Running head: COMMERCIAL LAWS OF KUWAIT

Commercial Laws of Kuwait An Assignment Submitted by Name of Student Name of Establishment Class XXXX, Section XXXX, Summer 2012

COMMERCIAL LAWS OF KUWAIT Commercial Laws of Kuwait Every country has its own rules that regulate the establishment of a business. Similarly, Kuwait has its own rules which must be followed if one wishes to establish a business entity. In

order to start a business in Kuwait, a license is required, and is usually issued by the ministry of commerce and industry. A business can be started by any Kuwait citizen provided is 21 years of age or above, but a foreigner can only start a business in Kuwait in partnership with a citizen of Kuwait. The partner in addition, must have more than 51% of the capital investment in the business. Also, for a foreign firm to have a branch in Kuwait, it must first have a Kuwait agent. These and other laws that regulate the start-up and operation of businesses in Kuwait are termed as commercial laws and they work to ensure stability and order in the business industry. In 1998, foreigners became free to enjoy the privilege of owning a business in certain zones termed as the Kuwait free trade zone. In this zone, the foreigners can have business licenses without having any sponsor especially the industrial licenses, commercial and the service licenses. In addition, the free trade zone also provides a range of infrastructural services. There were new rules that were issued in 1999, which permitted the foreign investors to posses stocks on the Kuwait stock exchange (Kuwait Government Online, 2012). In 2001, Kuwait enacted a law with the aim of increasing foreign investments in the country. They tried to lure foreign investments into their country by allowing foreigners to own up to 100% of business units in definite areas. There are three main companies which an individual can establish in Kuwait. These companies are the limited liability company (WLL), closed joint stock company (KSC) and the joint stock company (PKF Bouresli and Co, 2012). These are the companies which are allowed by the Kuwait government to be established by foreigners in that country.

COMMERCIAL LAWS OF KUWAIT

The limited liability company can be established by any foreigner or cooperate, provided they fulfill the terms and conditions set by the government of Kuwait. The term as stated before is that there should be a Kuwait citizen owning at least 51% of the companys shares (Kuwait Business, 2012). Forming a limited liability company in Kuwait is very simple and follows a process that lasts approximately three months. The companies under this type usually have a limited liability shield in that they do not pay tax like the other corporate bodies that are foreign. Kuwait citizens are permitted to establish companies in their country and are exempted from paying taxes, but those companies that are established by non-Kuwaiti have to pay some specified amount of tax. However, this is different with the limited liability companies as they enjoy the privilege of not paying taxes. Shareholding companies operating in Kuwait are categorized into two, closed and public. They are required to have five or more shareholders in order to be classified as a shareholding company (Ibp, 2009). The shareholding company is comparable to the limited liability company in that, it has a board of directors and also contains some share certificates. The feature of the company is that it is flexible, meaning that it can engage in any kind of business. This type of company allows foreigners to engage in it, owning a maximum of 49% shares, unless when permitted to own 100% by the foreign direct investment law (Ibp, 2009). Those who establish public shareholdings companies are required to pledge at least 10% of the assets. The next kind of business that can be established in Kuwait is the closed joint stock company (KSC closed). These types of companies are usually considered as a different type of the joint stock companies and because of that, only Kuwait citizens can be shareholders of these companies. However, the foreign investors can under certain rules, own a maximum of 49% share of capital in the closed joint stock companies. The owning of shares by foreign investors in

COMMERCIAL LAWS OF KUWAIT closed KSC, can only happen after the approval by the authorities concerned. The activities of closed KSCs are limited to owning banks and insurance firms. The process of forming closed KSCs takes more time compared to the limited liability companies. The process of forming this of business takes around six months. The closed joint stock companies pay taxes to the government of Kuwait, which are levied from the profit earned by the foreigners who are shareholders in those companies (Kuwait Business, 2012). In addition to the tax, the closed KSCs also contribute 5% in the foundation of the Kuwait advancement of science. Kuwait enacted a law in 1999 allowing the foreigners to hold shares in the publicly

