The new Commercial Companies Law (CCL) enacted by Royal Decree 18/2019 last month allows the incorporation of companies owned by a sole individual – a move that will spur the issuance of Shariah-compliant Islamic financial products such as Sukuk and other Islamic investment funds, according to the Capital Market Authority (CMA).
CMA Executive President Abdullah bin Salim al Salmi said the new legislation, which comes into force in April, enables individual owners to incorporate their companies and thereby enjoy the protections accorded to LLCs (limited liability companies). This provision is in keeping with recent trends and developments in the financial industry, particularly in the area of Islamic finance, he noted.
“Due to the special nature of such products, such as Sukuk, a new legal form was required for commercial companies such as a one-person company which is a limited liability company owned by one natural or juristic person. The establishment of such types of companies contributes to boosting the Sukuk market in Oman as the entities desirous of issuing Sukuk establish an independent entity know as special purpose vehicles (SPVs) to be the link between the issuer of Sukuk and Sukuk and investment unit holders,” he explained.
Holding companies
Additionally, the new law requires holding companies to take the form of joint stock companies. In contrast, holding companies had the option to become LLCs or joint stock companies in the past, said Al Salmi.
“The law identifies the holding company as being a joint stock company with financial and administrative control over one or more company whether joint stock or limited liability by holding at least 51 per cent of the shares of such companies. This helps curb unethical practices in financial transactions or abuse commercial practices under the umbrella of a commercial enterprise that lacks adequate controls for risk management. However, regulations for joint stock companies cover all aspects of management of subsidiaries or establishment of new companies by availing investment opportunities. We think this would contribute to enhancing the activities of the companies and fine-tuning many administrative practices which would result in a positive performance.”
Professional firms
Significantly, the new Commercial Companies Law includes a new Article focusing on the establishment of professional firms such as accounting, audit, law, and other such businesses. It mandates a sound legal basis for setting up professional firms, which shall be regulated under a special set of rules to be issued by the Council of Ministers.
Furthermore, seeking to ensure the sound governance of commercial companies, the new statute requires public joint stock companies and state owned enterprises to apply the principles of governance in accordance with the standards set by the CMA.
“This is designed to consolidate the culture of governance to ensure sound performance based on a set of principles and standards that contribute to institutional discipline in accordance with international standards,” said Al Salmi. “The Governance Code identifies the responsibilities and duties of directors and the management while safeguarding the rights of shareholders and stakeholders.”
Electronic publishing
Given the government’s emphasis on automation and digitalisation, the new CCL obliges commercial companies, regardless of their legal structure, to communicate electronically with their shareholders. However, in the public interest, conventional means of publishing may also be used. The law also urges companies to use their websites as platforms for disseminating important statements and other information deemed vital to shareholders and the public. Public joint stock companies are instructed to have a central site for the dissemination of the information.
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