Introduction
Bahrain is currently implementing changes in relation to its company’s law framework. Last year have been a year of series of new laws and amendments to existing laws with an objective to promote business activities and to attract investors coming to the region for doing or expanding their business. Various new bodies have been formed to monitor and facilitate registration and licensing requirements. This articles aims to highlight some of the major steps adopted for the same.
Establishment of Business Licensing Integrated System (‘BLIS’)
BLIS was established by Ministry of Industry and Commerce (‘MoIC’) few years ago with the objective to simplify the registration process of business, streamline licensing requirements, and ensure full transparency of procedures and to facilitate coordination amongst relevant organizations. Now this project is successfully implemented and contributing to online procedures for registration of business in Bahrain and obtaining licenses. This is saving crucial time and finance of investors and attracting people to explore business opportunities in Bahrain. The government of Bahrain has also lifted many major restrictions on foreign investments to promote international investors to come to the country for expanding their business.
The Commercial Register Law 2015 (‘CR Law’)
The CR Law implemented last year applies to almost all organizations propose to carry or already carrying out commercial activities in Bahrain including the branches of foreign companies and the companies governed by Commercial company Law of Bahrain. This law provides that carrying out any commercial activity in Bahrain without obtaining a license and getting registered with appropriate is now a criminal offence. Without prejudice to any severer penalty set out in any other law, an offender have to face imprisonment of up to five years and or a fine of between BHD 1,000 to 5,000. In addition to this, the CR Law also provides investigative powers to the MoIC to conduct administrative investigations of any violation of the law upon any serious complaint or notification.
The CR Law sets out the procedure for dealing with violators and authorizes competent authorities to impose penalties or close down the company upon receiving an order from the court to safeguard the interest of stakeholders and ensure transparency.
Commercial Companies Law
Commercial Company law of Bahrain has also been amended last year to support corporate reforms in the nation and to bring it in line with current requirements and address existing ambiguities. Major amendment bought by the new law are as follows:
Liability of Shareholders and Directors
Article 18 states that directors, shareholders, promoters and management of companies can be held liable for the entire capital of company for any damages affecting the company or any of its partners, shareholders, directors and third parties in situations prescribed under the law.
The new Law also phenomenally extends the application of Code for Corporate Governance to all types of companies as opposite to previous law where it was applicable to listed companies only. This stringent corporate norms indicates that the government is in no mood to give leverage to persons who use corporate veil to fraudulently monetize the transaction for personal gains and bring Bahrain commercial laws in line with international practices.
Revised Capital Requirements
Minimum capital requirements for companies have also been reduced depending about the nature and size of company to promote medium and small scale business in the country.
Relaxed provisions for Public Companies
The requirement to have all Bahraini national in Public companies is now been waived off and Public companies can now use foreign capital and expertise subject to the laws applicable.
Article 234 which provides for three year restriction on closed joint stock companies from being able to convert and trade its shares publically is revised and now shares of such companies can be traded after payment of full value of shares. It is a welcome move and offers liquidity to investors and shareholders.
Introduction of Shelf Companies
New concept of Shelf companies is introduced. It is a company that can be registered without listing any activity under its functions. Such company may be sold afterwards, however the activity must be approved by the competent authority before sale. Life of a shelf company will be one year and all the licenses and approvals should be taken in this period only.
Foreign Ownership Restrictions
Bahrain has generally been liberal for foreign ownership requirements and allows for corporate vehicles undertaking certain activities to be wholly owned by foreign entities and/ or individuals.
Article 345 goes a little further and states activities which can be previously allowed only to Bahraini nationals or companies majorly owned by Bahraini national can now be undertaken without the requirement of majority Bahraini shareholding. It authorize the Council of Ministers to determine the activities which can be carried out by companies with foreign ownership by way of a resolution.
In a recent announcement, government have clarified that it is allowing 100 percent ownership in administrative services, manufacturing, residency and real estate, health and social work, information and communications etc. These changes are expected to be effective in near future.
Conclusion
The new measures adopted in Bahrain to reform the business and investment environment are welcomed by business owners and investors as they phenomenally simplify registration and incorporation procedures, promote foreign investment and streamline the procedures. The government is taking effective steps to strengthen the economy and changes in foreign investment regulations and simpler and flexible entry provision will definitely attract investors from around the globe and will give a boost the economy. Successful implementation of these measures shall start giving sweeter fruits to Bahrain in coming decades.
