Setting up a company. There is no such thing as an off-the-shelf company in Oman. Doing business. Types of company

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1 Doing business Setting up a company Trowers & Hamlins Kate Marshall and Andrew Slucky explain the process of establishing a presence in the sultanate To do business in Oman, it is necessary for any foreign individual, partnership or company to comply with laws governing foreign business activity; in particular, the Foreign Capital Investment Law. There is no such thing as an off-the-shelf company in Oman. Every firm must be specifically incorporated and is subject to express authorisation regarding foreign investors. This is neither a simple nor a quick process and requires a significant amount of documentation. There are several options available to a business looking to establish a presence in Oman. The most appropriate entity will generally depend on the size of the business, the individual needs of the parties involved, the administrative burden the business is prepared to undertake and the desired shareholder base of the business. There are three types of company under Omani law: the limited liability company (LLC); the closed joint stock company (Societe Anonyme Omanaise Close SAOC ); and the open joint stock company (Societe Anonyme Omanaise Generale SAOG). Brief details of these entities are set out below. There is no such thing as an off-the-shelf company in Oman Types of company LLC An LLC is the most popular company format in Oman. It must have a minimum of two and a maximum of 40 shareholders. The company may only undertake activities set out in the objects contained in the LLC s constitutive contract (similar to memorandum/articles of association). The minimum capital of an LLC with a foreign shareholding is RO150,000 ($390,000). Foreign shareholders may own up to 70 per cent of the shares in the LLC, except for GCC or US shareholders, which can own 100 per cent of the shareholding. Foreign shareholders seeking more than 70 per cent ownership must obtain approval from the Council of Ministers, following a recommendation by the Ministry of Commerce and Industry (MCI). Shareholders from GCC member states and the US, who benefit from a free trade agreement between Muscat and Washington, may, at the discretion of the MCI, have a 100 per cent shareholding. 22 Doing business in Oman

2 An LLC is less regulated than an SAOC or SAOG and is also easier to operate on a daily basis. The management of an LLC is carried out by a manager, or managers, who must be natural persons (rather than companies, etc) and may or may not be shareholders. Omani law does not provide for an LLC to have a board of directors, although a board can be established by way of contract, such as a shareholder agreement. The LLC structure suits a small operation with a limited number of promoters. SAOC Both the SAOC and SAOG are joint stock companies. The two differ in that an SAOC is a closed company, whereas an SAOG is listed on the Muscat Securities Market (MSM). An SAOC: requires a minimum of three shareholders must have a board of directors requires a minimum capital of RO500,000 Foreign firms: Establishing a presence in Oman requires complying with the Foreign Capital Investment Law Doing business in Oman 23

3 doing business The board of an SAOG must comprise a minimum of five and a maximum of 12 directors only requires shares to be partially paid-up (an LLC s shares must be fully paid-up on incorporation) must appoint an auditor is subject to greater statutory regulations. For instance, an SAOC must have statutory meetings at certain intervals SAOG An SAOG s shares are listed on the MSM and are freely transferable. The minimum capital for an SAOG is RO2m. As would be expected for a public company, this structure carries a much greater regulatory burden and cost than either an LLC or SAOC, and is highly regulated. SAOGs must comply with a mandatory Code of Corporate Governance, as well as the disclosure rules set out in the Executive Regulations of the Capital Markets Law. The board of directors of an SAOG must comprise a minimum of five and a maximum of 12 directors. One third of the board must be independent. Steps for establishing a company LLC Step 1 Name reservation the MCI needs to approve the name for the new company. Under Omani law, a new company cannot have a name similar to that of an existing one. The MCI also requires a higher starting share capital for companies with certain words, such as Oman, in their name. Step 2 MCI application this involves preparing and obtaining several documents, including: foreign shareholder documents each shareholder (if a corporate entity) must provide its constitutional documents, certificate of incorporation, board resolution and power of attorney and/or Omani shareholder documents each shareholder must provide an MCI computer printout, certificate of registration, authorised signatory form and Oman Chamber of Commerce and Industry (OCCI) certificate and shareholders resolution a constitutive contract and an authorised signatory form, which form a part of the constitutional documents of an LLC a bank certificate this is obtained from a bank in Oman and is used as evidence of compliance with the LLC s capital requirements Step 3 OCCI registration this is the final step of the registration process and is obtained immediately on the MCI completing its registration of the LLC. 24 Doing business in Oman

