Kingdom of Bahrain

Ministry of Commerce

Helping business help itself
The Ministry of Commerce Vision To make Bahrain as a global and competitive marketplace clustered around knowledge driven economy, and to become a model for innovation and timely customer services.

The Public Joint Stock Company (PJS)
1. Introduction his booklet is one in a series produced by the Ministry of Commerce (the “MOC”) with the purpose of introducing new directors to the various laws and regulations which govern the formation & liquidation of companies, their reporting requirements as well as other obligations to the various stakeholders, including MOC, and the roles, responsibilities and obligations of shareholders, directors chairmen, partners and managers. The principle laws which govern companies incorporated in Bahrain are : The Commercial Companies Law – Decree # 21 of 2001 and the Implementing Regulations of the Commercial Companies Law Ministerial - Order No. 6 of 2002 (the “Companies Law”) The Commercial Law – Decree # 7 of 1987 (the “Commercial Law”) The Bankruptcy & Composition Law – Decree # 11 of 1987 (the “Bankruptcy Law”) Decree # 4 of 1987 establishing the Bahrain Stock Exchange (the “BSE Law”) Decree # 1 Finance of 1961 with respect to Establishing the Commercial Registry, as amended


The minimum capitalization is set at [BD5 million]. A PJS is administered by a board of directors (the “Board”) of no less than 5 directors. there are other laws that regulate the formation and operation of banks and insurance companies in Bahrain. that any company established prior to the coming into force of the Companies Law. All companies operating in Bahrain must take one of the legal forms provided for in the Companies Law. I . The Board may include directors who are not shareholders. Contributions to the capital may also be in kind. Article 363 of the Companies Law provides. pending the allocation of shares. 2. Shareholders enjoy pre-emptive rights in respect of subsequent capital increases.In addition. and the shares are floated for public subscription on the basis of a ’prospectus’. whereas partnerships generally are unlimited. or else the company must be placed into liquidation. has a maximum period of 3 years from the effective date of the Companies Law to amend its articles of association to conform to the Companies Law. The company is formed on the basis of a Memorandum & Articles of Association. with elections taking place by secret ballot. Companies other than partnerships enjoy the benefit of having their liability limited to their share of the company capital. with the subscription monies being deposited with a local commercial bank. The company achieves legal status after the publication of the incorporation order in the Official Gazette. The Public Joint Stock Company (PJS) s a company formed by no less than 7 promoters and which offers its shares to the public. appointed for a period of not more than 3 years (renewable). with the exception of certain partnership types which provide for both limited and unlimited partners. or the approval of shareholders owing not less than two-thirds of the cash shares. subject to the provisions of the Companies Law and to the approval of the constituent assembly meeting. All PJSs must be listed on the Bahrain Stock Exchange.

misappropriation and for every violation of the Companies Law or the company’s articles of association. The Board should issue share certificates to subscribers according to the number of shares allotted. The company shall maintain a share register in which all share transfers are registered. shareholders and third parties for all acts of fraud.1 To shareholders Promoters are required to exercise due care and diligence and will be held jointly liable for damages that may be sustained by the company or third parties as a result of failure to do so. The Board may sell shares of shareholders who have not paid their instalments on the due dates. Neither the shareholders of in-kind shares. The Board shall provide each subscriber. Shareholders have priority to subscribe for convertible bond issues. and provide them with a copy of the meeting's agenda. on request. . nor the promoters may dispose of their shares for a period of 2 years following incorporation. and for mismanagement. The chairman and members of the Board are jointly and severally liable to the company. The company shall not amend the rights of shareholders except by a resolution passed at an extraordinary general assembly meeting. with a copy of the memorandum and articles of association The chairman of the Board shall invite shareholders to attend the general assembly meetings. Obligations/ responsibilities of the PJS 3.3. within 3 months of the final instalment having been paid. Shareholders have priority to subscribe for new issues of shares in proportion to the shares. which they own in the company.

