.

The regulatory system in Kuwait is dynamic, and as such, businesses need to constantly monitor developments. Commercial entities will need to review their structures with the introduction of the new Companies Law to assess if changes either have to be made or would be recommended to make their operations more effective and profitable. Effective with its publication, companies have a six-month grace period to conform to the new regulations.

Among the key changes the new law brings is the introduction of the concept of a "one-stop shop" for the incorporation and licensing of a company through a single department at the ministry of commerce and industry.

This will undoubtedly speed up and increase the number of new companies being set up.

In addition, the law requires a more stringent adherence on the part of companies to best practices of corporate governance. This, combined with the separation of the board of directors from the executive management, and an expansion of the powers of managers and directors means we will see a more fair and robust management of commercial entities where transparency is encouraged.

A further key change is the introduction of corporate regulations regarding sukuks, bonds and convertible bonds. This is a critical development in what is a growing market and it is expected that this will create real advantages as the Islamic finance market continues to open up and grow.

The Companies Law also introduces the elimination of minimum shareholding requirements and security shares for members of the boards of directors of stock companies, introducing greater flexibility in terms of shareholding. We will also see the adoption of the cumulative voting system for the election of board members.

One point that will remain unchanged, however, is the existing restrictions on foreign ownership and the principle of a minimum 51-per-cent Kuwaiti shareholding in the capital of Kuwait companies.

It is expected that the executive regulations to the Companies Law will be published within the next three months, so we will be keeping a close eye on this and advising our clients accordingly.

One thing is certain, the new law not only brings a fairer, more transparent and more flexible structure for corporate entities, it also potentially enhances competitiveness and profitability for businesses in Kuwait if managed in a timely and strategic manner. These are all elements that governments around the region are trying to combine in their own versions of their Companies Law. The way in which Kuwait has woven the issues together could prove to be a template for the region.

Abdul Aziz Al Yaqout is a regional managing partner at DLA Piper Middle East

Published: December 10, 2012 04:00 AM


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