How to start business in the Arab Republic of Egypt and to establish an entity
Arguably, this article will shed light on the legal mechanism and framework to Start Business in Egypt, the highly common legal forms that are recommended to be established in the Arab Republic of Egypt, and all terms and conditions in accordance with the provisions of all relevant laws, decrees, regulations, and circulars in this regard.
OVERVIEW OF THE ECONOMY IN EGYPT
It is worth mentioning that Egypt enjoys a prominent geographical location, which is deemed a vital pillar to attract incoming investors, additionally, Egypt has a comprehensive and clear legal and judicial scheme, and the latter has a focal effect on the Egyptian economy, whereby such a comprehensive legal and judicial scheme maintains and protects all of the investments, corporations, and investors from any manipulation.
It is well established that the provisions of the Egyptian Companies’ Law and its executive regulations, as amended, are deemed as the exclusive jurisdiction that regulates and governs the formation of corporations and any other considerations in this respect.
Furthermore, all corporations and entities established under the provisions of the Egyptian laws shall strictly abide by all provisions set forth in the Egyptian companies’ law and its executive regulations, as well as the latter are deemed as “Jus Cogens”.
In a move aimed at improving local and foreign investment in Egypt, the Egyptian government has issued the investment law No. 72 of 2017 and its executive regulations, in that context, the investment law provides a set of incentives and indemnities to encourage foreign direct investment in Egypt on a much sound and legal basis.
THE HIGHLY RECOMMENDED LEGAL FORMS TO BE ESTABLISHED IN EGYPT
On the legal front, Egyptian legislation provides various legal structures and forms to be established in Egypt, however, this article will define the highly recommended legal forms that might be established in Egypt tremendously and seamlessly, namely:
- Joint Stock Company (JSC).
- Limited Liability Company (LLC).
- One-Person Company (OPC).
- A Branch of a Foreign Company (BFC).
Undoubtedly, each legal form mentioned above has specific terms and conditions in the manner set forth in the Egyptian Companies’ Law as indicated in detail below.
1- Joint Stock Company (JSC)
As a matter of law, the JSC’s capital is divided into shares of equal value, as such, the liability of JSC’s shareholders shall be confined to their shareholding proportions in the JSC’s capital. Moreover, the JSC shall have a trading name, and such a trade name shall be derived from the JSC’s purpose.
JSC’S CAPITAL
Pursuant to the provisions of the Egyptian Companies’ law, the minimum issued capital shall be not less than EGP 250,000 or its equivalent in a foreign currency, in return, the authorized capital shall be ten times the issued capital.
Exceptionally from any other legal form in the Egyptian jurisdiction, the number of the JSC’s founders shall be not less than three (3) founders at least, in the same vein, such founders may be a natural or juristic person(s).
Legally speaking, the establishment of the JSC entails depositing 10% of the issued capital prior to the establishment process by virtue of a certificate issued by a licensed bank in Egypt, the founders are obliged to complete 15% of the issued capital within three (3) months as of the JSC’s establishment and its registration in the Commercial Registry Office, and the remaining 75% shall be completed within five (5) years as of the JSC’s establishment and its registration in the Commercial Registry Office.
Legally, the capital may be constituted of either cash or in-kind shares at the JSC’s founders’ discretion.
Pursuant to Egyptian regulations, the foreign shareholding in the JSC’s capital may be at the rate of 100% of the issued capital, however, there are determined activities that entail an estimated percentage of the Egyptian shareholding in the JSC’s capital.
JSC’S MANAGEMENT
On the legal front, the JSC shall be managed and operated through a board of directors, and the latter shall be not less than three (3) board members at least. Furthermore, such board members may be a natural or juristic person(s).
It is well established that the said board members may be Egyptian or foreign nationals without any restrictions in this respect.
2- Limited Liability Company (LLC)
As defined under the provisions of the Egyptian Companies’ law, the minimum number of the LLC’s partners shall be not less than two (2) partners and not exceeding fifty (50) partners.
The LLC’s name shall be derived from its purpose and/or may include the name of the LLC’s partner(s) as permitted by law.
Pursuant to Egyptian regulations, the foreign partnership in the LLC’s capital may be at the rate of 100% of the capital, however, there are determined activities that entail an estimated percentage of the Egyptian partnership in the LLC’s capital.
LLC’S CAPITAL
In the first place, the LLC’s quotas shall not be indivisible under any circumstances. Moreover, the process of transferring the LLC’s quotas is taken place seamlessly, as opposed to any other legal form in Egypt.
Furthermore, there is no minimum amount in relation to the establishment of an LLC. Hence, there is no obligation to deposit the LLC’s capital amount in any licensed Egyptian bank prior to the establishment process.