after following the procedures established in the Companies Law.The company shall maintain a bond register in which all issues and transfers of bonds are to be entered. Dispose of his shares and subscribe for new shares Have access to the company’s registers. directors report and auditor’s report the right to file an action to invalidate resolutions in contravention of the law. within one month of the completion of subscription for bonds. The general assembly may not : increase shareholder’s financial liability reduce the percentage distribution from net profits as specified in the articles of association restrict shareholder’s rights to institute legal proceedings against all or some of the directors Any person who owns 10% or more of the capital may appoint a representative on the board . Shareholders have equal rights and are subject to equal liability. invite the body of bondholders to approve the statutes of the body and elect its representative. The bondholders body’s representative has the right to attend the company’s general assembly meetings. in particular to : receive dividends receive a share in the company’s property at liquidation participate in the management of the company at general meetings or in accordance with the articles of association receive the annual financial statements. or memorandum and articles of association. The company shall. public order. Bondholders have the right to receive their interest or a specific return as well as the right to redeem the nominal value of their bond at maturity. The company shall issue replacement bond certificates to bond holders who have lost or damaged their certificates.

3. The Board report to the general assembly of shareholders.Shareholders representing at least 10% of the capital may call for a general assembly meeting if they have serious reasons justifying such a request Shareholders have the right to votes equalling the number of shares held A shareholder may appoint a proxy to attend and vote at the general assembly meeting on his behalf.2 To MOC Incorporation of the company. shall contain a full account of everything paid to members of the Board during the year in the form of salaries. is subject to application to be made to MOC. expenses . An interested shareholder may request that a general assembly meeting discuss an issue which was not included on the agenda if shareholders representing at least 10% of the capital had asked the Chairman to include the issue on the agenda but he did not do so. allowance. Shareholders shall be given an attendance card to attend meetings. but a proxy cannot represent a number of votes exceeding 5% of the company’s capital. the promoters must submit a bank certificate to MOC. dividends. which it shall consider for approval within 30 days. which shall mention the number of votes to which the shareholder is entitled. Shareholders representing at least 10% of the capital may request an extraordinary general assembly meeting to be held. Before making a public offering. and the participation of foreign capital. evidencing that they have paid the initial capital. The promoters must provide MOC with a notarized copy of the memorandum and articles for the purpose of issuing the incorporation order. MOC’s approval is required for the offering bank . Shareholders representing at least 25% of the capital may request a change of auditor.

MOC approval is required for the payment of fees to the chairman and Board in years when no profits are recorded. Resolutions of the assembly approving the promoters report and appointing the directors and the auditors. Upon the Board’s request. The prospectus for bonds requires the approval of the competent authorities. his deputy and the managing directors shall be registered with MOC. MOC can extend the Board’s term of membership by up to 6 months. and must contain particulars as required by the Companies Law. . Minutes of the constituent meeting. The application for incorporation must also be accompanied by a description and expert evaluation of any shares in kind. The first board shall register the company’s memorandum and articles of Association in the Commercial Registry at MOC. If the Company resolves to reduce its capital MOC must be sent a copy of the board of director’s report and auditors’ report for such a capital reduction.The first Board shall provide MOC with : A statement certifying subscription for the full capital and the amount paid by subscribers and details of each subscriber. A copy of the resolutions electing the chairman. MOC approval is required if the capital is designated in a currency other than Bahraini Dinars. A copy of the share register must be filed with MOC In some circumstances MOC must be notified of proposed capital increase. with reasons Resolutions adopting increased capital must be published in the Official Gazette and one local newspaper and shall also be entered in the Commercial Register at MOC within 1 month of the increase. and Documents substantiating the validity of the incorporation procedures.

misappropriation and for every violation of the Law or the company’s articles of association. In particular. and for mismanagement. shareholders and third parties for all acts of fraud. and it is the directors responsibility to be familiar with such obligations and limitations as are prescribed in the law and the company’s memorandum and articles of association. Resolutions issued by the general assembly in respect of urgent issues. MOC should be informed immediately of alterations to the list during the year. whether they are financial or administrative. of whatsoever nature. The company’s auditor shall furnish the MOC with a copy of his reports. Directors Obligations / Responsibilities he chairman and members of the Board are jointly and severally liable to the company. directors have the following obligations and responsibilities : T . and the names of the company’s mangers. 4. Copies of the summons for the general assembly meeting should be sent to MOC at least 10 days before the date set for the meeting. directors and their designations. to be involved in its management through attendance at the Board meetings. must be submitted to MOC for approval. Resolutions of the extraordinary meetings shall not be valid until they are approved by the MOC. The report shall also include a copy of the company’s annual financial statement. It is the responsibility of directors to understand the business of the company. which are not included on the agenda. MOC may nominate its representative to attend the meetings of the general assembly.MOC must be sent a complete annual list of the names of the chairman. and to ensure that the company abides by the law and its memorandum and articles of association. and shall advise MOC whether there have been any breaches of the laws.

