Bahrain: Amendments to the companies law

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On 28 September 2020, the Kingdom of Bahrain (Bahrain) introduced an amendment to Legislative Decree No. 21 of 2001 promulgating the Bahrain Commercial Companies Law (Companies Law). In an effort to simplify the regulation of private companies and aspire to Bahrain’s continuous vision of developing its corporate practice up to international standards, Decree No. 28 of 2020 amends certain provisions of the Companies Law (Amendment). The Amendment introduces a number of key changes and has come into effect on 2 October 2020.

Set out below is a briefing table containing an update of the legislative and practical developments in Bahrain:

Theme New regime Old regime DLA Piper legal commentary

Single Person Companies (SPC)

SPCs are no longer recognized as legal structures in Bahrain.  All SPCs shall be automatically converted by the Ministry of Industry, Commerce and Tourism into with limited liability (WLL) companies. SPCs are required to amend the trade name, company logo, any advertisements and all official papers within six months.

Previously recognized.

In a number of jurisdictions, setting up an SPC is not a common practice and WLL companies are generally more recognized.

Holding Companies

Holding companies are no longer recognized as legal structures in Bahrain. Instead, companies may undertake activities of holding companies.  

Previously recognized.

Generally a commercial activity that entities undertake in Bahrain rather than a company’s legal structure.

Non-profit Companies (NPC)

An NPC may be established as a WLL. The name of the company shall be followed by the phrase “non-profit company”.  An NPC may not convert its legal structure to a different company form. An NPC is prohibited from using profits for reasons other than its purpose and may not distribute any profits directly or indirectly to its shareholders. In addition, the voluntary liquidation of an NPC is not permissible except after obtaining the approval of the relevant authorities.

This legal structure was not recognized in the Companies Law.   

Establishing an NPC provides legitimacy to the organization and its objectives. Protection is afforded to its shareholders from personal liability for the organization’s debts (i.e. any fines and lawsuits).

General Partnership

In the event a director of a General Partnership company is a partner (appointed by virtue of the memorandum of association) and is to be dismissed, such decision is required to be justifiable and is to be made by a majority of the partners (holding at least 75% of the share capital of the company).

A unanimous / majority decision was not defined. A director may have also been dismissed by a decision of the competent court upon a request from the majority of partners.

 

No requirement for a court ruling. Recently introduced definition of “majority” provides more clarity.

Limited Partnership

The company may use an innovative trade name that does not include the names of the partners.

The name of the company shall consist of the names of the partners.

Discretion on commercial name.

Listed Companies

Share Capital Increase

Loan bonds and debts may be converted to capital. In-kind capital contributions are to be accepted. Convertible bonds may also be issued to raise capital.

This was not recognized.    

 

Provides businesses (in particular companies that are at risk of bankruptcy) with several restricting options and more comfort in surviving the market. 

Audit Committee

An audit committee shall be formed and its members shall be members of the board. The management and corporate governance code shall specify the rules for the formation of the audit committee.

The board of directors may allocate its duties among its members or delegate its members to carry out specific assignments.

Obligation for companies to form audit committees tasked with reviewing all required financial and accounting practices allows for the establishment of appropriate systems and functions for identifying and monitoring risk.

Mergers and Acquisitions

In the event of a merger of listed companies or companies licensed by the Central Bank of Bahrain (CBB), the provisions stipulated in the Central Bank of Bahrain and Financial Institutions Law No. 64 of 2006 and its implementing regulations (CBB Law)  shall be observed. This also applies in the case of acquisitions.

Brief description of how a merger shall be effected. Simple definitions / no material information provided. 

Provides clarity on the regulations applicable to companies wishing to merge. 

Issuance of Preference Shares

Holders of preferred shares may have preemption rights in respect of such shares. In the event that there are several categories of preferred shares, holders of a particular category shall have preemption right in respect of new shares of that specific category.  Preferred shares shall be issued in accordance with the CBB Law and any relevant ministerial decisions.

Not available previously.

Further guidance on the issuance of preferred shares.

Board Remuneration Disclosure

The company’s by-laws shall specify the manner of determining the remuneration of the chairman and board members. The board of directors’ report shall disclose a comprehensive account of all payments made to board members and executive management (including remuneration, benefits, shares, etc.).

Such report was not disclosed to  the executive management.

A company should be able to accurately reveal, at any time, the financial position of the company and all outstanding costs to enable shareholders to verify that the company’s accounts are properly kept.

Ordinary General Meeting

The shareholders’ invitation to convene the ordinary general meeting (OGM) shall be announced in at least two daily local newspapers; one issued in Arabic and the other in English. The announcement shall be made at least 21 days prior to the date of the OGM.

The shareholders’ invitation was to be published in at least two daily local Arabic newspapers. The announcement was to be made at least 15 days prior to the date of the OGM.

 

Avoidance of any miscommunication (hence publication in both languages); extended period of time to inform shareholders of the OGM.

 

Appointment of Strategic Partner

A company may, according to a decision issued by the extraordinary general meeting, increase its capital, provided that the increase is allocated to the entry of a strategic partner who has the ability to provide technical, operational or marketing support to the company, taking into account any conditions and controls determined by a decision from the Minister of Industry, Commerce and Tourism   in coordination with the CBB.

Such appointment was not generally available previously.  

Enables talented advisors to counsel, provide their expertise and guide companies.

Board Appointments

Candidates standing for election to a board must disclose the following information to the company’s shareholders:

  • curriculum vitae;
  • description of involvement with competitors;
  • previous board memberships;
  • any other time consuming extracurricular activities; and
  • any other information specified by the executive regulations.

Not required previously.

The aim is to ensure all candidates wishing to be elected are experienced and transparent.

Statutory Reserve

Subject to the provisions of the CBB, the compulsory statutory reserve of a company shall be used to increase the company's capital or cover its losses. If this reserve exceeds 50% of the issued capital, the general meeting may decide to distribute the excess to shareholders in the years in which the company does not achieve net profits sufficient to distribute profits to shareholders.

The statutory reserve was not be distributed to the shareholders, but may be used to ensure the distribution of dividends to the shareholders not exceeding 5% of the paid-up capital in the years in which the company's profits do not allow to ensure such limit.

Increased flexibility and discretion to distribute excess amount of statutory reserve to shareholders.

With Limited Liability Companies

Minimal nominal share value restrictions have been removed. 

Minimal nominal  value of the share was not to be less than BHD 50. 

Reduces costs and provides increased flexibility on conducting business. 

No limit on number of shareholders.

Between two to 50 shareholders.

More flexibility.

Miscellaneous

Employee Share Incentives Scheme

A company may offer its employees a share incentive scheme, provided full details of the program and terms of entitlement are disclosed to such employees. The Minister of Industry, Commerce and Tourism and the CBB may issue decisions to regulate the same, from time to time. 

Not available previously.

Provides greater business flexibility and incentives to employees.


This article aims to provide an overview of the latest provisions rather than an exhaustive list of all the changes. It is not designed to provide legal advice but is rather based on an unofficial translation of the Amendment issued on 1 October 2020 and is for general information only. We await further guidance from the relevant authorities, in due course.