New amendments to commercial companies law by 2020 Amendment Act
Khalid Khan
September 13
Every law evolves from time to time. Amendments help keep the law in accordance with the needs of the changing times. The same is true for the Commercial Companies Law of Bahrain as on September 28, 2020 a Decree was issued which declared various amendments to the provisions of the Bahrain Commercial Companies Law (Law 21 of 2001).

The amendments are a proof of the fact that the Kingdom of Bahrain is moving forward towards the global model of commercial laws.

This amendment is a notable one as it has amended laws which will have a huge impact on the functioning of companies and commercial laws of Bahrain. Some of these amendments require companies in Bahrain to make significant changes to their present structure. These amendments range from changes in single person companies, Limited Liability Companies, joint stock companies and much more.
Single Person Company (S.P.C.)
The new amendment sought a major change in the working of the Single Person Companies, Single Person Companies or SPC'S do not exist anymore in Bahrain. According to the amendment SPC's are to be merged With Limited Liability Companies, WLL. Therefore, Single Person Companies in Bahrain are to be converted to a W.L.L. There is a fixed time frame for this conversion which is six months. This time frame is in accordance with the date of announcement of the amendment.

This implies that a Single Person Company is no longer recognized as a part of the legal structure in Bahrain. The conversion of SPC's will be done by the Ministry of Industry, Commerce and Tourism into Limited Liability companies. These Single Person Companies will be required to amend the trade name, company logo, any advertisement and official papers within six months.
With Limited Liability Company
A With Limited Liability Company is one of the most preferred companies in Bahrain. The amendment has called for various changes in the functioning of Limited Liability Companies in Bahrain.

Limited Liability Companies will not be allowed to have more than one shareholders, which will further facilitate the transformation of Single Person Companies into Limited Liability Companies. The major change is that the requirement for minimum share capital is no longer in practice but yes, certain activities of the W.L.L may necessitate minimum share capital. The upside of this amendment is that it reduces costs and provides increased flexibility in conducting business. This will further lead to a better flow in conducting the business.
Joint Stock Companies
The recent amendment has also led to changes the functioning of Joint Stock Companies. They will now be allowed to increase their capital through various ways like converting debt to equity, converting its reserve or distributable profits, converting bonds into shares, issuing convertible bonds and accepting in-kind contributions.
Limited Partnerships
The amendment has also set out changes in the working and naming of Limited Partnership Companies. Limited Partnerships are now allowed to adopt a trade name of their own. This amendment is a welcome change as the company will now be able to use innovative trade names that does not have to necessarily include the names of the partners.
Not-for-profit companies
Another important change is that a chapter is now added to the Bahrain Commercial Companies Law. This chapter deals with Not-for-profit companies that can be set up as W.L.Ls. The name of the company should be followed by the phrase "non-profit company". This has been recognized as a legal structure in Bahrain. An NPC is prohibited from using profit directly or indirectly through its shareholders. Also, the voluntary liquidation of an NPC is not permissible except after obtaining the approval of the relevant authorities.
General Partnerships
Some changes have also been added for General Partnerships. In the event a director of a General Partnership Company is a partner appointed on account of the memorandum of association and that partner is to be dismissed, such a decision is required to have proper backing and is to made by a majority from the partners. These partners must hold atleast 75% of the share capital of the company. There is still vagueness in the term "majority" which should be looked into before taking any decision as mentioned above.
Board of directors
The nominees of the board of directors have to also abide by the amendment rules. The rules have made changes in the appointment and functioning of the Board of directors as well. The nominees have to disclose their Curriculum Vitae, other relevant appointments and inform if there are a part of any competing business entity which would result in a conflict of interest. These are the requirements that have to be met:

  1. Curriculum Vitae
  2. Description of Involvement with Competitors
  3. Previous Board Memberships
  4. Any other time-consuming extracurricular activities
  5. Any other information specified by the executive regulations.

This is not exhaustive and there are various other changes that have been added. Another important aspect is that the members of an audit committee must also be board members. Also, the powers of the chairperson can be delegated only to a board member or to executive management of the entity.

Remuneration of Employees
In the amendment there is also a mention about the remuneration procedure of the board members. A report has to be presented at the Annual General Meeting which must include all the important details regarding the shareholdings, remuneration and other important factors.
Status of Strategic shareholders
Keeping in mind the required regulatory consent and subject to certain obligations, an entity will be able to issue shares to the strategic shareholders and increase their capital. What is important to note here is that the conditions mentioned here are not known and it will be pertinent to understand them first to get a clear idea about this part of the amendment.
Disclosure of Employee Welfare Schemes
There is also an attempt to create more transparency among the employees which can be implied from the part of the amendment which states that the employees must be made well aware of all the important terms and conditions of the incentive schemes for employee welfare.
Waiver of Pre-emptive rights
Pre-emptive rights give the shareholder the option to buy additional shares of the company before they are sold on a public exchange. The exact definition of pre-emptive rights is the right of existing shareholders in a corporation to purchase newly issued stock before it is offered to others. These pre-emptive rights which are issues in accordance with the employee share incentive schemes are waived through the said amendment.
Preference Shares or Preferred Stock
Preference shares or preferred stocks are those company stocks which extend dividends to its shareholders. These shares extend a fixed dividend and do not entail any voting rights. According to the recent amendment, holders of preferred shares or also known as preferred stocks may have pre-emption rights for the preference shares.

Preferred shares shall be issued in accordance with the CBB Law and any relevant ministerial decisions.
Holding Company
According to the recent amendment, holding companies are no longer recognized as a part of the legal structure in Bahrain. The companies can and may undertake activities of holding companies.

Several other changes have been made through the amendment. Apart from the ones mentioned above, the changes are in the appointment of Strategic Partner, Ordinary General Meeting, Board Remuneration Disclosure, Mergers and Acquisitions and Audit Committee.

These amendments will determine the future of the functioning of various types of companies and businesses in Bahrain. A good understanding of these laws is very important for any business whether it is a start-up or an established business entity.
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