Management of Kuwaiti Companies
Corporate Structuring / Kuwait
Ahmed El FassSenior Associate,Corporate Structuring
In any jurisdiction in the world, and regardless of the legal form of an entity, we believe that management of the entity is one of the most important, if not the most important, factor in its success. In Kuwait, as per the Kuwaiti Companies Law No. 1 of 2016 (the “Companies Law”), legal entities may take various forms, with the most common forms being a shareholding company (“KSC”), a company with limited liability (“WLL”), or a single person company (“SPC”). In this article, we will explore the various aspects of management of WLLs and SPCs.
We start by noting that the only major difference between a WLL and an SPC under Kuwait law is in relation to the number of owners: an SPC can only have one owner, whereas a WLL must have at least two, but no more than fifty, owners/partners. In addition to the partners/owners of a WLL/SPC, the management of the company can be carried through one or more managers who must be named in the memorandum of association of the company. The powers of the manager are identified in the management clause under the memorandum of association of each company.
Except for certain powers which are typically reserved for the partners/owner of the WLL or SPC (such as: making donations; disposing the company’s real estate; pledging the company’s assets; extending guarantees to third parties; agreeing to arbitration and conciliation), the manager of a WLL or SPC has the full authority to represent and operate the company in its day-to-day operations. Such powers include, but are not limited to, signing all types of contracts/agreements/deals and transactions with third parties, appointing and dismissing the company’s employees and agents, and otherwise operating the day-to-date affairs of the company in the ordinary course of business. Despite the wide powers assigned to managers of WLLs and SPCs, Article 105 of the Companies Law state that “[t]he managers are jointly liable towards the company, partners and third parties for breach of the provisions of law, the Memorandum of Association or any mismanagement as set out in the provisions pertaining to the shareholding company in this law.”
In addition to the powers stated under the memorandum of association of the company, some other matters related to WLLs and SPCs require cooperation of the managers. For example, the manager must call the ordinary and extraordinary general assembly of the partners/owners of the company to convene. In some instances, the practice of the Kuwait Ministry of Commerce and Industry (the “MOCI”) requires signature of the manager on the minutes of the meeting of the general assembly. Therefore, if the manager does not cooperate, the partners/owners will face difficulties in executing any resolutions for the company. In this regard, the practice of the MOCI requires sending two notices to the manager of the company requesting calling the general assembly to convene (the notice can be sent directly or via the court). The partners/owners in this event shall wait from one to two weeks after each notice to ensure the non-cooperation of the manager. In the latter event, the partners/owners shall attach the notices to the MOCI which shall accept holding the meeting at the MOCI or through the attendance of a representative of the MOCI. Although this does ultimately prevent the manager from being able to prevent the general assembly from going forward, the process is time consuming and does not provide a practical solution in urgent cases where the partners/owners require issuing quick decisions.
As part of the digital transformation of the government in the State of Kuwait, the MOCI implemented a system to carry out transactions for WLLs and SPCs through an online portal created by the MOCI. The access to the company’s profile on the online portal is limited only to the manager(s) of the company through his/her Kuwait ID mobile application (Hawiyati). It is worth noting that if the Civil ID of the manager is expired and not renewed, the access to the MOCI online portal will be blocked. At first, this restriction created many hurdles to the partners/owners of the company and the day-to-day operations of the company if the manager is not available or is not cooperating to provide access to the company’s profile. We note that any amendments required over the memorandum of association of a WLL or SPC must be carried out through the MOCI’s online portal. This limitation resulted in many complaints from partners/owners WLLs and SPCs because they saw it as giving too much practical authority to the manager(s). As such, the MOCI implemented the option of granting an authorisation to individuals other than the manager(s) to have access to the company’s profile on the portal.
Unlike WLLs and SPC, management of KSCs are carried out through the KSC’s board of directors. Article 182 of the Companies Law states that “[t]he shareholders shall elect the members of the board of directors by secret ballot. The memorandum of association may stipulate that no more than half of the members of the first board of directors be elected from amongst the Incorporators”. Further, article 183 of the same law states “[t]he board of directors shall elect - by secret ballot - a chairman of the board of directors and a deputy chairman. The chairman shall represent the company in its relations with any third parties and before the judicial authorities, in addition to assuming other functions set out in the Memorandum of Association. The chairman's signature is as forceful as the signature of the board of directors in regard to the dealings of the company with third party. The chairman shall execute the resolutions of the board of directors and shall be bound by its recommendations. The deputy chairman shall substitute the chairman in the latter's absence or inability to exercise his powers and functions”.
