How to incorporate a joint-stock company in Egypt?

As the capital of certain companies can be equivalent to the budget of others, then the most appropriate legal form for such companies is the joint-stock companies, being the ideal form for the embodiment of trust companies to carry out projects with particular purpose, no matter was the legal personality of the shareholder. Within this context, we will explain the definition of a founder, and specify the nature, characteristics, establishment and management of joint-stock companies.

A founder is a person who participates in the incorporation of a company for bearing the responsibility arising therefrom. A person shall be considered a founder if he, in particular, has offered an in-kind share upon the incorporation of the company, signed the preliminary articles of association or applied for licensing the company.

 However, whoever takes part in the incorporation, on behalf of a self-employed person or others, will not be considered a founder..

- The founder shall be a natural or legal person with the legal capacity, not to be a public or private sector employee, and have not been convicted of a criminal or misdemeanor for theft, fraud,  dishonesty, or any such penalties as provided for in Articles 162,163,164 of Law 159 of 1981.

A joint-stock company (JSC) is one of the most legal forms that embody trust companies. The JSC’s capital is divided into shares of equal values, where the liability of the shareholder is confined to the value of their shares with its separate legal personality, the JSC is not affected by a shareholder's death, exit,  or bankruptcy.  Under the JSC, a shareholder may assign their share(s) to third parties and/or otherwise disposed of.. The JSC is so flexible that it keeps pace with any developments whatsoever in the Egyptian market.

Characteristics of JSCs:

1. Joint-stock companies are based on the financial liability of their shareholders and are not affected by their personalities.

2. Shareholders’ limited liability, as the liability of a shareholder to the company is generally limited to the amount, if any, that remains unpaid on that shareholder's shares.

3. Company’s trade name may be derived from the name or surname of one, some or all of its partners, and shall be derived out from the company’s activity.

4. The partner does not acquire the status of a merchant. All natural and legal persons may establish a joint-stock company, including those who are prohibited from practicing the trade, as subscribers only, without taking part in the management. All shareholders are liable only to the extent of their shares in the capital of the company.

5. There is no maximum number of members of the board of directors. However, it shall consist of an odd number of no less than three members, whose term on the board of directors shall not be less than three years.

6. The minimum capital, whether issued and paid, of joint-stock companies at the time of incorporation.

1. Joint-stock companies that do not offer their shares for public subscription.

- The issued capital of joint-stock companies shall not be less than 250,000 EGP; the paid-up capital at the time of incorporation shall not be less than a quarter; and the authorized capital shall not exceed ten times the issued capital.

• Paid Capital: means an amount that has been paid out of the company's issued capital. It is repaid in certain proportions on specific dates from the date of the company's incorporation.

• 10% of the capital value upon incorporation, to be deposited with a bank licensed to receive a subscription.
• 25% within three months from the date of registration in the commercial register.
• 100% within five years from the date of registration in the Commercial Register.

• Issued Capital: means a sum of the nominal value of all types of shares issued by the joint-stock company. The whole capital shall be paid; i.e. subscription to the whole capital.
• Authorized Capital: means an amount determined by the founders in the company’s articles of association, not exceeding the issued capital by no more than ten times.

2. Joint-stock companies offering their shares for public subscription.

• The issued capital shall not be less than one million EGP upon incorporation. The founders shall not subscribe to less than half of the issued capital. The authorized capital shall not exceed five times the issued capital.
• There are some activities, as stipulated in Law 95 of 1992 (the Capital Market Law), requiring a specific and fully paid-up capital.