4.1 To become a Director. In the event that the value of the qualification shares falls below the requirement. Shareholder’s representing at least 10% of the capital may request the Board to convene a general assembly meeting to debate and pass a resolution to remove some or all of the directors.000. or a crime affecting honour or involving a breach of trust. unless having been reinstated. personally own shares in the company of at least BD10. directors may be appointed from amongst people of expert knowledge who are not shareholders. . or the person representing him must own not less than 1% of the company’s capital or BD10. whichever is the higher.000 value. Termination of a director is in accordance with the company’s articles of association. failing which the member shall lose office. Such qualification shares must be deposited within 30 days of his appointment as a director. Subject to specific conditions implemented by MOC. Any person who owns 10% or more of the capital may appoint a director but in doing so such shares are not then counted for voting purposes. and disclose any personal interest in any competing business. state his acceptance to become a Director in writing. a person must : be qualified to act not have been convicted of a crime involving negligence or fraudulent bankruptcy. and such shares may not be disposed of during the director’s term of office. The general assembly shall elect directors by secret ballot by simple majority of valid votes. then the value must be made up.

if not. Dissenting directors must minute their objections. or to perform actual management. The power of the Board in executing loans of more than 3 years term.2 Director’s Responsibilities Directors are jointly liable for any damages resulting from failure to register the company with MOC The Board shall convene at the invitation of the chairman or on the request of at least two members. and the deputy chairman in his absence. The majority of those shall pass resolutions of the Board present and the chairman has a casting vote. discharging debtors of their liabilities or reaching a composition with debtors or donating the company’s property is limited by the provisions of the Articles of Association. and the general assembly resolutions. and must meet at least 4 times per year. exercise some of the powers granted to the Board. with the right to sign on behalf of the company. and the Board shall specify the powers delegated to such persons. The Board has the power to administer the company in accordance with its objectives in accordance with the Law. provided that this is at a convenient time. The chairman is responsible for executing the Board resolutions. supervise one of the company’s businesses. . The Board may nominate an individual directors or a committee of directors to carry out certain assignments. and in any event not less than 3. or. 4. selling or mortgaging company property or business. Meetings are not valid unless attended by 50% of the directors.Directors may resign office. The Board must elect a chairman and his deputy. providing guarantees for third parties. and may elect one or more managing directors. the articles of association. be liable to pay compensation.

either direct or indirect. Directors or managers may not have any personal interest in transactions or contracts of the company. who may provide loans to directors if they are given in the normal course of business and on standard terms. Directors may receive an annual remuneration as provided for in the articles of association which may not be more than 10% of the net profit s after deduction of statutory reserves and after the distribution of a dividend of no less than 5% . A director shall be liable to compensate the company for injury. forfeiture of membership and require the payment of compensation.It is the right of the company to pass a resolution to instigate legal action of liability against a director for wrong doing which has caused damages to shareholders. and such notification should be accompanied by a special report submitted by the auditor. Directors are required to sign the minutes of meetings at which they are present. except with the authorization of the general assembly. Any violation will result in penalties under the Penal Code. Companies may not provide loans to directors. and may not participate in deliberations or voting on these issues. and to record any objection. with the exception of banks and credit companies. except with the approval of the general assembly. within 3 months of the financial year-end. Directors may not participate in any business in competition to the company. It is the responsibility of the Board each year to prepare a detailed list of its members as well as a financial statement and report of its activities during the year. Directors must notify the board of their personal interests. in matters proposed by the Board. which it sustains as a result of his nondisclosure. It is the responsibility of the chairman to notify the general assembly of director’s interests. The chairman is responsible for publishing the financial report and an adequate summary of . and the chairman and directors may not divulge the secrets of the company to which they are privy.

