Download Pre-emptive rights in joint stock companies

Client Alert
10 June 2012
CONTENTS

Introduction

Joint stock companies

Pre-emptive rights in closed
joint stock companies

Conclusion
Pre-emptive rights
in joint stock
companies
Introduction
I
* Types of Companies
Page 1
t is apparent that there is some confusion with respect to the exercise of pre-emptive
rights by shareholders in commercial companies over the shares of other shareholders.
This client alert is being issued to help clarify the position.
According to the provisions of the Commercial Companies Law issued by Royal Decree
4/1974 (the “Commercial Companies Law”), commercial companies may take the form
of, (i) general partnerships, (ii) limited partnerships, (iii) joint ventures, (iv) joint stock
companies, (v) limited liability companies, and (vi) holding companies. This client alert
applies to the exercise of pre-emptive rights in closed joint stock companies.
Joint stock companies
* Joint Stock Companies
Article 56 of the Commercial Companies Law defines a joint stock company. A joint stock
company is a commercial company whose share capital is divided into shares of equal
value which are negotiable in accordance with the provisions of the law. The liability of
the shareholders is limited to the paid amount of the value of the shares subscribed by
the shareholder. A shareholder of a joint stock company is not liable for the company’s
debts except to that extent.
A joint stock company has an issued share capital and the articles of association of a
joint stock company may provide for an authorised share capital, which need not be fully
issued. Part Five of the Commercial Companies Law specifically deals with joint stock
companies. Under the legal framework, a joint stock company may take the form of either
(a) a closed joint stock company or (b) a public joint stock company.
* Closed Joint Stock Companies
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A closed joint stock company cannot offer its shares for public subscription and accordingly
cannot carry out an Initial Public Offering (“IPO”). A closed joint stock is required to have a
minimum authorised share capital of RO 500,000. The minimum authorised share capital
of a public joint stock company is RO 2,000,000.The shares of a public joint stock company
are open for subscription by the public.
Client Alert
Page 2
Pre-emptive rights in joint stock companies
Pre-emptive rights in closed joint
stock companies
* Rights of subscription
in joint stock
companies
* Transfers of shares in
joint stock companies
through Muscat
Securities Market
According to Article 75 of the Commercial Companies Law, the shareholders of a joint
stock company have a preferential right of subscription for new shares. This applies
only to new issue of shares and does not apply to a transfer of existing shares. Existing
shares in a joint stock company are sold and purchased in the Muscat Securities Market
and are subject to the provisions of the Capital Market Law issued pursuant to Royal
Decree 80/1990 (the “Capital Market Law”) (as amended) and its executive regulations
(the “Executive Regulations”) issued pursuant to MD 1/2009.
According to the provisions of the Capital Market Law, the shares in joint stock
companies (whether public or private) are considered as securities, and according to
Article 15 of the Capital Market Law, dealing in securities is limited to the trading floor
of the Muscat Securities Market. The transfer of ownership of shares of a joint stock
company is therefore effected by entering the transaction in the records of the Muscat
Securities Market and recording the entry in the shareholders’ register of the company.
Accordingly, shares of closed joint stock companies can be listed in the third market for
dealing and transfer of ownership.
Registration of share transfers in closed joint stock companies does not require the
approval or accord of the other shareholders or the board of directors of the company.
* Shares in closed joint
stock companies on
third market
* No statutory right of
pre-emption for joint
stock companies
Neither the Capital Market Law and its Executive Regulations nor the Commercial
Companies Law provide that shareholders of a joint stock company, including a
closed joint stock company, have pre-emptive rights to purchase shares in respect of
a share transfer. This is in contrast to limited liability companies. Under Article 144 of
the Commercial Companies Law, it is specifically stated that a shareholder of a limited
liability company may not assign or dispose of his shareholding to a person who is not
already a shareholder of the company without first offering those shares to the other
shareholders. In effect, the shareholders of a limited liability company must approve
the accession of a new shareholder in the company. This would then be followed by
the managers of the limited liability company registering the new shareholder in the
shareholders’ register.
Unlike the constitutive contract of a limited liability company, the articles of association
of a closed joint stock company do not ordinarily contain a provision relating to preemptive rights of shareholders. It is also significant to note from a practical point of
view that shares of a joint stock company may be charged and registered with the
Muscat Clearing and Depository Company. The shares in a closed joint stock company
may ordinarily be charged without the need to seek prior approval from the board of
directors or the other shareholders.
Conclusion
Shares of a closed joint stock company are not subject to pre-emptive rights under the
provisions of the Commercial Companies Law. Nonetheless, pre-emptive rights may be
created over the shares of a joint stock company on a contractual basis between two
or more parties.
Contact Details
SASLO Associate Offices
Abu Dhabi
Beijing
Brussels
Dubai
Geneva
Hong Kong
Kuwait City
London
Paris
Piraeus
www.saslo.com
Said Al Shahry & Partners
Advocates & Legal Consultants
(Civil Advocacy Company)
P.O. Box 1288, Ruwi, P.C.112
Sultanate of Oman
OOSC Building, First Floor
Building No.75A, Way No.2311
Dohat Al Adab St., Al Khuwair
T +968 2460 3123, F + 968 2460 400
E-mail: [email protected], www.saslo.com
Salalah Office
P.O. Box 1202
P.C.211
Sultanate of Oman
Tel: (968) 232 898 33
Fax: (968) 232 891 55
Email: [email protected]
Sohar Office
P.O. Box 256
P.C.322
Sultanate of Oman
Tel: (968) 268 448 87
Fax: (968) 268 448 87
Email: [email protected]
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