It is clear from Article 182 that the shareholders of a KSC appoint and elect the members of the board of the directors and that half of the members of the first board can be appointed from amongst the incorporators. While the manager(s) of a WLL/SPC can be any individual who is not a partner/owner in the company so as long as he/she has a valid residency and Kuwaiti Civil ID (noting that depending on the activities of the company, some companies have certain requirements for the manager of the company), no such residency requirement is applicable for members of the board of directors of a KSC (only the chairman and the vice chairman of the board must have residencies in Kuwait).
While it appears from Article 183 that the chief executive officer’s powers are determined by the board of directors, in WLLs/SPCs, the manager has wide powers to represent the company without reverting to the partners/owners of the WLL/SPC (keeping in mind the requirements of Article 105 as mentioned above).
The MOCI has recently issued Ministerial Resolution number 4 of 2023 regarding the disclosure of the identity of the ultimate beneficial owners (each a “UBO”) of Kuwait entities (the “UBO Resolution”). The UBO Resolution defines the UBO as “any natural person who – directly or indirectly – owns 25% of the company or has voting shares equal to or more than 25% of the company’s voting shares or is able to control the company in any way possible”. The UBO Resolution further obligates companies to maintain a register of its UBOs which should include: (i) each UBO’s full name, nationality, date of birth and place of birth; (ii) each UBO’s actual or chosen domicile for the purpose of the receipt of any notice pursuant to the UBO Resolution; (iii) each UBO’s passport or civil identification card number, and the country and date of issuance, and the date of expiry; and (iv); and the basis on which the UBO became an ultimate beneficial owner of the company. The details of the UBO must be provided to the Commercial Registry Department at the MOCI.
Recently, the MOCI sent notifications to owners of the companies in Kuwait (via Sahel application) to register information of their UBOs in line with the UBO Resolution. The announcement stated that “this request is aimed to addressing suspicious operations and money laundering operations and assisting regulatory authorities in achieving this.”
Upon review of the UBO registration form issued by the MOCI, it appears that the form is only an authorisation to a third party other than the manager of the company to carry out transactions on behalf of the company. As such, it appears that there is a significant misinterpretation of the UBO Resolution and the concept of UBO in other countries all over the world. The application by the MOCI to the UBO is not in line with the concept of the UBO Resolution which requires disclosure of the actual beneficial of the ownership of a company which can be an individual or a company that actually benefits from the dividends of the company multiple layers above the direct ownership of the company.
What proves the misapplication of the UBO Resolution is the fact that the UBO form provided by the MOCI does not allow registration of any individual that does not have a valid Civil ID in Kuwait. Therefore, if the UBO is a foreign individual or company, registration will not be possible. We note that the manager of the company (or a third party that has authorization from the manager) is the person authorised to insert the UBO details and fill the UBO form.
One of the most significant hurdles that the partners/owners of a WLL/SPC face with regard to management of their company is when the manager of the company passes away. The MOCI designed a method to help keep the business of the company running in the event of the death of the manager of the company (if appointed as the sole manager in the company) having the only access to the company’s profile on the MOCI’s online portal. in order for the MOCI to grant access to an individual to the company’s online profile, a form must be provided that includes information on the deceased manager and certain documents must be attached therewith, including but not limited to: (i) a copy of the company’s valid commercial license; (ii) a copy of the Civil ID of the deceased manager and the person provided the authorization; (iii) a copy of the death certificate for the deceased manager; and (iv) a copy of the power of attorney (if any).
In summary, it is important to keep the following particulars in mind when it comes to the manager of WLLS and SPCs in Kuwait:
The manager must have a valid residency/ Kuwaiti Civil ID;
The manager must not be a minor;
In the case of multiple managers, the signing powers of the managers can be joint or several;
The manager of the company may be dismissed by a court decision upon the request of one or more partners/owners who own at least one quarter of the shares in the capital if the manager: (i) commits an act of fraud; (ii) commits an error causing serious damage to the company; or (iii) violates Article (106) of the Companies Law;
If the number of partners/owners exceeds seven, the memorandum of association shall appoint a supervisory board consisting of at least three partners/owners who are not managers; and
Depending on the activities of the company, some companies have certain special requirements for the manager of the company.
For further information,please contact Ahmed El Fass.
Published in November 2023