The Board. for breaches of the Companies Law as follows : Article 361 A) Making false statements in official or other documents. The request should be sent to the auditor who can reply. and a general assembly meeting shall be called for this purpose. H) Any person trusted with company information who discloses such facts. I) Any person appointed by MOC to inspect the company. the Companies’ Law provides for a prison term and/or fines of not less than BD5. or the company’s Articles of Association. who willfully omits material facts from his report thereby effecting its conclusion. If the Board do not convene an extraordinary meeting after receiving a request from shareholders representing 10% or more of the capital to convene a meeting. manager or auditor who has approved the distribution of fictitious profits or dividends or in contravention of the Law or company’s Articles of Association F) Any Director or Manager who has taken a remuneration more than provided for by the law. the MOC may summon the general assembly meeting to convene. may request the replacement of the auditor. G) Any person involved in the production/presentation of the company’s financial statements or annual report. or signing or distributing such documents B) Any person involved in a public subscription contrary to the law.000 and with a maximum set at BD10. who willfully omits material facts resulting in those statements not providing a true and fair view. 5. or who has defaulted on the submission of such reports. or exploits such secrets to serve his own interests or those of others. . and both the request and the reply shall be read out by the Chairman at the general assembly meeting. C) Any person who has fraudulently over-valued in-kind shares D) Any person involved in the production/presentation of the financial statements which do not reflect or honestly represent the company’s financial position E) Any director. the directors or the MOC.000.the annual report in a local Arabic newspaper at least 15 days prior to the date set for the general assembly meeting. Penalties provided by the Commercial Company Law Without prejudicing any sterner penalties provided for by other laws of the Kingdom of Bahrain. or shareholders representing at least 25% of the capital. in which case the requesting party is responsible for the agenda. The Board is responsible for preparing the agenda for the general assembly meetings unless the meeting is being convened at the request of the shareholders. Directors are not permitted to vote on resolutions of the general assembly regarding director’s remunerations or discharging or exempting them from liability.

or has offered them for trading in a manner contrary to the law B) Any director. for breaches of the Companies Law as follows : Article 362 A) Any person who has issued shares. has been appointed as a superintendent or held an office in the company.000. or has obtained security or a loan there form. and a number of landmark reports have been issued. as provided for by the law. E) Any person who has omitted to invite the general assembly or partners to convene when the company has sustained losses to the limit provided for by the law or the company’s Articles of Association. creditors. MOC officer. which is contrary to the provisions of the law. C) Any person who has established a company in contravention of the provisions relating to Bahraini percentage of capital. or managing director of a shareholding company who remains in office. There are many issues which have been recommended as being critical to the establishment of good corporate governance. these include not only shareholders. risk management and performance assessment).Without prejudicing any sterner penalties provided for by other laws of the Kingdom of Bahrain. I) Any person delegated by MOC to carry out an inspection. Good Corporate Governance – it’s in your hands T he recent corporate accounting scandals in the US have focused the public attention on the responsibility of the Board on managing the affairs of the company in the best interests of all stakeholders. who omits material facts affecting the outcome of the inspection. and . D) Any involved person who has omitted material facts from the financial statements of the company. particularly in respect to public companies. auditors or other authorized person from access to books and documents to which they have lawful access. and the community at large. contrary to the law. but also employees. including The Cadbury and Turnbull Reports. or a partner. F) Any person who has omitted to invite the general assembly to convene or from listing issues on the agenda. 6. interim certificates or bonds. K) Any person who willfully refrains from enforcing any order provided for in the law. H) Any person who has issued orders of spending or has spent company funds without supporting documents. the Companies’ Law provides for a fines of BD5. G) Any director/auditor who has prepared a report for which he is responsible. all of which focus on the need for director’s close involvement (particularly in strategic planning. J) Any person who prevents any authorized inspector. and the OECD ‘Principles of Corporate Governance’. the need for transparency and full disclosure. subscription receipts. resulting in such statements not providing a true and fair view of the company’s financial position.

