KUWAIT Law and Practice Contributed by: Michel Ghanem, Patrick Obeid and Michel Ata, Meysan
Limited liability company A WLL is established as a separate legal entity, with two or more partners, with liability limited to capital contributions per partner. The Companies Law No 1 of 2016 (“Companies Law”) sets out the legal struc - ture governing how membership interests are man - aged and how the company is operated, while also permitting some flexibility by allowing these rules to be modified through contractual agreement such as the articles of association. Under Article 19 of Kuwait Residency Law No 114 of 2024, a WLL must have at least one initial manager who is either a Kuwaiti citizen or holds valid residency. This practice continues to evolve, with the Ministry of Commerce and Industry (MOCI) currently requir - ing that a Kuwaiti citizen serve as the company’s first manager. The establishment of the WLL is subject to registration in the commercial register, along with other incorporation procedures, which extend the timeline and increase costs payable to the govern - ment authorities. The WLL may only carry out activi - ties after procuring the required trading or business licences from the MOCI and other required approvals (if needed). Closed shareholding company Although the WLL is the most commonly used vehicle to incorporate a joint venture, a joint venture may also be incorporated as a closed shareholding company. A CSC requires a minimum capital of KWD10,000 and a minimum of five shareholders, does not attain legal personality but requires proclamation (registration and publication in the official gazette) before starting operations. Pursuant to current practice under Boursa Kuwait, a shareholding company may have its share - holder count fall to two after incorporation. Contractual Joint Venture Pursuant to Article 77 of the Companies Law, a contractual joint venture is formed by two or more partners concluding a company contract. Such joint ventures are not recognised as separate legal entities distinct from their participants and are exempt from registration in the companies register. This private agreement is valid, binding and limited in effect to the parties involved.
A contractual joint venture in Kuwait, governed solely by a private agreement between the participants, has the flexibility to contract freely with no incorporation restrictions on matters such as capital requirements, management, formal registration, public disclosure of financials or terms of the company contract, and ter - mination automatically on contractual terms, or pro - ject completion, or death of a partner unless agreed otherwise between the parties. A contractual joint venture lacks the capacity to independently own assets, initiate legal actions, or enter into contracts. Only the individual partners can engage in these activities on behalf of the joint ven - ture, but they must be registered separately in their own names. This limitation stems from the joint ven - ture’s absence of legal personality, preventing it from acting independently in legal or financial contexts. For any activity to be conducted by the joint venture, the partners shall have valid licences and approvals as necessary to be issued by the respective authority for each of the activities. Also, the contract joint venture operates without a statutory governance or dispute resolution framework; partner relations and conflicts are governed solely by general contract law principles. Critically, partners bear unlimited personal liability for all obligations aris - ing from the joint venture and are jointly liable to third parties for any liabilities incurred in its operations. 2.2 Strategic Drivers for JV Structuring Liability The main distinction lies in the limitation of liability: in a corporate structure, liability is limited to each party’s proportion of share capital, whereas in a contractual joint venture, all partners are exposed to unlimited, joint liability. Control, decision-making and management structure Contractual joint venture While contractual joint ventures are primarily governed by the company’s contract, the participants have the freedom to determine obligations of each participant and adjudicate independently to determine the capital, distribution of loss and profit accounting procedures, management, termination, liquidation, transformation,
72 CHAMBERS.COM
Powered by FlippingBook