The Commercial Companies Law promulgated by Royal Decree 18/2019 (the “CCL”) came into effect April 2019 repealing the previous Commercial Companies Law promulgated by Royal Decree 4/74. Article Two of the CCL stipulates that the regulations concerning the implementation of the provisions of the CCL shall be issued within a period not exceeding one year from the date of its coming into force. On 25 February 2021, the Capital Market Authority (the “CMA”) published Decision No. 27/2021 Issuing the Regulations of Public Joint Stock Companies (“Decision No. 27/2021”). We note that Decision No. 27/2021 is only applicable to public joint stock companies (“SAOGs”). We expect the Ministry of Commerce, Industry and Investment Promotion to publish the Regulations concerning the rest of the commercial companies within the coming few months. We briefly outline below some of the notable provisions prescribed in Decision No. 27/2021.
1. Buyback of Shares
Article 83 of Decision No. 27/2021 provides that a company may buyback its shares if:
(a) the articles of association of the company permits it;
(b) the company has issued two audited annual budgets;
(c) the company did not issue new shares in last the six months preceding the purchase order; and
(d) the shares to be purchased do not exceed ten percent of the company's capital.
Article 91 provides that a company may not retain such shares for more than one year calculated from the date of completion of the purchase. However, the board of directors may extend this period for an additional year provided that the board passes a resolution in this regard within a period not less than thirty days prior to the expiry date of the aforementioned period after obtaining approval of the CMA.
2. General Meetings
Pursuant to Article 99 of Decision No. 27/2021, shareholders of an SAOG may now attend general meetings and vote on its decisions through the electronic systems approved by the CMA.
3. Board of Directors
Article 114 of Decision No. 27/2021 provides that all members of the board of directors must be non-executive. The number of independent members in the board of directors must be as follows:
Number of members 5 7 9 11
Number of independent members 2 3 3 4
In addition, it is understood from Article 115 that all nominees for the membership of the board of directors must be natural persons (i.e. juristic shareholders may no longer nominate a person to represent them at the board of directors of an SAOG).
4. Related Party Transaction
Article 204 of the CCL provides that a member of the board of directors or any related parties to the company shall not have any direct or indirect interest in the transactions or contracts entered into by the company or for the company’s benefit. As an exception to the foregoing, some transactions or contracts may be concluded with them provided that such transactions or contracts are in accordance with the rules issued by CMA. The Regulations shall define the related parties, the transactions, rules and the disclosure principles of such transactions and contracts.
Article 134 of Decision No. 27/2021 provides that it is impermissible for any related party to have any direct or indirect interest in the deals and contracts that the company conducts for its own account, except in the following two cases:
(a) Ordinary contracts and deals which the company enters into as a party in the ordinary course of business, provided that the related party does not obtain any advantage.
In the application of this clause, the ordinary contracts mean the contracts and transactions entered into in an uninterrupted or continuous manner and which the company enters into in order to practice its main objects.
(b) Ordinary contracts and deals concluded through public tenders by floating and full disclosure of the tender's terms, or that which takes place by requesting at least three proposals, provided that the proposal submitted by the relevant party is the best one.
Article 135 further provides that the approval of the general meeting must be obtained prior to the commencement of non-ordinary transactions or transactions which do not fall within the company’s ordinary business, or both, provided that the approval is specific and explicit for each transaction separately, and that all details of related deal shall be mentioned thereon.
5. The Audit Committee, Internal Auditor and Legal Advisor
Article 196 of the CCL provides that joint stock companies shall form an audit committee from among the members of the board of directors and appoint a legal advisor and an internal auditor in accordance with the conditions and the rules specified by the Regulations.
Article 145 of Decision No. 27/2021 provides that the board of directors shall issue a decision to form an audit committee from among its members in accordance with the following rules:
(a) The audit committee must be composed of at least three members, provided that the majority of them shall be independent members.
(b) An independent member shall chair the audit committee, and it is prohibited to combine between chairmanships of the audit committee and of the board of directors.
(c) That the chairman and the members of the audit committee have knowledge and awareness of risk management and governance, and that one of its members has the financial and accounting experience.
(d) That formation decision of the audit committee shall include its work system, place and quorum for validity of its meetings, the duration of its work, and way of carrying out its works and duties.
Article 150 of Decision No. 27/2021 provides that each SAOG shall appoint an internal auditor to carry out the internal audit works by including in its organizational structure an independent unit for internal auditing, or contract with one of the internal audit offices accredited by the CMA. Any SAOG with a capital of ten million Omani Rials or more must have an internal audit unit by appointing full-time employees in the company.
Article 175 of Decision No. 27/2021 gives SAOGs the option to either appoint a full-time employee with appropriate legal qualifications and experience, or contract with one of the registered law firms in the Sultanate of Oman and accredited by the CMA.
Originally published in the MENA Business Law Review 02/2021