Loophole in the current law
The repealed Commercial Companies Law No. 15 of 1960 was categorical in requiring of Kuwaiti participation in companies established in Kuwait, and in determining the minimum percentage of Kuwaitis’ participation in the capital of the company, that in order to enable the nationals to dominate and control the activities and commercial establishments.
This may be due to the historical circumstances that accompanied the promulgation of the law, especially the domination of Western colonialism over the wealth of many countries and their economic interests and political affairs.
Under the repealed Companies Law – referred to –, A General Partnership Company, Limited Partnership Company, Partnership Limited by shares or a limited liability company, may not be established unless there is at least one Kuwaiti partner, and the Kuwaiti partners shall own no less than 51% of the company’s capital.
As for the Shareholding Company (both public and closed), the repealed companies law was more stringent.
As rule, all the shareholders in these companies should be Kuwaiti, and owned all the company’s capital. And, as an exception, the law allowed to non-Kuwaitis to participate in the shareholding companies in the case of the need for foreign investment or foreign expertise.
The previous situation has been in place for more than 50 years, until the promulgation of the Companies Decree Law No. 25 of 2012, which was amended by Law No. 97 of 2013, and the promulgation of the current Companies Law No.1 of 2016, which is different from the canceled law in many matters, foremost of which is regulation of Kuwaiti participation in companies established in Kuwait.
If the repealed law expressly required the Kuwaiti participation in the companies and determining the minimum percentage of Kuwaitis’ participation in the capital of the company, we find that the current companies Law did not require such participation only in the three forms of companies: A General Partnership Company, Limited Partnership Company, Partnership Limited by Shares, as it provides that Kuwaiti partners shall own no less than 51% of the company’s capital.
With regard to the rest of the forms of companies, the situation is different; the current law does not require the participation of Kuwaitis in the shareholding company, both public and closed, as is the case for a single person company; as the texts are free of any limitation regarding determining a certain percentage to be achieved for the participation of Kuwaitis in capital.
As for the limited liability company, its legal regulation is not clear; as the law does not specify a certain percentage for the participation of Kuwaitis in the company, but it provides that the executive regulation shall determine the percentage of the participation of Kuwaiti nationals in the capital of the company. Despite the above, the executive regulations of the companies law did not specify the percentage of the participation of Kuwaiti nationals in the capital of the company.
Accordingly, it turns out that the current companies law does not provide the requirement of Kuwaiti participation in some forms of companies established in Kuwait, as we have pointed out, although these forms are the predominant in practice, and we do not know if this is intentional, in order to attract foreign investments, or is unintended, and I think it is often unintended, especially in Limited Liability Company, as the law provides that the executive regulation shall determine the percentage of the participation of Kuwaiti nationals in the capital of the company, as we indicated earlier.
By Dr Sherif Salama
Ph.D in constitutional law