traded shareholding companies. This was done for the very first time in that country. Those who venture into this type of business have their restrictions and conditions defined by the minister in charge of commerce and industries. Among the regulations spelt under this category is the highest amount of shares which a foreign investor can have. In the formation of a joint venture, formal procedures are not followed. These companies are formed under simple contracts, and because of the lack of formality, the companies lack legal personalities. The joint ventures are not in a position to run in their own name and it is only through ventures that the business can form a group with third parties (Kuwait Government Online, 2012). The venturer remains the one responsible for transactions is involved with the third party. The transacting venturer enjoys unlimited liability when transacting with the third party. On the other hand, the non-transacting venturer is only confined to the shares they have in the joint venture. The transacting venturer must be guaranteed by the Kuwaiti venturer, which is if the latter is a non-Kuwaiti citizen. The joint ventures are free to have unlimited joint with several liabilities, if the company they are joining with deals with third parties using its own

COMMERCIAL LAWS OF KUWAIT

name. This kind of company does not matter if the joint venturers are involved in the transaction directly or indirectly (Kuwait Government Online, 2012). The commercial agencies are a group that deals with the provision of means for a foreign company to carry out marketing without the local presence of the company. The law only allows Kuwaiti individuals or companies to act as agents. An agent cannot function without the approval from the ministry of commerce (Abdullay Kh. Al-Ayoub & Associates, 2012). Registration applications are required to have been submitted within two month in which the local agent has been appointed. The application must be accompanied by some document which include an original copy which shows the agency agreement and should have an Arabic translation, the agents commercial registration copy, a document showing the nationality of the Kuwaiti agent and finally a registration from the Kuwait chamber of commerce and industry (Abdullay Kh. Al-Ayoub & Associates, 2012). The other regulation is that the Kuwaiti agent must have a direct relationship with the foreign principal. In the commercial companies law, there is also the formation of partnerships which include both, the general and the limited. A general partnership also known as the joint liability, involves the formation of a company by two or more people under a certain name which they use in running their business. The laws that govern partnerships are that one of the partners must be a national of Kuwait and also any other person who is included in the partnership is liable to the obligations of the company. In a joint liability company, the managers who are often two or more need not be members. A creditor to the company has the right of resource to the private property of all the companys members who were working in the company at the time the loan was contracted.

COMMERCIAL LAWS OF KUWAIT In limited partnership, two types are usually involved. The first one is the simple limited partnership and the second is the partnership limited by shares. In a simple limited partnership there are general partners who are liable for the partnership debts to the extent of their entire

asset. In addition, there are limited partners who are only liable to the extent of the contributions they made respectively. These are the regulations that govern this type of business enterprise (PKF Bouresli and Co, 2012). In the case of a partnership limited by shares, the capital is separated into shares, leaving the members being subject as shareholders in the company. In the case of opening a branch in Kuwait by a foreigner, all the businesses must be conducted by a Kuwaiti agent. The office will from there on operate under the agents name. Although there is hope of running the branch by the foreigner him/herself that is if the foreign direct investment law approves that. In conclusion, in order for a company to operate in Kuwait, all the rules that regulate the establishment of companies must be followed. A citizen of Kuwait can venture into any type of business provided has attained the age of 21 and above. The laws governing the establishment of companies in Kuwait by foreigners are different to those that govern the citizens of Kuwait starting new businesses. Foreigners have specific rules that they must follow in order to start a business or place their branch in Kuwait.

COMMERCIAL LAWS OF KUWAIT References Abdullay Kh. Al-Ayoub & Associates (2012). Doing Business in Kuwait. Al-ayoub.org. Retrieved September 13, 2012 from: http://www.al-ayoub.org/business.html Ibp (2009). Kuwait Business Law Handbook. New York: International Business Law Publications. Kuwait Business (2012). Kuwait Business Information. Kuwaitiah. Retrieved September 13, 2012 from: http://www.kuwaitiah.net/business.html

Kuwait Government Online (2012). Introduction on doing business in Kuwait. E-government. Retrieved September 13, 2012 from: http://www.e.gov.kw/sites/kgoenglish/portal/Pages/Visitors/DoingBusinessInKuwait/Gov erningBody_OverView.aspx PKF Bouresli and Co. (2012). Doing Business in Kuwait. Pkf-Kuwait. Retrieved September 13, 2012 from: http://www.pkf-kuwait.com/dbik.html