Developments in company structures in Morocco
Africa Focus
Law Update: Issue 360 - Africa and Transport & Logistics
James MacCallumPartner,Corporate Commercial
Safia Fassi FihriAssociate Counsel,Corporate Commercial
In April 2023, the UAE and Morocco agreed to form joint working teams to enhance communication between the UAE and Moroccan business communities by organising workshops, forums, and other meetings. Both countries emphasised the importance of enhancing cooperation through the Morocco - UAE Business Council in key economic and trading sectors and set the goal of doubling mutual trade and investment over the coming seven years. It is noteworthy in this context that Moroccan companies law has recently undergone a revision to provide for a new form of company that is particularly attractive to investors looking to establish new business operations in Morocco or to enter into joint ventures with established Moroccan operators.
The most prevalent forms of corporate vehicles able to be formed in Morocco have been the société anonyme (equivalent to a joint stock company) (“SA”) and the société à responsabilité limitée (equivalent to a limited liability company) (“SARL”).
An SA is a company in which the overall liability of its shareholder for the debts and obligations of the company is limited to the sum contributed by them for their shares in the company. An SA must have at least five shareholders and a share capital of at least 300,000 Moroccan Dirhams (“MAD”). The shares are freely transferable, unless otherwise stipulated in its articles of association.
An SARL can have between one and 50 shareholders. Where the company has a single shareholder, then it is termed a société à responsabilité limitée à associé unique (SARLAU). There is no minimum share capital requirement. The SARL has often been used for smaller businesses, especially because of its simpler and more straightforward management structure and procedural requirements. In contrast with an SA, a SARL (or SARLAU) cannot offer shares to the public or seek a listing on a stock exchange. Further, it is prevented from issuing preference shares or securities convertible into shares.
Then, Moroccan Law No. 19-20 (promulgated by Royal Decree Law No. 1-21-75 of 14 July 2021 and amending Law No. 17-95 regarding SA’s and Law No. 5-96 regarding SARL’s) ushered in a new type of company, being the société par actions simplifiée (equivalent of a simple limited liability company company) (“SAS”), and replaced its former near-namesake ‘SAS’, the société anonyme simplifiée. The new SAS was designed to appeal to foreign investors by way of its more flexible characteristics, particularly by comparison with the former form of SAS (as well as the less liberally regulated SARL and SA). The former SAS was subject to a host of restrictions that in practice effectively relegated it to a narrow range of practical uses.
The new form of SAS can have a single or multiple shareholders, who can be either individuals or corporate (or other legal) entities. A single-shareholder SAS is termed a société par actions simplifiées à associé unique (SASU). Corporate shareholders are not themselves subject to any minimum share capital requirements themselves (as they were in former version of the SAS). In addition, there is a broad scope for bespoke structuring in terms of the details of the governance structure and the internal regulation applicable to the administration and operation of an SAS. Accordingly, a SAS is a vehicle that caters for corporate groups of a variety of sizes from multinational conglomerates to individual entrepreneurs and is no longer the preserve of international joint ventures or larger corporate groups. SAS are separate legal entities protected by their own corporate veil. Hence, the company alone is primarily responsible for its own liabilities and obligations, with exceptions applying typically only in the event of fraudulent or other criminal or similar activity. Shareholders are liable only to the extent of their capital contributions in respect of the shares subscribed for by them.
With the advent of a changing economic landscape, involving a proliferation of SME’s, start-ups and new entrants into the local market from abroad, it was recognised that a revision of the prior corporate offerings was a necessity. Aside from the SA’s and SARL’s, the old form of SAS had struggled to gain traction as a favoured form of corporate entity and tended to be relegated to use in joint ventures between local and foreign JV partners. SARLs had remained by far the preferred option in practice. Difficulties faced by the old form of SAS were that it did not adequately simplify the strictures of the SA, from which it was derived, in that it still required at least two shareholders, which must be legal persons (not individuals) each having a minimum share capital of at least MAD 2 million or equivalent in another currency. The authorised representative of the SAS had to be an individual (not a legal person), whereas the use of corporate officers for subsidiary entities in international corporate groups is a common preference. In addition, there was a minimum share capital requirement of MAD 300,000, which was inconvenient when such a level of capital was either not necessary for the business concerned or funding for the underlying business was able to be funded other than via share capital. It was in this context that Law No. 19-20 abolished the old SAS (i.e. sociétés anonymes simplifiées) and gave rise to the new SAS (société par actions simplifiée) mirroring in many respects its counterpart in French law. This development has broadly been lauded in that it brings into being a more flexible and business-orientated corporate vehicle sitting alongside the SA, the SARL and the various other types of more specifically focused types of entity capable of formation in Morocco. The SAS has ultimately become the popular corporate vehicle for foreign investors looking to expand their operations into Morocco.
The advantages associated with an SAS, particularly in terms of flexibility and simplicity, distinguishing it from its predecessor, include there no longer being a minimum share capital requirement, the ability to form sole-shareholder companies, the possibility of having individual as well as corporate shareholders, the elimination of minimum capitalisation requirements for corporate shareholders, the ability to appoint corporate directors for an SAS and a much greater level of freedom to set-up the decision-making and management structure of the company and to legislate bespoke governance protocols in its constitutive documents. Further, an SAS reinforces the rights of its shareholders to information in relation to the operations of the company and the underlying business and they are in practice quicker to incorporate and commence operations through.
