KUWAIT Law and Practice Contributed by: Michel Ghanem, Patrick Obeid and Michel Ata, Meysan
• Funding evidence – documentary evidence that any in-kind assets (land, IP and equipment) have been transferred or are ready for transfer. • Corporate and third-party consents – board or shareholder resolutions of each venturer together with any waivers or approvals required from lend - ers, landlords, franchisors or other key counterpar - ties. Material Adverse Change A material adverse change (MAC) clause is routinely included either as its own CP (no MAC has occurred between signing and closing) or as a separate walk- away right exercisable after the CPs are met but before the share transfer. To be actionable, the event must have a dispropor - tionate adverse impact on the venture. Typical trig - gers cited in Kuwaiti agreements are major currency devaluation, withdrawal of government subsidies, the imposition of sanctions or the outbreak of regional hostilities. Force Majeure Force majeure clauses follow Article 215 of the Kuwaiti Civil Code. They list events that are unforeseeable and beyond the parties’ control – government measures, epidemics, serious supply-chain disruption, extreme oil-price shocks or natural disasters. The clause usually suspends the parties’ obligations for a short grace period; if the force-majeure event continues for 60–90 days and still prevents closing, either party may terminate the agreement without liability. 5.4 Legal Formation and Capital Requirements Joint-Venture Vehicles and Legal Set-Up Joint ventures in Kuwait can be structured either as a purely contractual arrangement or by incorporating a new company to serve as the joint-venture vehicle. In practice, most joint-venture parties prefer to incor - porate a Kuwaiti company for their venture – typically a WLL. The WLL is the most common joint-venture vehicle in Kuwait. It can be formed with up to 50 sharehold -
ers, with each member’s liability limited to their capital contribution. A WLL is relatively quick to set up – the articles of association are auto-generated and regis - tered with the MOCI. The minimum capital for a WLL is very low: the legal floor is KWD100 (about USD330) in nominal capital. In fact, Kuwaiti law fixes a nominal value of KWD100 for each membership interest, so the total stated capi - tal must be a multiple of 100. In practice, however, the MOCI often requires a higher capital commitment (typically approximately KWD1,000 or more) depend - ing on the business activity. Foreign Ownership Restrictions and Participation By default, Kuwaiti company law restricts foreign participation in local companies. Traditionally, foreign investors were limited to 49% ownership of a Kuwaiti company, with the remaining 51% held by Kuwaiti nationals (or wholly Kuwaiti-owned entities). In other words, without special approval, any joint-venture vehicle must have a Kuwaiti (or GCC) partner owning at least 51% of the equity. This rule applies to both WLLs and CSCs in most sectors. Under KDIPA Law, a foreign investor can apply for an investment licence from the KDIPA to own up to 100% of a Kuwaiti company. If the joint venture’s activities are in a permitted sector and meet KDIPA’s criteria (economic benefit to Kuwait, job creation, technology transfer, etc), the foreign party can be licensed to hold the entire equity. Many sectors such as technology, healthcare, education, logistics and others are open to 100% foreign ownership with a KDIPA licence. However, activities in oil and gas extraction and other strategic areas are generally off-limits to full foreign ownership, so in those industries a Kuwaiti majority partner is still mandatory. 6. Core Terms of a JV Agreement 6.1 Drafting and Structure of the Agreement In Kuwait, joint-venture agreements are typically structured to address both corporate and contractual aspects, depending on the nature of the joint-venture vehicle. Where the joint venture is incorporated, most
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