The Different Types of Companies in Qatar - Essay Example

? Limited Liability Companies in Qatar and the Laws Governing Them Schools Number and of Submission (e.g., October 12, 2013) Limited Liability Companies in Qatar and the Laws Governing Them 1. Introduction Qatar law recognises six types of companies, one of which is the Limited Liability Company (LLC) (Commercial Companies Law, 2002). Some of the LLC companies in Qatar include Qatar Holding LLC, United Gulf Financial Services Company LLC, Global Investment House (Qatar) LLC, PricewaterhouseCoopers - Qatar LLC, McNair Chambers LLC, etc. (Qatar Financial Centre Authority, 2013). A limited liability company is an organisation that is formed under the state law which shields the owners/members of the organisation as well as the management from personal liabilities arising from debt or liabilities of the company (Martin, 2010). An LLC implies that the company has not more than fifty and not less than two partners (Commercial Companies Law, 2002). The partners are not answerable for anything other than their individual shares in the company’s capital and their shares do not represent transferable cheques. LLC is the most common form of business organisations in Qatar (“Business Setup in Qatar”, 2008). 1.1. Limitations and Rules Enforced on LLC Companies 1.1.1. Partners and shares Basically, LLCs do not have any issued shares (Silkenat, Aresty and Klosek, 2009). It is imperative that an LLC should have one or more partners who are Qatari nationals with not less than 51% share in the company capital. Moreover, it is not necessary that the profit share of the partners reflects their equity stake. Foreign companies that are wishing to establish a joint venture in Qatar with a Qatari partner generally opt for an LLC. As mentioned earlier, an LLC needs to have two to fifty shareholders or partners and the minimum capital to be raised for such a venture is QAR 200,000 (Silkenat, Aresty and Klosek, 2009). While it is important that a Qatari national should be one of the partners in the LLC, in some sectors like manufacturing, tourism, agriculture, education, and health, foreigners are allowed to own 100% of the company (Wolters Kluwer TAA Ltd, 2013). 1.1.2. Capital and profits The capital should be raised through non-public subscription. Moreover, transferable bonds and shares (negotiable shares) cannot be issued and around 10% of the annual net profits of the company should be retained within the company till the reserve capital is 50% of the share capital of the company (Silkenat, Aresty and Klosek, 2009). The company capital is to be divided into equal units of more than QAR 1000 each (Dew, Shoult and Wallace, 2002). It is illegal for LLC companies to offer banking and insurance services as well as advice about insurance and other such services to other parties. The profit percentage of LLC companies can be increased through means such as weighted dividend rights (Silkenat, Aresty and Klosek, 2009). 1.1.3. Tax liabilities LLCs in Qatar have to submit an annual tax return and are required to pay corporate income tax. They are liable to pay 10% of their profits made from Qatar. If their annual profits are more than QAR 100,000, they are required to declare this along with their audited financial statements issued by a registered auditor (“Business Setup in Qatar”, 2008). 1.1.4. Companies Law and requirements for setting up LLC The different types of companies in Qatar are ordained by the Companies Law (Commercial Companies Law no. 11 of 1981 (Dew, Shoult and Wallace, 2002). Partners establishing an LLC are required to sign and submit, in Arabic, the Memorandum and Articles of Association to Qatar’s Ministry of Economy and Commerce (Wolters Kluwer TAA, 2013). The name of the company has to be approved by the Ministry of Economy and Commerce in Doha and the minimum stipulated capital also has to be deposited at a bank in Qatar (“Business Setup in Qatar”, 2008). 2. Qatari Laws on LLCs 2.1. Ownership Interest of Shareholders in an LLC As per article 225 of the Commercial Companies Law no. 5 of 2002, none of the partners are questionable for anything other than their share in the capital of the company (Commercial Companies Law, 2002). The shares of the partners are not considered as transferable cheques. There can be not more than fifty and not less than two partners of a company. Partners from a foreign company are acceptable as long as one of the partners of the LLC is a Qatari national. Foreign investors however can own only 49% of the shares while Qatari partners (one or more) should own a total of 51% of the shares. Complete ownership is given to foreign nationals if they place a special request to the Ministry. This is however possible in only certain sectors which include – industry, tourism, agriculture, development of natural resources, education, consultancy services, health, information technology (IT), distribution services, sports services and services associated with entertainment and culture (“Business Setup in Qatar”, 2008). As per article 233 of the Commercial Companies Law, the capital of an LLC company has to be distributed equally according to the shares of the partners that were determined at the time of establishment of the company (Commercial Companies Law, 2002). There cannot be a partition of a share. When one share is owned by more than one owner, the use of equities associated with that share is suspended until a single owner is selected among the owners. The owner has to be selected within a given timeframe otherwise the share is sold and the account of the owners is credited. The partners are preferred over others for ownership of the share. 