JSC v. LLC in Egypt

Joint Stock (JSC) and Limited Liability Companies (LLC) are the main corporate structures used by investors in Egypt, as the liability of the shareholders/partners in such companies is limited to the equity invested in the company. Further, both corporate structures are regulated by the Companies Law No. 159 of the year 1981 and its Executive Regulations (“Companies Law”) and the Investment Law No. 72 of the year 2017 and its Executive Regulations (“Investment Law”), depending upon the type of activity carried out by the company in Egypt. The below table sets out the main differences between joint stock companies and limited liability companies:

 

  Joint Stock Company (JSC) Limited Liability Company (LLC)
Name The name of a JSC must correspond to the company’s objective and may include the name of one or more of its founders. The company’s type will be shown before or after the title, in clear legible letters. The name of an LLC doesn’t have to be derived from its objective and may include the name of one or more of its founders. The company’s type has to be shown before or after the title, in clear legible letters.
Scope JSCs may carry out any lawful activity, subject to obtaining the required licenses (if any). LLCs are usually formed for projects that do not require major financing such as companies involved in internal trade and services activities. LLCs may not carry out the activities of insurance, banking, savings, receiving deposits or investment of funds for the account of third parties or activities which the law confines its exercise to a company of another type (i.e., electricity generation).
Premises The headquarters of both the JSC and the LLC must be located in Egypt. The premises may be owned or leased. Also, the memorandum of association of the company should specify the address of its head office where its management works take place.
Shareholders/Partners’ Liability The shareholders/partners liability is limited to their participation in capital (i.e., equity) and the shareholders/partners would not be accountable for the company’s debts further than its shares/quotas.
Number of Shareholders/ Partners The minimum number of shareholders is three (3) and there is no maximum limit. All the shareholders may be foreigners, with a few exceptions for certain activities that should be carried out by Egyptian nationals, including but not limited to the following:

·       importation companies,

·       commercial agencies

·       companies operating within the Sinai Peninsula.

 

The minimum number of partners is two (2) and the maximum is fifty (50) all of whom may be foreigners.

 

Subscription of Shares and Quotas The subscription of shares could take the form of a public or closed subscription.  Furthermore, the shares must be dematerialized. This requires the registration of the shares with Misr for Central Clearing, Depository and Registry (MCDR) at establishment. All quotas must be subscribed to and fully paid at establishment in an account to be opened at an authorized bank by Ministerial Decree.
Statutory Minimum Capital Minimum issued capital of a closed or a private JSC is EGP 250,000, 10% of which must be paid upon establishment and topped-up to 25% within three months from the date of establishment of the JSC. The full capital must be paid up within five (5) years from the date of establishment. The JSC may have an authorised capital, equivalent to ten times its issued capital at most. With the exception of specific cases required by law, no minimum amount is required, and incorporation could be carried out without a bank certificate evidencing the capital injection. However, a bank certificate shall be required in case of transfer of quotas and the increase or decrease of the company’s capital.  The LLC does not have an authorised capital.
Issuing of Securities A JSC may issue different types of securities (shares, bonds, etc.). An LLC may not issue any type of securities.
Management JSCs are managed by a Board of Directors (BOD), and a General Assembly. The General Assembly holds ordinary and extraordinary meetings according to the topics on the agenda and in accordance with the provisions of law and regulations. The BOD is composed of a minimum of three (3) members, including the Chairman. They may all be foreign individuals or entities, except for some activities which require the appointment of Egyptian directors.

 

The BOD is voted in place for a renewable term of three (3) years, with the exception of the first BOD of the company, which term may be set up to five years.

LLCs are managed by one or more managers. They may all be foreigners, except for some activities which requires the appointment of Egyptian managers.

 

In case the number of partners exceeds ten (10), a supervisory board must be constituted of at least three (3) partners.

Nationality of the

Employees

Foreign labour may not exceed 10% of the total labour force of Egyptian companies. Foreign employees must obtain validly issued work permits, which require the submission of specific documents by the employer,employee and the fulfillment of certain requirements. Companies established under the Investment Law can employ foreign employees not exceeding 20% of the work force, except for certain strategic projects. There are also some other excpetions for certain nationalities as well and for foreign investors (shareholders and board members).
Transfer of shares The possibility of transfer of shares depends on the type of shares, the law according to which the company is established and the identity of the purchaser.  In all cases, all types of shares may be transferred after the lapse of two financial years from the incorporation date of the JSC. The shares of an LLC may be freely transferred at any time by virtue of a sale agreement, which may be authenticated or not depending on the provisions of the by-laws of the company.
Distribution of profits The Ordinary General Assembly may order the distribution of net profits.   Net profits are calculated after deducting costs, in addition to 5% for a legal reserve (could be increased to up to half of the amount of the issued capital), in addition to any amounts required for other reserves stipulated in the by-laws of the company (if any).

 

The distribution is carried out as follows:

•        not less than 10% to be distributed to the employees;

•        5% as a first dividend distribution to the shareholders;

•        10% at most from the distributable profits, to be distributed to the holders of incorporation shares or profit shares, if any;

•        10% at most from the remaining profits as a management compensation; and

•        The rest is distributed to the shareholders.

The Ordinary General Assembly may resolve on the distribution of the net profits. Net profits are calculated after deducting costs, in addition to 5% for a legal reserve (up to half of the amount of the issued capital), in addition to any amounts required for other reserves stipulated in the by-laws of the company, if any.

 

 

 

 

The distribution is carried out as follows:

•        10% to be distributed to the employees if the company’s capital is EGP 250,000 or more;

•        5% as a first dividend distribution to the partners;

•        10% at most of the remaining profits as a management compensation; and

•        The rest is distributed to the partners.

Distribution of profits to employees At least 10% of the distributed profits (up to the total amount of the employees’ annual salaries), as resolved by the Ordinary General Assembly based on the recommendation of the Board of Directors, must be distributed to the employees. Where the capital of the LLC is EGP 250,000 or more, it is subject to the same requirement of the JSC. Where it is less than this figure, the distribution of profits to the employees is required but the law does not provide for a minimum percentage or amount for such distribution.

 

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