including competition. it is your responsibility to ensure that a good corporate governance structure is in place. in relation to your position as a director of a Public Joint Stock Company. The Board is responsible for identifying and managing risk. staff at MOC. Internal audit of the company and the establishment of an audit committee are also key components of a good corporate governance structure. and should. reliability and relevance. You may also visit the OECD web site at www. risk of losing critical employees to name but a few. include financial. human errors. and deliberate breach of procedures. they must also be monitored for effectiveness. I .oecd. and where it is not to raise your concerns. inter alia. and advise your colleagues on the Board of the risk of not managing the affairs of the company in a manner which protects the interests of all the stakeholders. As a director responsible for the management of a public company. Where to get help/advice f you are in any doubt as to your responsibilities or obligations under the Companies Law and other laws. will be only too pleased to assist. It is also not sufficient that such controls and mechanism are built into for information on Corporate Governance issues. and this risk can come from numerous sources. Often the risk of taking no risk is riskier than the risk itself. Good internal control mechanisms are critical to ensuring the objectives of all stakeholders are being met.the need for internal mechanisms that ensure that the governance objectives are met. failure of new products. operational and compliance controls. is the need to be equally able to identify new business opportunities. 7. In addition to the need of identifying and managing risk. as well as risk management policies which will significantly reduce the possibility of poor judgment in decision making. and where necessary to take calculated business risks.

M E .commerce. Director of Company Affairs www. and it perceives good corporate governance. Internal Trade 10. 9. ask for an explanation from the key management staff responsible. and with your company’s memorandum and articles of association.You should also make yourself familiar with the Companies Law. and accepts no responsibility. and the role played by directors. Abdulla A. do not keep silent if you are unsure about an issue. Assistant Undersecretary. and could make you liable. silence means acceptance. as being the cornerstones of success. What every you do. seek legal advise to ensure a complete understanding of their obligations and responsibilities. and where uncertain on any particular point. Ali Radhi. Role of MOC OC is primarily the Registrar of companies. 8. If you have a question on any particular issue concerning your company. However the strategic focus of MOC is on ensuring that the commercial legal and administrative infrastructure is conducive to the development of globally competitive businesses. for the completeness or accuracy of the information contained herein. Mansoor : Undersecretary Mr. Useful contacts : Dr. MOC makes no warranty. but does also have a regulatory role in ensuring that companies comply with their obligations under the Companies Law. Abdulraheem Saeedi. Directors should read the full text of the Companies Law and the memorandum and articles of association of the company or companies of which they are directors. Disclaimer very care has been taken to ensure the accuracy of the information in this brochure.

Promoting the Kingdom of Bahrain’s as internal and regional center for exhibition and conventions. fast and cost effective incorporation service. Boosting the reputation of the kingdom of Bahrain in the sector of pearl. which support Bahrain’s legitimacy as a home for business. To enforce anti-trust laws as to combat monopolistic practices and suspicious trading. Represent the interest of the business community and the citizens of the Kingdom of Bahrain on the international arena through the active participation in WTO. jewelry and gemstones through the provision of high quality testing and assay services. and that the Kingdom’s interest and those of its citizens and corporations are represented in the global arena. To promote and foster the take up of ISO registration amongst Bahraini companies with a view to enhancing their international competitiveness. through such organizations as the WTO. To promote and foster the take-up of eCommerce as a business driver in Bahrain to support business competitiveness. . and which provides balanced protection for both investors and consumers. To promote the interests of Bahrain’s companies by negotiating bilateral trade agreements with trading partners.The Ministry of Commerce Mission To provide a relevant. To provide an efficient. To provide an efficient gem and precious stones testing laboratory in order to ensure that the reputation of Bahrain as a home for natural pearls and quality jewelry is protected. To adhere and promote recognized international standards and best practices. and to promote the interests of local jewelers. Promoting regional integration under the GCC umbrella. WIPO etc. and as a growth sector in its own right. Creating a legal infrastructure that is inductive to fair competition and in accordance with the market economy principles. UNCTAD. To ensure that the Kingdom of Bahrain has a voice in international trade issues. market-driven commercial infrastructure based on a suite of laws and regulations. and establishing trade representatives in strategic locations around the world. UNCTAD. WIPO and other international organizations.

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