• Here, a question arises: Is it permissible for a subscriber or shareholder in joint-stock companies to contribute to the capital of the company with in-kind, material, or moral share(s)?
• Yes. It is permissible to hold in-kind share(s) in joint-stock companies. However, it is not permissible to enter into a share of work.
• The “in-kind share” means a share offered by the partner either for ownership or usufruct. It is either real estate (such as a plot of land or warehouse), a moral movable (such as a patent or trade name), or a material movable (such as machinery, equipment and goods).
• The founders or the board of directors shall request the Authority to verify whether such shares have been correctly assessed. Such assessment shall be made by a committee, to be formed in the Authority, headed by an advisor in one of the judicial authorities, and at most four experts, to be selected by the Authority, in the economic, accounting, legal and technical fields.
• If the in-kind share is owned by the State, a public authority or a public sector company, a representative of the public money as selected by the competent minister shall take part in the assessment, under such controls as issued by a decision of the Prime Minister.
• This applies to subscribed in-kind shares, for each capital increase before the elapse of sixty days from the date of referring the documents to the competent committee.
• The committee’s assessment shall be final as soon as it is approved in the constituent assembly or the extraordinary general assembly of the company, by a decision of the majority holding two-thirds of the shares or cash shares, by excluding the shares held by the providers of in-kind shares, and they do not have the right to vote. If it is found that the assessment of the in-kind shares is less than one-fifth, the issued capital and the number of in-kind shares shall be reduced by an equivalent to such decrease, unless the provider of the in-kind share pays the difference in cash, and he may withdraw from the company. It is also a prerequisite that the ownership of the in-kind shares is recognized and established for its owner and undisputed. The in-kind shares shall be fully paid stocks or shares.

7. Stock trading for joint-stock companies is not subject to restrictions and its stocks are easy to be traded in the stock exchange.

Required Documentation for Incorporation of Joint-stock Companies:

1. A certificate of non-confusion of the company’s name, approved by the commercial register.
2. A bank certificate proofing deposit of at least 10% of the value of the issued capital, to be completed to 25% within 3 months, and completed to 100% within 5 years, considering the activities for which the law requires a certain capital. The capital shall not be less than 250,000 EGP.
3. If the incorporation is processed through a proxy, a copy of the power of attorney shall be submitted, along with the original, which shall be submitted for review and verification.

The power of attorney shall be issued from all founders; whose number shall not be less than three.

- The power of attorney shall provide for powers including the incorporation of companies and signing of the articles of incorporation, before the Investor Service Center (ISC). If the proxy is a shareholder, the power of attorney shall provide for “contracting with oneself and third parties in the incorporation of companies.”

4.  Valid and clear copies of national ID cards of founders or partners, along with the original for review and verification.

 For Egyptians: National ID card.

 For foreigners, a copy of the passport shall be submitted

 5. An official extract of the register of accountants and auditors proofing their eligibility to review and approve the financial statements of trust companies, in addition to an acknowledgment of acceptance of appointment if the accountant previously submitted this certificate to the Authority.

 6. A copy of the registration card with the Bar Association for the lawyer who ratifies the MoA before the Bar (at least a first-instance court attorney. The card shall be valid to date).

 7. Security inquiry forms for foreign founders.

 8. Stating the name and address of the company's legal advisor. However, the degree of registration shall not be less than that of an appellate attorney.

 9. Valid and clear copies of the national ID cards of the proxy, along with the original for review and verification.

 For Egyptians: National ID.

 For foreigners: Passport

 10. Approval of the competent authorities if the purposes of the company require obtaining prior approval under the provisions of the applicable laws.

 11. In the case of an in-kind share at the time of incorporation, the original report of the committee, formed by the General Authority for Investment and Free Zones (GAFI), evaluating the in-kind share shall be submitted.

 12. In the case of incorporation of a company under the free zone regulations under the provisions of Investment Law 72 of 2017, the above-mentioned documents shall be submitted, in addition to:

- In the case of a public free zone: Obtaining the approval of the Authority before incorporation. The approval is issued by the Board of Directors of the free zone in which the project is to be established.

- In the case of a private free zone: - Cabinet approval shall be obtained.

 13. In the case of incorporation of a trust company resulting from changing the legal form of a partnership established in accordance with the provisions of the Commercial Law to a trust company in accordance with the provisions of Law 72 of 2017 and Law 159 of 1981, the above-mentioned documents shall be submitted, in addition to:

- Report on the evaluation of the in-kind share (net of assets and liabilities of partnerships). The report shall be issued from the committee formed by a decision of the Chairman of the Authority in this regard.

