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Bahrain’s ‘Business-friendly’ Corporate Law

On 19 September 2014, Legislative Decree No.50/2014 introduced amendments to Bahrain’s Commercial Companies Law (Legislative Decree No. 21/2001 (as amended by the 2014 decree, the “New Companies Law”)). A few notable changes are highlighted below:

Streamlining and modernizing regulation

• Article 75(iv) of the New Companies Law reduces the number of founding shareholders required to establish a joint-stock company (“JSC”) from seven to two.

• Article 203 previously limited the number of shares which could be represented at general assembly meetings by a single proxy to 5%. The New Companies Law has removed this restriction on proxy voting.

• Except for public JSCs, entities governed by the New Companies Law can now provide in their constitutional documents that meetings of members may be conducted via telephone or electronic communication, provided that certain requirements (for the verification of participants’ identities, recording of votes, etc.) are met. Under revised Article 23, corporate affairs are no longer stymied by shareholders’ inability to be physically present in the same location in order for decisions to be taken.

Enhancing corporate governance and empowering shareholders

• Article 187(i) is expanded in the New Companies Law so as to allow any shareholder to sue a company’s directors whose wrongful actions have caused damages, where the company (previously the only party with standing) has not done so. This empowers shareholders generally; particularly minority shareholders unable to influence the passage of resolutions at meetings.

• Article 173(iii) previously required a director to hold company shares of at least BHD 10,000 in value or represent a person holding not less than 1% of total capital (whichever was greater). These requirements have been removed under the New Companies Law, so that directors may be independent. Article 173 now also empowers shareholders to prescribe additional criteria for directorship in the company’s constitutional documents beyond standard minimum requirements.

Facilitating foreign participation

• Revised Article 64 has removed the prohibition on non-Bahraini nationals holding shares in a public JSC. Where a special ministerial decision used to be required to allow establishment of a public JSC with foreign participation, under revised Article 65 foreign participation is now generally allowed (although the Minister of Industry and Commerce retains the right to restrict foreign ownership in companies operating in certain economic sectors and/or undertaking certain commercial activities (e.g., real property rental & management services, media, domestic transportation of passengers & goods, and supply/distribution of petroleum products)). The three year minimum hold period formerly imposed on permitted foreign shareholders in public JSCs is also deleted from the revised Article 65.

• Foreign entities wishing to establish a branch in Bahrain no longer need a Bahraini sponsor, under Article 347 of the New Companies Law.

• The above changes have modernized and streamlined the regulatory environment, enhanced corporate governance and increased accountability, empowered shareholders and facilitated foreign participation in Bahrain companies, among other things—reinforcing the “business friendly” climate for which Bahrain is known.

This article was written by Marco Mazzocchi.

For more information please contact Marco on +973 1713 3266 or marco.mazzocchi@crsblaw.com.