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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 www.saslo.com 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] All rights reserved