Legally, the capital may be constituted of either cash or in-kind quotas at the LLC’s partners’ discretion.
LLC’S MANAGEMENT
The LLC may be managed and operated by one or more managers, such manager(s) may be an Egyptian or foreign national.
3- One-Person Company (OPC)
Under any circumstances, the OPC shall be owned by only one owner, and the latter may be a natural or juristic person, however, the amendments of the Egyptian Companies law, precisely, law No.4 of 2018 introduces a set of provisions and terms to regulate the OPC as defined below.
Whereas the OPC is prohibited to carry out the following activities as follows:
- Incorporating a One-Person Company.
- Public subscription, either during its establishment or increasing its capital.
- Dividing its capital into tradable shares.
- Borrowing through the issuance of tradable securities.
- Practicing the profession of insurance, banking, or funding investment for third parties.
It should be noted that OPC is required to strictly abide by all provisions applied to LLC, whereby, the such legal principle has been confirmed by virtue of law No.4 of 2018.
OPC’S Capital
Legally speaking, the minimum amount of the OPC’s capital shall be not less than EGP 1000 or its equivalent in a foreign currency, given that the said amount shall be duly and fully paid up prior to the establishment process by virtue of a certificate issued by a licensed Egyptian bank.
OPC’S MANAGEMENT
The OPC may be managed and operated by one or more managers, such manager(s) may be an Egyptian or foreign national.
4- A Branch of a Foreign Company (BFC)
It is well established that the BFC is owned by its parent company, as a result, the BFC shall be deemed as a legal extension to its parent company. Subsequently, the parent company has the exclusive jurisdiction to amend any data pertaining to its BFC and/or write off its BFC.
Moreover, the registration of a BFC in Egypt is based on the following key pillars as follows:
The parent company shall conclude an agreement with any Egyptian entity, whether, a governmental, non-governmental, or quasi-governmental authority(ies);
The minimum amount of the BFC’s capital shall be not less than EGP 5,000 or its equivalent in a foreign currency and such amount shall be fully paid up prior to the BFC’s registration;
The term of the BFC depends upon the term of the concluded agreement with the Egyptian entity as mentioned above.
It is worth mentioning that the process of registering a BFC in Egypt differs from any other legal form(s), this is due to the fact that the registration of the BFC requires the prior consent of the Governmental Services Sector.
Main Indemnities & Incentives Under the Investment Law
Crucially, the provisions of Egyptian investment law No. 72 of 2017 state various investment indemnities and incentives for companies and projects subject to the provisions of the said law.
Moreover, the aforementioned law paved the way for direct foreign investment, whereby, the provisions of the investment law and its executive regulations expressly set out a set of indemnities and incentives, as a result, foreign investments and/or projects may benefit from the promogulated indemnities and incentives to the utmost extent possible.
It is well established that the investment law applies and enforces the principle of reciprocity for foreign investors, additionally, such a foreign investor may be benefited from a distinctive legal treatment, upon a proposal issued by a cabinet in this respect.
Furthermore, the investment law provides a residence for foreign investors throughout the term of the project in the Arab Republic of Egypt, without prejudice to the governed and regulated regulations and laws in this regard.
Most importantly, pursuant to the provisions of the investment law, it is not amenable to nationalize the investment projects, furthermore, funds of investment projects shall not be confiscated, unless for the public benefit in exchange for fair compensation and the latter shall be paid in advance without any delay.
It should be noted that it is not permissible to impose the judicial receivership on such projects, unless by virtue of irrevocable court judgment, as well as it is not permissible to impose the judicial seizure on such projects, unless by virtue of a court judgment and/or order.
It is worth mentioning that the investor has the right to establish, expand and/or fund its project through foreign funding without any restrictions in this regard, additionally, one of the main incentives set forth in the said law, a foreign investor may transfer the project’s dividends abroad.
Undoubtedly, the investment law enables the carrying out of all of the banking transactions pertaining to the investment project in a foreign currency(ies), either inside or outside Egypt.
One of the principal pillars outlined in the said law, the investment project may import the project’s production requirements through itself or a third party without being registered in the importers’ record, in the same vein, the above-mentioned right is duly vested for such projects concerning the exportation without being registered in exporters’ record.
In the same context, the investment project has the right to employ foreign labor at the rate of 10% of the project’s cumulative personnel and the said percentage may be increased to 20% of the project’s cumulative personnel in the manner set forth in the provisions of the executive regulations.
It is clear that the investment law and its executive regulations provide numerous incentives for foreign investors and investments, whereby, there a set of private incentives depend upon the nature of the investment project’s activity(ies).