Minority shareholders (i.e. those with less than 50% of the shareholding) have certain legal rights under Oman’s new Commercial Companies Law (Royal Decree 18/2019) (the “CCL”) and these should be one of the first points to be considered by all parties, in the event of a shareholders dispute. This article revisits the rights of minority shareholders of a limited liability company (“LLC”) under the CCL.
Access to the company accounts
Minority shareholders have a right to access the company accounts. The managers of an LLC must send to all shareholders a copy of the LLC’s balance sheet, profit and loss statement and the reports of the managers and auditors (if applicable) relating to the previous financial year. In addition to this, there must be included a notice of shareholders’ meeting to convene the shareholders for the approval of these documents and the allocation of net profits, if any, to each shareholder. This meeting must be convened within one hundred and eighty (180) days from the end of the LLC’s financial year and such approval may not be sought by way of consent to the decision in writing.
The original documents must be made available for inspection by any shareholder during business hours at the LLC’s principal place of business for a period of at least fourteen (14) days immediately preceding the date set for the shareholders’ meeting to approve of these documents. Additionally, any shareholder may view the original balance sheets, profits and loss statements, reports to managers and auditors (if applicable) for the last ten (10) financial years, at the principal place of business during business hours by any shareholder.
Although there is no express requirement under the CCL for all shareholders to approve the audited accounts of the LLC before they are filed, from a practical perspective, the Ministry of Finance will not accept the audited accounts unless they are accompanied by a shareholder resolution approving them.
Rights over managers
Any shareholder who is not also a manager of the LLC may request any information regarding the LLC to be inspected personally, or by an expert appointed by the respective shareholder, at any time. Additionally, any shareholder may file a liability claim on behalf of the LLC against a manager, for full compensation for damages caused by such manager. A minority shareholder is also entitled to request that a court dismisses a manager.
Right to appoint an auditor
An LLC must appoint an auditor if requested by one or more shareholders representing at least 5% of the LLC’s capital.
Right to receive notice of shareholders’ meetings
Notice of a shareholders’ meeting must be provided to all shareholders at least fifteen (15) days prior to the date set of the meeting. The notice will only be valid if it contains a meeting agenda and such agenda may only be amended if an unanticipated and urgent matter is brought before the meeting.
Right to attend shareholders’ meetings and vote
Every shareholder has the right to attend and vote at a shareholders’ meeting. Shareholders are entitled to one vote for each share they own. Unless a higher threshold is specified in the LLC’s constitutive contract or required by law, a resolution will be binding if approved by votes representing a majority of the LLC’s capital.
The CCL requires unanimous approval (100%) of the shareholding capital of the LLC for carrying out the following:
- increasing the capital of the LLC;
- decreasing the capital of the LLC;
- approving decisions proposed by way of written shareholder consent as an alternative to calling a formal shareholders’ meetings;
- transforming the LLC into a general or limited partnership; and
- granting the managers approval to perform the following acts, unless such acts by managers are expressly approved by the constitutive contract of the LLC:
- making donations, except business donations in small and customary amounts;
- selling all or substantially all of the LLC’s assets;
- mortgaging or pledging the LLC’s assets except to secure debts of the LLC incurred in the ordinary course of the LLC’s business;
- guaranteeing debts of third parties except guarantees made in the ordinary course of business pursuant to the LLC’s objectives; and
- discharge the LLC’s debtors from their obligations or conclude a conciliation or an arbitration agreement therewith.
Furthermore, the CCL requires a super-majority approval (75%) of the shareholding capital of the LLC for the following:
- amending the LLC’s constitutive contract;
- transforming the LLC into a joint stock company;
- dismiss a manager and appoint a replacement; and
- dissolving the LLC.
While it is not permitted for an LLC to reduce the minimum voting requirements set out by the CCL, it is possible to increase them and shareholders may specify additional reserved matters that would need either a unanimous vote or super majority vote in the LLC’s constitutive contract and/or shareholders’ agreement.
Quorum for shareholders’ meetings
Resolutions at a shareholders’ meeting shall only be valid if the meeting is attended by shareholders or proxies representing at least half (50%) of the LLC’s capital. If this quorum is not reached, then a second meeting will be called within one month to discuss the same agenda. All shareholders will receive at least one week’s notice prior to the second meeting taking place. However, the requirement that half (50%) of the LLC’s capital is represented does not apply at the second meeting and resolutions will be binding regardless of the capital represented.
Right to appoint a proxy
Every shareholder has the right to appoint a proxy in writing to attend and vote at shareholders’ meetings. Unless the LLC’s constitutive contract states otherwise then that proxy must also be an existing shareholder in the LLC
Right to request that a Court convenes a shareholders’ meeting
Managers are obliged to convene a meeting of the shareholders of the LLC when they are legally required to do so by the CCL, by the LLC's constitutive contract or at the request of one or more shareholders representing at least one fifth (1/5th) of the LLC's capital. If the managers fail to convene such a meeting, then any shareholder may request a Court to appoint a person to convene the shareholders’ meeting and prepare the agenda in place of the managers.
A right of pre-emption protects a minority shareholder from their shareholding being diluted. If a shareholder wishes to transfer their shares to a person who is not already a shareholder in the LLC then they must first send a written notice of their intention to transfer, specifying the details of the proposed transfer to the LLC’s managers together with as many copies of that notice as there are shareholders in the LLC. Upon receipt, the managers are obliged to send the copy notices to all of the LLC’s shareholders and advise the shareholders that they have the right to purchase these shares by depositing with the managers the full amount of the purchase price of the number of shares they elect to purchase within forty-five (45) days from the date on which the notice of proposed transfer was first received by the managers.
An offer to exercise this pre-emption right shall only be effective for the shareholder if a notice of intent expressly accepts all the terms described in the original notice of proposed transfer and the full purchase price is deposited in an acceptable form, within the set timeframe. If multiple shareholders seek to exercise their right of pre-emption over a greater number of shares than the selling shareholder is electing to sell, then the shares shall be divided between such shareholders in accordance with their existing shareholding proportions. However, if a shareholder elects to purchase less than his proportionate share then the excess shall be divided among the remaining shareholders.
Bank account opening
Although it is not required under the CCL, some banks (but not all) in Oman require a unanimous shareholder resolution to open an account in the company name. If the LLC has non-Omani shareholders, the signing authorities for the account going forward (whether joint, unilateral or unanimous), will be the subject of agreement between the foreign shareholder and the local Omani shareholder (recorded in the bank mandate).
In addition to the statutory rights above, shareholders must also consider any additional rights and obligations of the minority shareholders set out in the LLC’s constitutive contract and any shareholders’ agreements entered into.
Please get in touch with us if you have any questions or concerns on the new CCL and/or on how minority shareholder rights may affect your business.