2.2. Profit Distribution between Shareholders It is permissible under applicable laws in Qatar to have a different profit distribution between the shareholders than their shareholding in the company. This can be deduced from the article 232 and article 13 of the Commercial Companies Law. According to the article 232, “…The loss and profit on the shares shall be distributed equally unless otherwise stipulated in the Company Contract, abiding by the provisions of the Article (13) of this Law” (Commercial Companies Law, 2002, p. 71). Therefore, although the law states that the profit should be distributed equally, if the company contract, which is prepared in accordance with article 13, splits the profit unequally, it is permissible to a different profit distribution. It is necessary for the contract to follow article 13 wherein it is stated that the company contract should not exclude any partner from a profit or a loss. 2.3. Profit Distribution In Case of Foreign Shareholders While it is seen that the profit distribution among the shareholders can be varied if it is mentioned in the contract, it can also be said that shareholders will not be in violation of Qatar’s Proxy Law should they decide to grant a foreign (non-Qatari) shareholder a profit distribution greater than his actual shareholding in the company. This is because, as stated in article 232, the loss and profit on the shares can be distributed unequally if it is stipulated in the contract of the company, only if the contract is in abidance of article 13, which states – The Company contract should not include any text that prevents any partner from the profit or weaves him from the loss, otherwise, it will become null and void. However, the text that weaves the partner who has not submitted any share in the partnership except his work, is allowed (p. 8). Therefore, although foreign investors are entitled to only 49% of the shares of the company, they do enjoy certain provisions such as the right to more than 49% of profits, which would not be against the Companies Law (Latham & Watkins, n.d.). This does not violate the Proxy Law that prohibits legal Qatari nationals from harboring foreigners to enable them in circumventing the restrictions placed by Qatari law over foreign investors. Thus in Qatar, the profit shares do not necessarily have to be in proportion to the shareholding for both Qatari and non-Qatari investors. 2.4. Illegal Practices carried out by Non-Qataris in a LLC The Government of Qatar identified certain violations made by foreign investors in LLCs. These violations have been restricted by the “Proxy Law” or the Law No. 25 of 2004 on the Combat of Covering up Illegal Practices Carried out by Non-Qataris. The practices that are deemed illegal by this law are – Conductance of economic, commercial or vocational businesses by non-Qatari nationals except in particular sectors after seeking permission. The harboring or covering up of non-Qatari nationals by legal/natural Qatari nationals in order to enable them in carrying out economic, commercial or vocational businesses that are against the laws. The act of covering up includes any assistance provided by a Qatari to a non-Qatari to illegally use the commercial registration, license, name, etc. of the Qatari for the benefit of himself, the Qatari national or both ) (Law No (25), 2005). 3. Conclusion This paper introduced the concept of a limited liability company in Qatar and discussed the laws and restrictions governing these organisations. It also clarified the ownership of shares and distribution of profits among Qatari and non-Qatari investors. The illegal practices associated with LLCs as listed in the Proxy Law have also been discussed. References “Business setup in Qatar”. (2008). Retrieved from http://kmdqatar.com/qatar_company_formation.html Commercial Companies Law. (2002). Law No. (5) of 2002. State of Qatar Ministry of Economy and Commerce. Dew, P., Shoult, A., & Wallace, J. (2002). Doing Business with Qatar. London: GMB Publishing Ltd. Latham & Watkins LLP. (n.d.). Doing Business in Qatar. Retrieved from http://www.lw.com/thoughtLeadership/doing-business-in-qatar Law No (25) of the Year 2005 on Combat of Covering up Illegal Practices Carried out by Non-Qataris. (2005). Tamim Bin Hamad Al Thani Deputy Emir of the State of Qatar. Martin, A. R. (2010). Limited Liability Company and Partnership. New York: Aspen Publishers. Qatar Financial Centre Authority. (2013). Public Register. Retrieved from http://www.qfc.com.qa/en-US/public-register-2.aspx Silkenat, J. R., Aresty, J. M., & Klosek, J. (2009). The ABA Guide to International Business Negotiations. Illinois: American Bar Association. Wolters Kluwer TAA Ltd. (2013). Qatar: Types Of Company. Retrieved from http://www.lowtax.net/information/qatar/qatar-limited-liability-company.html Read More