- The MoA of partnerships and its summary, as well as all MoA of subsequent amendments thereto and their summaries, to be duly notarized by the court.

- Minutes of the meeting of the partners, which includes the partners’ approval to change the legal form before the evaluation.

- Minutes of the meeting of the partners, which includes the approval of the partners on the valuation, which also includes the approval of the basic items of the company after the conversion, including the capital, shareholding among the partners, and the activity ......... etc.)

- If the partners wish to add a cash share, a bank certificate shall be submitted, with a deposit of 10% of the cash share if the conversion is to a joint-stock company.

- An overview of the company’s history, from the beginning of the MoA, through the amendments thereto, and up to the minutes of the partners’ meeting on a CD.

- Recent Commercial Register of the partnerships.

 14. In the case of the incorporation of one or more trust companies through the division of an existing company into more than one company:

 The decision of the head of the Authority of division.

- In-kind share evaluation report.

 - The Commercial Register of the dividing company, which is indicated by the division.

 - A copy of the minutes of the extraordinary general assembly meeting of the company approving the division and approved by the Authority.

 - A copy of the minutes of the extraordinary general assembly meeting of the company approving the evaluation and approved by the Authority.

 - A draft division contract approved by the Authority.

- Management of joint-stock companies: By far the most important feature of a legal entity is the presence of a competent body that manages and works to develop that entity to achieve the purpose for which it was established. Since joint-stock companies are considered one of the strongest legal entities, they have strong management consisting of members of the board of directors, shareholders and the chairman of the board of directors. They carry out all the acts required by the management. The general assembly and the board of directors each have the right to conduct legal acts on behalf of the company, to the extent as stipulated by law, the company’s MoA, and its bylaws.

Among such actions undertaken by the management is to prepare reports for the board of directors, according to the minutes of the meeting of the board of directors and the ordinary and extraordinary general assembly, as we will explain in detail as follows:

How is the decision to amend joint-stock companies taken? It is taken in three ways, which are as follows:

1. Board of Directors: It shall undertake the management of joint-stock companies to the extent of powers granted thereto, achieving the purpose for which the company was established. The board of directors of joint-stock companies has extensive powers in the management of the company, as it bears the responsibility and works to achieve the goals of the company to the extent of powers granted thereto by the shareholders and as stipulated in the company’s articles of association and the commercial registry.

- The company is managed by a board of directors consisting of at least three members selected by the general assembly, for three years according to the method set out in the company’s articles. This excludes that the appointment of the first board of directors shall be through the founders for a maximum period of five years.

- The term of office in the board of directors of joint-stock companies shall be calculated from the date of the company's registration with the Commercial Register or from the date of the general assembly's decision to select the members of the board.

- A legal person may be a member of the board of directors of joint-stock companies. However, he shall appoint a representative for him on the company's board of directors.

2. Ordinary General Assembly: means a meeting that is held regularly during the three months following the end of the fiscal year. It includes an agenda to be discussed in the presence of the chairman of the board of directors, members of the board of directors and shareholders.

- Examples of decisions that are discussed and taken under the ordinary assembly are:

1. Examining the Financial Statements and the auditor’s report for the ended financial year;

2. Examining the report of the board of directors and releasing the board of directors from liability for the ended fiscal year;

3. Considering the formation of the board of directors, determining its powers, renewing its appointment, and determining remunerations and allowances for the board of directors;

4. Considering renewing the appointment of the company's auditor for the ended fiscal year;

5. Reviewing approval of donations and dividends; and

6. Reviewing approval of the final liquidation outcome in the event of the company's liquidation, or extending the liquidation period.

4. Extraordinary General Assembly: means a meeting that takes place in the event of an amendment to the company’s articles of association, i.e., an amendment to any text of the company’s MoA, or liquidation of the company, according to the agenda set to be discussed in the presence of the chairman of the board of directors, members of the board of directors and shareholders.