By Mohammad Asaad Al-Zayed

Administrative circular No 11 of 2024 issued by the Deputy Minister of Commerce, which mandates a temporary halt on the establishment, renewal and amendment of companies, has sparked widespread debate in legal and commercial circles. This circular prohibits any resident or expat from becoming a shareholder or manager in a company unless they transfer their residency status to article 19 residency, raising numerous legal and economic questions.

Legal Concerns

(1) Conflict with the provisions of the commercial law No 68 of 1980:

While the commercial law allows foreigners to own up to 49 percent of the company’s shares without specifying the type of residency, the circular restricts entering into companies to holders of article 19 residency without explicit legal basis, conflicting with the provisions of the commercial law.

(2) Conflict with the executive regulations of the companies law:

To obtain residency under Article 19, the expat’s share in the company must be no less than KD 100,000, which may conflict with the legal requirements for the capital of small and medium enterprises in Kuwait. According to Article 13 of the executive regulations of the companies law No 1 of 2016, the minimum capital is set at KD 100 for general partnerships, limited partnerships, limited liability companies and single-person companies. The minimum for closed joint-stock companies and partnerships limited by shares is set at KD 10,000, and for public joint-stock companies, it is KD 25,000. This significant difference in requirements may hinder foreign investors’ ability to comply with the law.

(3) Lack of clarity and transparency

The circular was issued without clarifying the required procedures for reconciling the status of current shareholders or managers, nor did it grant expats holding Non-Article 19 residencies who own shares in companies a grace period to reconcile their status. This raises ambiguity about the implementation mechanism and potential legal consequences of non-compliance.

Commercial impacts

(1) Negative impact on the business environment

The number of commercial licenses involving foreign shareholders is approximately 45,000. Therefore, implementing the circular could lead to the suspension of these licenses, negatively affecting the business environment and disrupting many commercial activities, increasing concerns about the country’s economic stability.

(2) Restructuring partnerships

Resident shareholders may be forced to adjust their status according to the circular, either by transferring their residency to Article 19 or exiting the companies. This could lead to disruptions in existing companies and significant market restructuring, undoubtedly affecting business continuity negatively.

(3) Delays in issuing new licenses

The inability to issue new licenses to companies involving expats who do not hold Article 19 residency could delay the entry of new investments into the Kuwaiti market, hindering the economic development plans set out in the 2035 vision. The Ministry of Commerce must consider the broad impacts of this circular on companies and investors in Kuwait. Implementing the circular without amendment or clarification could lead to serious consequences for the business environment. Therefore, it is crucial to review the circular carefully to ensure a balance between protecting the national economy and maintaining an attractive and competitive commercial environment.