How to transform your company to a one-person company (OPC)?

As the national economic development and constant development of investments are a robust motivation for the investment-based entities, this creates means to avoid termination of commercial and economic activity by investors and reduces the events of companies’ term termination or liquidation. These factors enable the investor to merge a company(s) into an existing company and transform them into other commercial forms. To this end, the investment-based authorities regulated the process of changing the legal form of a company to other legal commercial forms. Among the most cases of transforming the legal form are the one-person companies, subject to the Egyptian Companies Law 159 of 1981, and Law 4 of 2018 and the Executive Regulations thereof, under Resolution 16 of 2018, which we will cover briefly in this article, so you can read it to know more about how to transform your company to one-person company?

The Egyptian Law defines an OPC under Article 4 of Law 4 of 2018 as follows:

A one-person company (OPC) is a company with a capital fully owned by one person, whether a natural or legal person, in conformity with the company’s purposes. The founder of the company shall not be liable for the company's obligations unless within the allocated shared capital. The company shall elect a unique name for it that derives from its purposes or the name of its founder. The company’s name shall be followed by an abbreviation that indicates that it is a one-person, limited liability company. The company’s name shall be placed on its head office and branches (if any) and in all its head letters.

• The legislator authorized public law persons to establish OPCs, subject to the approval of the Prime Minister or the competent minister, under Article (129/2 bis) of Law 4 of 2018, which stipulates that: “Without prejudice to the provisions of the laws permitting certain entities to establish companies on their own, the establishment of the company, if its founder is subject to public law person, shall be conditional on the approval of the Prime Minister or the competent minister, as the case may be.”

Process of Incorporation of an OPC, and how the legal form of a company is changed to an OPC:

Law 4 of 2018 and Law 159 of 1981 set the procedures and forms for establishing an OPC in three forms, either by incorporation since the company’s inception, by changing or transforming an existing company into the form of an OPC, or by the legal status settlement of an existing company which does not have the minimum number of partners.

1. First Form: Submitting an application for incorporation of the company by the founder or his authorized representative (establishment for the first time):

- Law 4 of 2018, Article (129bis-1) regulates this issue as it provided that:

- A one-person company (OPC) shall be established at a request submitted by its founder or his representative to the Authority. The OPC shall have an Articles of Association that includes the company’s name, objectives, founder details, term, method of management, head office address, branches if any, the capital, regulation of liquidation, and any other information specified by the Executive Regulations of this Law.

The Executive Regulations of this Law specify the minimum capital for the OPC. The capital shall be paid in full upon incorporation.

- The capital of an OPC may not be less than 50,000 EGP (fifty thousand) to be paid in full upon the incorporation of the company, according to Article (287 bis-2) of the Executive Regulations of Law 4 of 2018 issued by Resolution 16 of 2018.

A question arises: What are the activities that an OPC may engage in?

There are some activities that the OPCs are prohibited to practice, according to Article (129 bis/2), which stipulates that:

OPCs are prohibited from:

1. Incorporation of an OPC;
2. Public subscription, whether upon incorporation or increasing capital;
3. Division of the company's capital in the form of negotiable shares;
4. Borrowing by issuing negotiable securities; and
5. Practice any activity including insurance, banking, saving, receiving deposits, or investing money for third parties.

- When is the OPC’s incorporation is declared?

- Article (287 bis/3) of the Executive Regulations of Law 4 of 2018 issued by Resolution  16 of 2018 stipulates that:

(The one-person company shall be declared and shall have a legal personality as of the date of its registration in the Commercial Register. The contracts and actions made by the founder in the name of the company under incorporation shall apply to the company after incorporation as necessary for the incorporation of the company).

2. Second Form: Changing a commercial company to an OPC

  - The principle is that any company, whether it is a sole partnership, except for a joint venture which does not have a legal personality or a company that is subject to Law 159 of 1981, may be transformed into an OPC. However, the necessary legal procedures of transformation, as stipulated in Article (136) of Law 159 of 1981, shall be strictly followed.

 The company shall be registered with the Commercial Register, and the registration process as outlined in the Executive Regulations shall be followed.

- However, if the founder of an OPC disposes of a part of the company’s capital, the legal basis of the company shall then collapse. Therefore, the company shall take the necessary measures for legal status settlement. The Egyptian Regulations issued under Ministerial Resolution 16 of 2018 state as follows:

- If the founder of an OPC disposes of a part of the company’s capital, then, given the special nature of the OPC, which is based on the independence of one person (natural or legal person) with the ownership of the capital, the law obligated the founder of the company to follow certain measures in the event of disposition, in part or whole, of the ownership of the company and its capital. Such disposal falls within three assumptions as follows:

1. The disposition is in whole for one natural or legal person, in which case the founder shall amend the company’s information in the commercial registry to the effect of this disposal;

2. The disposition is in whole for several natural or legal persons, then the single-person capacity of the OPC shall lapse, therefore, the buyers shall amend the legal form of the company, according to the types of companies as established by law; or

3. The disposition is in part of the company’s capital, which also entails that the single-person capacity of the OPC shall lapse, under which the founder and buyer (the new partner) shall take the necessary measures to amend the legal form.

- If the founder of the company disposes of the capital in whole, Article 129 of Law 4 of 2018 provides that:

- The founder of an OPC, in the event he disposes of the capital in whole to another natural or legal person, shall take the required measures to amend the company’s information and commercial registry, within 90 days from the date of disposition, under such procedures and rules as determined by the Executive Regulations of the Law.

