EGYPT Law and Practice Contributed by: Arig Ali and Lana Abd El-Rassoul, Zaki Hashem, Attorneys at Law
ies with clear contractual protections rights for the investors. If the investment is directly at the level of Egyp - tian-incorporated entities, governance practices will depend on the company’s legal form. LLCs, preferred by startups for their simplicity – so long as no sector-specific law applies requiring a vehicle other than an LLC – lack boards of direc - tors; instead, governance is managed through a manager(s) which is/are normally from among the founders, a set of reserved matters and Key Performance Indicators (KPIs) established for the appointed managers. JSCs include formal board representation requirements along with reserved matters. Although effective structures for passive investors, CLSs remain under-uti - lised despite their longstanding legal availability. 3.7 Contractual Protection If the transaction is structured through an off - shore SPV, standard contractual protections rights as adopted offshore will typically be fol - lowed. If the transaction is structured directly through an Egyptian entity, a similar compre - hensive set of contractual protections will usu - ally be negotiated, although it should be noted that, under Egyptian law, the remedy for breach is generally limited to damages, and there is no specific performance remedy within the same meaning as that which exists offshore. This limi - tation is particularly relevant for exit-related pro - visions such as tag-along and drag-along rights and call/put options. Standard documentation mainly includes the following: • Investor’s management rights, such as a list of reserved matters which require investor consent and typically cover: (i) issuance of new securities or changes in share capital
(to protect against dilution); (ii) creation of encumbrances or third-party rights over company assets; (iii) approval of the annual budget and business plan; (iv) incurrence of debt over a certain threshold; (v) changes in the company’s business; and (vi) amendment to management or board structure, among others. • Exit provisions such as: (i) lock-up provisions on founders and other anchor investors; (ii) tag-along and drag-along rights; (iii) restric - tions on changes of control; (iv) limitations on transfer to competitors; and (v) call or put options as deadlock resolution mechanisms or for if certain KPIs are not met by the found - ers. • Non-compete provisions, which may be con - sidered more aggressive than what is typically seen offshore, reflecting investor concerns about founder re-entry into the market. • Standard representations and warranties, covering both core (eg, authority, ownership) and business-specific (eg, compliance, IP, financials) matters. • Investors’ information, inspection and report - ing rights. • KPIs for the company’s managers, which are either included in the SHA or documented separately. In Egypt, there is a strong preference to reflect SHA terms – particularly governance-related terms – in the company’s AOA to the extent legally possible. Alternatively, parties may agree to ratify the SHA through necessary corporate procedures and treat it as a part of the AOA.
175 CHAMBERS.COM
Powered by FlippingBook