4 Step 4 Approvals depending on the LLC s intended business activities, further governmental approvals may be required. Step 5 Post registration once the LLC is registered the company will need to organise and obtain: a municipality licence tax registration registration with the Royal Oman Police registration with the Ministry of Manpower, to apply for labour clearances and visas import/export licence, depending on the nature of the business industrial, environmental and other permits and licences, depending on the nature of the business Omanisation targets: The government aims to boost the number of Omani nationals in the workforce Doing business in Oman 25

5 SAOC/SAOG The processes for establishing an SAOC or SAOG are similar to that of an LLC, but are longer and more document-intensive, especially for an SAOG. Step 1 Name reservation this is the same as for an LLC. A search will be conducted at the MCI to ensure the proposed name is permissible. Step 2 Constitutional documents the proposed constitutional documents of the company (the memorandum and articles of association) must be drafted and translated into Arabic. The drafts are then taken to the MCI for review. The MCI may seek to negotiate certain details and must approve the form of the draft. Step 3 Application for administrative decision prior to the formal application for company formation, approval must be obtained from the Director General of Commerce (and the Capital Market Authority for an SAOG). The documents listed below must be prepared and filed with the MCI: covering letter in Arabic final constitutive contract and articles of association foreign shareholder documents (similar to those documents required for an LLC) Omani shareholder documents (similar to those documents required for an LLC) Step 4 Constitutive general meeting and board meeting the SAOC/SAOG is required to hold a constitutive general meeting to elect the board of directors for the company, formally approve the constitutive contract and articles of association, appoint auditors, approve any related party transactions and approve the founders committee report, which details the formation process and preincorporation expenses. Notice of the constitutive general meeting must be published in the local press, unless that requirement is waived by all shareholders. A board meeting is then held to appoint authorised signatories, a chairman and a vice-chairman, and to approve submission of the application to the MCI. Signed board minutes are required for the next step of registration. Step 5 MCI commercial registration the MCI application form must be completed in Arabic. The application form must be signed by all authorised signatories. Step 6 OCCI registration. 26 Doing business in Oman

6 SAOG For an SAOG, a further complexity is the requirement of undertaking an initial public offering. Alternative structures Under Omani law, non-omanis, whether natural individuals or corporate entities, cannot conduct business of any type in Oman without either a registered legal presence, in the form of the structures outlined above, or through one of the following business structures: branch office commercial representation office commercial agency general partnership limited partnership holding company Branch office A foreign company that has entered into a contract with a government entity or quasi-government entity is entitled to register and operate in Oman as a foreign branch. The branch registration is dependent upon the term of the government contracts, which must also be registered. The branch office is not normally entitled to seek and carry out business within the private sector. A branch office is a footprint of the foreign company in Oman. Accordingly, this kind of corporate entity requires neither share capital nor a local partner, and the foreign company remains liable for all of the debts and other liabilities of the branch office. Agency and distribution Oman has many well-established local commercial and trading companies, some of which have grown into sizeable conglomerates with extensive local, regional and international business interests. Many of these entities are used to acting as agents or distributors for overseas companies. Foreign investors who wish to appoint an agent or distributor need to draft the agency or distribution agreement with care and take legal advice on the background legislation to these forms of contract. For example, Oman s Commercial Agencies Law offers an agent significant protection from the termination of its appointment by an overseas principal. Failure to meet Omanisation targets can give rise to the company being fined Doing business in Oman 27

7 Investment: Oman is an evolving market for a broad spectrum of businesses Other considerations Once a company is established, it will need to apply for work permits and labour clearances. The process of applying for work permits for expatriates is tightly regulated by the Ministry of Manpower and is granted upon certain conditions being met, including the skills of the proposed employee, as well as with regard to the state s Omanisation policy (the aim of Omanisation is to limit the sultanate s dependence on expatriate staff different sectors of industry are given different Omanisation thresholds). Failure to meet Omanisation targets can give rise to the company being fined, as well as being blocked from carrying out labour clearances. The current rate of tax for all Omani companies, regardless of foreign ownership, is 12 per cent on earnings above RO30, Doing business in Oman

8 Conclusion The process and length of time attributed to incorporating a company in Oman can vary and sometimes unforeseen hurdles can arise. However, the country is an evolving market for a broad spectrum of businesses. The government of Oman aims to develop its economy through a series of five-year plans, under the umbrella framework known as Vision The government is committed to steady progress, diversification and the involvement of the international and local private sectors, and the legal framework is continually developing to improve and support foreign investment. As a law firm, we believe Oman remains a country full of possibilities for investors. About the writers Kate Marshall (pictured) is a partner in Trowers & Hamlins Muscat office. With input from Andrew Slucky of Trowers & Hamlins in London. Tel: (+968) Web: Doing business in Oman 29