- Such procedures and rules, in the event of disposition of capital in whole, as stipulated in Article (287 bis-5) of the Executive Regulations of Law 4 of 2018 issued by Resolution 16 of 2018, are as follows:

- Notification of the Authority 15 days before the date of disposition;

- If the disposition is to a legal person under the public law, and as the approval of the Prime Minister or the competent minister is required, as the case may be;

- The disposition is not in violation of the provisions of Article  (129 bis-2) of the Law;

- The disposition shall not prejudice the company's obligations towards creditors or third parties;

- Regsieratation of disposition at the commercial registry within 90 days if the Authority does not object to the disposition of the capital in whole;

- Amendment of the company’s information, including the name of the new owner of the company’s capital, and that he will perform all the existing obligations of the company;

- If the founder of the company disposes of the capital in part, Article 129 of Law 4 of 2018 provides that:

In the event of disposition of part of the company’s capital to one or more persons, the company shall take the required measures to settle its legal status in such legal form as elected by the partners within 90 days from the date of disposal, under such procedures and rules as specified by the Executive Regulations of the Law.

However, the Authority shall be informed in advance, and an undertaking submitted by the company to complete the procedures for the settlement of the legal status within the specified period, otherwise, the company shall be considered legal under liquidation, as stipulated in Article (287 bis-5) of the Executive Regulations of Law 4 of 2018.

In all cases, the disposition shall be effective against third parties only on the date of registration with the Commercial Register.

3. Third Form: Transformation to an OPC as the minimum number of partners has not been met:

Article 8 of Law 4 of 2018 stipulates that:

Save as one-person companies, the number of founding partners in joint-stock companies may not be less than 3. This number may not be less than 2 for companies subject to the provisions of this law. If the number of partners is less than this quorum, the company shall be deemed dissolved by law, unless the company, within 6 months at maximum, initiated to complete this quorum, or the partners remaining during this period will be required to transform the company to an OPC. The remaining partners shall be responsible for the obligations of the company during this period.

Article (129 bis-7) of Law 4 of 2018 states that:

Joint-stock companies, partnerships limited by shares, and limited liability companies, may, in the case where the number of founders or partners is less than the minimum number prescribed by law if they failed to settle their status within 6 months, be transformed into an OPC, unless it is engaged in one of the prohibited activities to be practiced by OPCs.

The documents required to change the legal form of joint-stock companies, partnerships limited by shares, and limited liability companies, to an OPC:

1. Minutes of the extraordinary general assembly from the remaining partner or shareholder with approval to change the legal form of the company for not completing the required quorum of partners or shareholders, as the case may be;

2. A copy of the company’s articles of association and any amendments, if any;

3. A recent true copy of the commercial register with not more than 3 months since issuance date;

4. Evidence of the exit of the shareholders or partners, as the case may be;

5. A valuation Report, issued by such committee as formed by the Authority, on the net equity.

6. Minutes of the extraordinary general assembly from the remaining shareholder or partner approving the valuation report and specifying the information of the articles of association of the OPC;

7. A bank deposit certificate of the amount of the capital increase, if any;

8. The new articles of association of the OPC.

9. A power of attorney from the remaining partner or the shareholder, as the case may be, authorizing amendment(s);

10. Non-confusion Certificate;

11. Approval of the concerned authorities, if necessary (Civil Aviation Authority - Ministry of Tourism, etc;

12. A copy of the title deed if any;

13. Acknowledgment of accepting the appointment of directors and copies of their ID Card; and

14. Acknowledgment of accepting the appointment of the legal advisor and a copy of the registration card in the Bar.

Documents required to change the legal form from an OPC to another legal form:

1. Resolution of the company’s owner, including the approval to change the legal form of a company of another activity, including the type of such new activity;

2. A copy of the company’s articles of association and any amendments, if any;

3. A recent true copy of the commercial register with not more than 3 months since issuance date;

4. A power of attorney from the company’s owner or the legal person (the founder) authorizing amendment or change of the legal form;

5. A valuation Report, issued by such committee as formed by the Authority, on the net equity.

6.  Resolution of the company’s owner approving the valuation report and specifying the information of the articles of association for the new legal form;

7. Power of attorney issued from the new partners authorizing incorporation;

8. A bank deposit certificate of at least 10% of the amount of the cash increase, if the other company is a joint-stock company;

9. The new articles of association of the OPC.

10. Non-confusion Certificate;

11. Approval of the concerned authorities, if necessary (Civil Aviation Authority - Ministry of Tourism, etc;

12. A copy of the title deed if any;

13. Acknowledgment(s) of acceptance of appointment of members of the board of directors or directors and copies of their ID Cards;

14. Acknowledgment of acceptance of appointment of a legal advisor and a copy of the registration card in the Bar.

15. Acknowledgment of acceptance of appointment of auditor and certificate of registration with the registry of accountants and auditors.

16. If the change in the legal form is due to partial disposal of the capital:

- Evidence of prior notification to the Authority of the assignment or disposal of part of the capital.

- Completion of the procedures for changing the legal form due to the death of the company’s owner;

17. If the change of legal form is due to the death of the owner of the company:

Death certificate,  inheritance claim, and heirs’ decision to agree to settle the company’s status by changing its legal form within 6 months from the date of death.