New Commercial Companies Law in Qatar

The Law No 11 of 2015 (new Companies Law) which entered into force in August 2015 has fully repealed the old Commercial Companies Law No 5 of 2002. The new law states that until such time as HE the Minister of Economy and Commerce issues executive decisions to enforce it, the current decisions shall remain applicable to the extent they do not contradict its provisions.This article sets out the amendments introduced by the new Companies Law, and its impact on companies registered with the Ministry of Economy and Commerce (MEC). This article contains general statements in relation to the new law, and should not be construed in any way or form as legal advice. Formal legal advice should be sought on a case-by-case basis when interpreting its provisions, and their impact on entities, whether existing, or will be registered pursuant to the new law.1. Compliance with the new lawThe new law provides that all registered companies must comply with its provisions within six months from the law taking effect. The initial six-month period was extended for two additional six-month periods, i.e.  to February 2017. The MEC has recently announced a further six-month extension period allowing registered companies until August 2017 to comply with the new law. Notwithstanding that the minister’s decision has granted entities an extension to comply with the new law, we note that companies should be familiar with the new provisions introduced by the Companies Law which they are required to comply with before August 2017, unless the minister issues a new decision to extend the said period. To date, the minister had only issued executive decisions for Limited Liability Companies (LLC), and Single Shareholder Companies (SPC) to comply with the new law, as set out in this article. 2. New Corporate Governance Rules for Private Shareholding CompaniesWith the exception of companies supervised by the Qatar Central Bank, the Companies Law states that the minister will issue decisions regulating the application of corporate governance to private shareholding companies. Public shareholding companies will continue to be governed under the corporate governance rules issued by Qatar Financial Markets Authority. 3. Registration ProcessTo facilitate the registration process with the MEC, the new law states that the minister will issue new decisions in relation to registration of companies and the issuance of pertinent licences under a “one stop shop”  system. At the time of writing, the MEC has not yet implemented the “one stop shop” system for the registration of companies.   4. Limited Liability Companies* Under the old Companies Law the minimum share capital of an LLC was fixed at QR200,000, divided into equal shares, the value of each is not less than QR10. Under the new law however, the shareholders’ can agree on the value of share capital they deem fit. The MEC’s current practice is that it allows the registration of LLCs with a share capital as low as QR1,000, Notwithstanding this, local banks may require a minimum amount to be deposited in the LLC’s bank to open the LLC’s bank account. * Shareholders holding 20% of the share capital may request the LLC’s managers to call for a shareholders’ general assembly meeting; under the old law, only shareholders holding at least 25% of the share capital were able to request the managers to call for a meeting.  * The MEC had recently issued a new template for the LLC’s Articles of Association (AoA). Companies are required to update their AoA in line with the new template issued by the MEC by the end of August 2017. As a matter of new practice, the MEC requires foreign shareholders’ to authorise an individual to sign on resolutions, amended AoA, etc of the LLC by virtue of a duly notarised, legalised and authenticated power of attorney for use in Qatar.   * An LLC can be established by a single person. Under the old Companies Law the minimum number of shareholders for an LLC was two. Single Person Companies (SPCs) registered under the old law are required to update their registration to “Single Person LLC”. The MEC had also issued a new AoA template for SPCs, which SPCs are required to comply with by the end of August 2017.5. Public Shareholding Companies* If a public shareholding company has been established in contravention of the provisions of the new Companies Law, any concerned party may within the six months (under the old law it was five years) after its establishment notify the company to rectify its status within a one-month period; failing this any concerned party may, after six months from the lapse of the notice period, may request the invalidation of the company, and subsequently its liquidation. * Public shareholding companies must list their shares within one year of establishment; failing this, the company’s registration will automatically revert to a private shareholding company. The old law was silent on this matter.* The board of directors of a public shareholding company may issue a decision by circulation in case of an emergency, provided that all the members of the board approve this in writing. This decision will have to be presented in the subsequent board meeting, and documented in the minutes of such meeting. The old law was silent on this matter.* Members of the board of directors of a public shareholding company are liable for “gross fault” in undertaking their duties. The old law was silent on this matter.* A public shareholding company may, after obtaining the approval of the company’s general assembly, issue tradable Islamic Sukuks in accordance with the provisions of the public shareholding companies. The old law was silent on this matter.* The shareholders of a public shareholding company may waive their pre-emption right in relation to subscribing for new shares by virtue of a decision passed by an extra-ordinary general assembly meeting passed by votes representing 75% of the share capital of the company. The old law was silent on this matter.* The new law has introduced a method of reducing the share capital of a public shareholding company, being a reduction of the nominal value of the shares.6. Private Shareholding CompaniesThe government or a government entity or corporation may own at least 51% of a private shareholding company or less if approved by the Council of Ministers. Such companies will not be subject to the provisions of the new Companies Law to the extent they do not contradict the agreements or arrangements concluded upon its establishment or duration, in addition to the provisions of its articles and memorandum of association.   7. Private Institutions for Public BenefitPrivate institutions for public benefit may establish private shareholding companies by obtaining the approval of the Council of Ministers.8. Dissolution Under the old Companies Law, a company would have been dissolved if a share transfer resulted in the number of shareholders being less than the minimum number required under the law. Under the new law however, the company will not be dissolved in this case if the company is converted to a new type of a company within six months of such transfer, or if the number of shareholders is brought to the minimum.9. Period of LimitationThe period of limitation for certain claims has been reduced from five to three years (Articles 338, 339 and 340).10. General Comments* The time periods required for the completion of various processes have been substantially reduced under the new Companies Law. However, we note that some of the provisions have introduced new time periods that were not applicable under the old law. For example, under Article 233 of the new law, the application for registering an LLC will be considered by the officers of the MEC within 15 days from the date of submitting the application. The old law did not include the 15-day period, and as a matter of practice the officers at the MEC are considering the registration application for an LLC within a shorter timeframe (1-2) business days. We believe that until such time the Minister of Economy and Commerce issues decisions to implement the new law it would be difficult to predict how such processes will be carried out in practice, specifically in the context of the new direction adopted by the new law to facilitate the registration of companies under a “one stop shop” system.           * Apart from the Qatar Financial Markets Authority (QFMA) rules and regulations, the new Companies Law has stated various new supervisory obligations of the QFMA in relation to public shareholding companies listed on the Qatar Exchange. For further information on this issue, or other legal matters please contact David Salt (David.Salt@clydeco.com) or Yousef Fakhoury (Yousef.Fakhoury@clydeco.com).