Transferring Quotas and shares in accordance with the provisions of Egyptian law

The company is a legal entity that aims to achieve profit by carrying out commercial activities. The company consists of a group of shareholders or partners who provide the capital necessary to establish and operate it. Then each shareholder/partner in the company is determined from the profits based on his financial contribution, where a distinction can be made between Joint Stock (JSC) and Limited Liability Companies (LLC) that consists of quotas, while the JSC consists of shares, LLC consists of quotas and the forms of legal transactions that are carried out on them by their owner.

Firstly: Transferring Quotas

The capital of limited liability companies LLC is divided into quotas, not shares, and quotas cannot be offered for trading through commercial methods.
Article No. (69) of the Executive Regulation No.96 of 1982 (The Executive Regulation) of Companies Law No. 159 of 1981 (The Companies Law) specifies the types of quotas, stipulating that “a partner’s quota shall be in cash or in kind, and it shall not be in a form of work he performs for the company.
…………………………………..”

Article No. (153) stipulate that “…………. The quotas or profit quotas are created either when establishing the company or increasing its capital – and the company’s Articles of Association (AoA) shall include a statement of the consideration for those quotas and the rights related to them.
These quotas are traded by recording them in the company’s ledgers”

Article No. (118) of the Companies Law No. 159 of 1981 specifies the method of selling the company’s quotas. As it shall be sold by virtue of an official agreement or an agreement contains authenticated signatures, unless the company’s AoA stipulates otherwise. In this case, the remaining partners may recover the sold quota under the same conditions.

Whoever wishes to sell his quota shall inform the other partners through the managers of the offer addressed to him.

After one (1) month from the date of notification without exercising the right of redemption by anyone of the remaining partners, the partner is free to dispose of his quota.

If more than one partner uses the right of redemption, the sold quota shall be divided among them in proportion equals the quota of each of them
In the event of the death of any partner, the share of this partner shall be transferred to his heirs, and the collegatary shall be considered as an heir.

Selling quotas to the others:

According to article No. (274) of the Executive Regulation every partner who wishes to sell his quota to others shall inform the managers by registered mail with acknowledgment of receipt about his intention to sell his quota with the price and conditions under which the sale will be made.

The managers shall hold a meeting of the group of partners within Ten (10) days from the date of notification with the intention of selling to consider the exercise of their rights of recovery, and it shall be sufficient to obtain written approval from all partners without meeting in order to sell to others by recovering the sold quota under the same conditions presented, and what the group of partners concludes will be communicated to the partner who intended to sell by registered mail with acknowledgment of receipt within One (1) month from the date of his notification to the company of his intention to sell.

According to article No. (275) of the Executive Regulation of the Companies Law, there shall be Ledger of Partners, which includes the following:

1. The names of the partners, their nationalities, places of residence and professions.
2. The number of quotas owned by each partner and the amount he paid.
3. Waivement of quotas or transfer of ownership thereof, indicating the date of signature of the transferer and transferee in the event of a disposition between livings, and the signature of the manager and the person to whom the share devolved in the event of a transfer due to death.

The waivement or transfer shall not have effect with regard to the company or third parties except from the date of its entry in the company’s ledger.

The company shall implement requests for waivement that meet the conditions or proof of transfer by inheritance or will as soon as they are submitted to it, provided that the concerned party is notified of this by registered mail with acknowledgment of receipt within five days from the date of submitting the request to it.

Secondly: Transferring the shares

The capital of the JSC shall be divided into nominal shares of equal value in each issuance.

Upon establishing the company, a certificate shall be issued by one of the Central Depository and Registration Companies provides that the securities of JSC are deposited with the Central Depository and Registration Company.

It shall appoint a custodian who is one of the banks or companies licensed by the Capital Market Authority and who has received a training course from Misr Clearing, Depository and Registry Company (MCDR) to open and manage current accounts for securities.

One of the custodian’s duties is to carry out the necessary transfers to complete the purchasing and selling process in accordance with the client’s instructions.

The share shall be indivisible and shall not be issued for less than its nominal value. The Articles of Incorporation (AoI) determines the nominal value of the share so that it is not less than 1 EGP (One Egyptian pound) and does not exceed 1000 EGP (One thousand Egyptian pounds) or its equivalent in foreign currencies in accordance with what is stated in article No. (31) of the Companies Law. It shall not be issued at a higher value, except in the cases and conditions specified by the Executive Regulation.

1- Issuing shares:

Article No. (128) of the Executive Regulation specifies the conditions of issuance and stipulates that “shares shall be issued at an equal nominal value, and shall be indivisible for the company. If more than one person owns the share through inheritance, the heirs shall delegate one person to directly assume the related rights of this share against of the company………………”

The share certificate shall include the name of the company that issued it, the address of its headquarter, its purpose in brief, its duration, the establishment date, number and place of registration in the commercial register, the value of the authorized and issued capital, the number of shares distributed to it, their types, and the characteristics of each type. The type of share, its nominal value, what was paid of it, and the name of its owner shall also be mentioned.

2- Transfer of shares:

If the AoI requires the company’s approval to transfer ownership of shares, approval shall be subject to the following conditions:

• The shareholder shall submit a request to the company for approval to sell his shares. The request shall include his name and address, the number and type of shares subject to the transfer, and the price offered for their purchase. The request is sent either by registered mail, or delivered directly to the company’s headquarters, taking the receipt on the date of delivery.
• Approval is considered to have been provided if the shareholder does not receive the company’s response of acceptance or rejection within sixty (60) days from the date of submitting his application to it, and the date shall be proved by a registered mail receipt.
• If the company’s Board of Directors (BOD), objects to the sale, it shall take one of the following measures within sixty (60) days from the date of notifying the shareholder with the objection:

1. Providing another transferee, whether from shareholders or others to purchase the shares.
2. Purchasing shares, whether to reduce the capital or for other reasons stipulated in the law or the Executed Regulation, and the price is calculated in the manner stipulated by the AoI.

• If the BOD does not exercise its right to take one of the two aforementioned measures within the prescribed period, this will be considered an approval of the transference.

It is also permissible to transfer ownership of the shares to which the founders of the company subscribed by transfer, whether their value was paid in cash or in kind, from some of them to others, or from them to a member of BOD if he needed to obtain them to present them as a guarantee for his management, or from their heirs to others.

In all cases, the Egyptian Stock Exchange (EGX) and the Financial Regulatory Authority (FRA) shall be notified with the process of transferring shares

The procedures followed the approve of transferring the shares

1. Signing the transfer documents, including the share purchase agreement.
2. Appointing a brokerage company registered in FRA for the purpose of implementing the process of purchasing and selling shares.
3. The brokerage company shall send the quantity to be sold to the custodian.
4. The sale consideration shall be deposited or transferred in one of the banks promoted by the Central Bank of Egypt.
5. After verifying the adequacy of the balance, the custodian shall approve the sale order by freezing the shares.
6. The brokerage company that carries out the transaction on EGX shall submit a detailed statement explaining the deposit of the purchase price and transferring it to the seller’s bank account before the date of transfer of ownership.
7. Once all the documents necessary to implement the deal are completed and the sale consideration is deposited or transferred, the brokerage company will proceed to obtain the approvals of the FRA and the EGX regarding the deal and then transfer ownership of the shares.