SAS’s are premised on the principle of freedom to contract amongst the shareholders. This is apparent in the flexibility of the constitutive documents, which are amenable to bespoke drafting to enable the creation of structures of management and control, which suit the requirements of investors in each instance. In addition, the SAS enables its participants to ensure that the relationship between them remains a personal one, such that the identity and unique characteristics of particular shareholders can be retained for the benefit of the management and development of the underlying business without being wholly impersonal and premised only on the rigid and inflexible provisions of companies law.
In addition, it is perfectly possible to enshrine in the constitutive documents of a wholly-owned SAS that key provisions of the policies of the group of which it forms part will apply to administration and operation of the SAS and thereby, for example, to circumscribe the powers and authority of the président (equivalent of chairperson), to specify rules for decision-making on particular matters, and to establish committees to oversee particular issues (remuneration, internal audit, corporate social responsibility, and so on). In the previous form of SAS, it was common to provide for such matters in a separate shareholders’ agreement, as distinct from the company’s constitutive documents, but the binding nature of such agreements was open to question given that the applicable law stipulated that ancillary agreements that contradicted the constitutive documents of the company were unenforceable.
As there are no minimum share capital requirements, details of the chosen share capital structure can be set by the shareholders in the constitutive documents of the company. Payments up of share capital can be made in either cash or kind. In terms of preservation of share capital, cash contributions are to be released up to one quarter of their value on subscription for the shares to which they pertain, and the balance can be released on one or more occasions during the three years subsequent to the incorporation of the company.
In addition, in the context of a joint venture formed using an SAS, the JV partners can effectively structure the governance of the JV company as they see fit, including adopting the management structure and establishment of specialist internal oversight committees with such remits and such composition as they desire. The members of such committees will not from a strict legal perspective acquire the status of management, but can nevertheless function as an effective check on the operations of management as well as affording certain advantages, such as the following:
the ability to specify procedures conducive to the smooth operation of management and committees, including the giving of notice by email, remote meetings and flexible notice requirements;
there is no requirement for management personnel or members of committees to have any qualifying shareholding in an SAS, which substantially simplifies the shareholding and management arrangements of an SAS; and
given that local management personnel are frequently selected by the local JV partner, the use of committees as checks and balances aids in the monitoring of activities or the authorisation of certain actions on the ground to enable a foreign JV partner to maintain a level of oversight over the governance of the company without the need to appoint a local representative in the management of the company.
An SAS is able to issue equity and debt securities in a relatively flexible manner, including in the form of bonds convertible into shares, share warrants and so on. This feature of an SAS, whereby it can issue such securities without the level of formality associated with SA’s represents a key element in the structuring of certain investment options, such as allowing equity investments by investment funds.
The advantages of being able to issue securities in this manner assists in:
expanding the options for financing the company, such as being able to structure funding partially or substantially through either equity or debt or combinations of the two;
protecting an equity investment by enabling it to be adjusted under certain conditions, such as via ratchet mechanisms in the event of a revision in the valuation of the underlying investment; and
incentivising key personnel by enabling the establishment of equity incentive or employee benefit schemes.
An SAS is also a useful vehicle to facilitate business succession i.e. to cater for a family business and the eventual transition of management and ownership from one generation to another. The flexibility and the distinction between ownership and management control assists in planning and implementing effective family business structuring.
Albeit an SAS is unable to offer shares directly to the public at large or be listed on a stock exchange, its inherent flexibility insofar as concerns its governance structure and the potential to issue transferable securities, including convertible securities, makes an SAS a corporate structure that is especially appealing to both entrepreneurs and investors in Morocco.
(scroll to view the full table)
Type of company
SAS
SARL
SA
Share capital requirement
No minimum amount.
Unlisted MAD 300,000
Listed MAD 3 million.
Number of shareholders
1 or more (individuals or legal persons).
Between 1 and 50 (individuals or legal persons).
At least 5 (individuals or legal persons).
Public offering of shares
Not permitted
Permitted
Management
The only requirement is that the company has a président (equivalent of a chairperson). When the président is the sole management appointee, they will exercise broad management powers subject to the provisions of the company’s constitutive documents. Other management personnel, such as a chief executive officer, and one or more supervisory committees can be added as the shareholders see fit.
There will be one or more individual gérants (managers) appointed by the shareholders. These manager(s) are vested with the broadest powers to act on behalf of the company, save in respect of powers reserved to the shareholders or specified in the constitutive documents.
Two forms of management structure may apply i.e. with a board of directors (conseil d’administration), comprising a minimum of three and a maximum of 12 directors (appointed by the shareholders) and who must themselves be shareholders. The board appoints a chairperson and a chief executive officer or a single chairperson-CEO (président directeur général). Alternatively, there may be a management board (directoire) and a supervisory board (conseil de surveillance), comprising a management board of up to 5 members (individuals) appointed by the supervisory board. Members of the management board need not be shareholders. The supervisory board consists of between 3 and 12 members appointed and removed by the shareholders, who must themselves be shareholders. The supervisory board appoints from within its members a chairperson and a vice-chairperson.
Auditor appointment
Appointment of one or more auditors is compulsory when the company’s turnover exceeds a particular threshold to be fixed by local regulations.
Appointment of one or more auditors is compulsory when the company’s turnover exceeds MAD 50 million.
Listed companies are required to appoint at least two auditors, as are those engaged in banking, finance, investment, insurance and certain other regulated sectors.
Administrative requirements
Determined by the shareholders and set out in the constitutive documents, albeit amendments to the constitutive documents must be approved by the general assembly of shareholders.
Certain mandatory controls apply to the operations at the behest of the majority.
Certain restrictions apply in order to ensure compulsory minority protection rights.
For further information,please contact James MacCallum.
Published in August 2023.
