Changing the Company’s Legal Form in Egypt

user Youssry Saleh & Partners calender 18 Mar 2018 views 2149 Views

Changing the company’s legal form is mainly regulated by the Companies Act No. 159 of the year 1981 and its Executive Regulations; in particular Article No. 136 of the Companies Act and Article No. 299 of its Executive Regulations.

No Prejudice to the Rights of the Creditors, Shareholders or Partners

The change of the company’s form may not result in any prejudice to its creditor’s rights. The partners, shareholders or holders of the shares who objected to the change resolution or did not attend the meeting, in which the resolution was made, with a plausible excuse, shall have the right to ask to be dissociated from the company. The companies whose legal form will be changed, the company to which the change will be made and their respective partners shall be exempted from all taxes and duties due because of the change of the company’s form.

Reasons of the Change

There are many reasons for changing the company’s legal form which interalia include:

  1. Operational Reasons:  Reorganizing the internal functions, such as sales and marketing, to improve the way the business operates, is one of the most important reasons that leads to changing the legal form of the company.
  2. Limitation of the Liability: Partners that establish an association of persons hold unlimited liabilities against the company’s debts and responsibilities. However, such partners may desire at certain point to limit their liabilities, especially when the business grows and the unlimited liability appears to be risky. In this case, the partners in this business may decide to change its legal form to another form the liability of which is limited by virtue of the law e.g. limited liability company or joint stock company.
  3. Tax Considerations: A business may change its legal form to another one to benefit from the tax regime under which the new form operates; for example If a company operates under tax regime (A), while joint stock companies operate under tax regime (B); and the owners of that company see that the tax regime (B) is more suitable to their business; as it provides more deductions or for whatever reason; in this case they may decide to change the legal form of their company into a joint stock company.
  4. Change in Ownership: The managers of a certain business may enter into new partnerships which require to change the legal form of that business, in this case carrying out this procedure will be a must.

Documents that Need to be Submitted in Special Cases

  • Name

Certificate of non-confusion of the name from the Commercial Register of Joint Stock and Limited Liability Companies (providing the name of the company is to be derived from its purpose in case of joint stock companies).

  • Purpose

Approval of the competent authorities, if its submission is necessary according to the company’s purpose (approval of the Central Bank – Civil Aviation Authority – Ministry of Tourism).

  • Site

It is necessary to submit the deed of possession of the place in which the business is operating; taking into consideration that companies incorporated in North and South Sinai shall submit deeds evidencing the possession of the place where the business is operating; providing such deeds are usufruct or lease contracts.

  • Capital increase

Regarding joint stock companies, a bank certificate indicating the payment of at least 10 % of the capital shall be submitted.

Regarding limited liability companies, a bank certificate indicating the payment of the capital in full shall be submitted.

 Limitations to the Capability of Changing the Company’s Legal Form

In Egypt, the legal form of the partnership limited by shares may be changed into a limited liability company or vice versa. Any of the above-mentioned companies may also be changed into a joint stock company. The change shall take place based on the approval by a majority of three quarters of the partners or shareholders at an extraordinary meeting of the company’s general assembly.

The legal form of associations of persons may also be changed into a joint stock company, a partnership limited by shares, or a limited liability company, providing the approval by three quarters of the partners shall be obtained, subject to third parties rights vis-à-vis the company or partners.

It is obvious from the previous that a joint stock company may not be changed into any form of the associations of persons or any other form of the mixed structure companies.

Service Time Limit

Checking the validity of the initial report on the shares in kind, assets and liabilities of the company usually takes (2-3 months); in addition to six days starting from the day on which the request change as well as the rest of the required documents are submitted to the General Administration of the Companies Legal Affairs (Amendments).