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26 January 2017

Cultivation of Bahrain’s financial sector

As part of an ongoing drive within the Kingdom of Bahrain to support and grow the country’s financial sector, the government has announced a number of key changes to legislation within the last few months.

Limited Investment Partnerships

On 3 September 2016 legislation introducing Limited Investment Partnerships (“LIP”) in the Bahrain (Legislative Decree No. 18/2016) came into effect.

A LIP is a business vehicle familiar across a number of difference jurisdictions. As the first country in the GCC to introduce such a vehicle, it consolidates Bahrain’s reputation as an effective business regime which encourages open investment.

Whilst Bahraini law previously permitted the incorporation of Limited Partnerships, these could not be used in the financial or investment sectors.

A LIP has its own legal personality and allows investors to participate in the investment operated by the LIP without taking an active role in its management or their liability exceeding their contribution to the investment fund. The management role is fulfilled by a general partner and under the new legislation, Central Bank of Bahrain (“CBB”) licensed banks and Category 1 and 2 investment business licensees are permitted to act as such without the need to establish a separate license entity.

The new legislation allows new LIPs to be incorporated and permits existing partnerships to convert to a LIP.

Protected Cell Companies

On 12 November 2016 legislation with respect to Protected Cell Companies (“PCC”) in Bahrain (Legislative Decree No. 22/2016) came into effect.

A PCC is a single corporate entity comprising both a core and cells which hold separate assets and liabilities. Each cell is independent of the other and of the core of the company, despite having a single legal personality. This allows for the protection of certain liabilities of some cells and insulating certain assets from the others.

PCCs are found in a number of off-shore jurisdictions worldwide and are used predominantly by financial institutions such as banks and insurance companies.

Trusts Law

On 12 November 2016 legislation introducing the Trust Law Bahrain (Legislative Decree No. 23/2016) came into effect.

This new legislation replaces the previous Financial Trust Law (Legislative Decree 23/2006) and formally recognises trusts established and governed by the law of foreign jurisdictions in Bahrain.

A trust is a legal instrument by which the legal ownership of assets can be separated from those entitled to benefit from such assets, and as such they are often used in managing wealth and structuring investments.

Whilst there is further detail and guidance expected from the CBB on each of the above changes in due course, including updates to the CBB Rulebook, the new laws add to a growing investment and financial sector within the Kingdom that is being supported and developed by the government, and building upon previous legislation such as the introduction of Collective and Private Investment Undertakings in 2012.

This article was originally published by LexisNexis. For more information, please contact Benjamin O'Brien McQueenie on +973 17 133207 or at benjamin.o'