The Kingdom of Bahrain’s 2001 Commercial Companies Law and subsequent amendments create opportunities for both individual and corporate entities around the world to freely enter joint ventures and contractual trade agreements with the additional potential of fully acquiring incorporated entities operating in sectors including accounting, architecture, engineering, healthcare, communications, natural resource acquisition, property management, and manufacturing.
The establishment of a joint venture is not subject to the registration procedure required of other commercial enterprises as defined by the Kingdom of Bahrain’s Commercial Companies Law of 2001 (Article 8). A joint venture, or association in participation, is regarded by Bahrain’s Ministry of Industry, Commerce and Tourism as a concealed company with no corporate entity (Article 56), since the parties involved in a joint venture agreement retain their distinct identities with respect to ownership, responsibilities, and liabilities. International entities contemplating participation in a joint venture agreement with a commercial entity in the Kingdom of Bahrain should, as a matter of due diligence, seek advice from Bahrain’s Economic Development Board and apply for preliminary approval from the kingdom’s Ministry of Industry, Commerce and Tourism.
Bahrain’s Commercial Companies Law provides significantly relaxed stipulations pertaining to the formation of associations in participation, with the only requisite legal document being a memorandum of association specifying the partners’ rights and obligations as well as the distribution of profits and losses (Article 57). Unlike the requirements stipulated for the registration of other commercial enterprises, the memorandum of association for a joint venture need not be drafted in Arabic and a notarization is not required (Article 6).
In lieu of the publication of incorporation notice and relevant articles, as the parties to a joint venture agreement are not obligated to register as a commercial partnership, a company classified as an association in participation need only present third parties with the memorandum of association upon request (Article 60). An additional consideration for foreign nationals seeking to enter into an association of participation with commercial entities within the kingdom would be that a Bahraini resident would be required to act as a sponsor in interactions with third parties (Article 61).
The apparent intent of these allowances seems to be one of maintaining an open channel, through which potential investors can explore profitable arrangements within the frame of a contractual agreement to achieve a relatively short-term objective, before taking on the greater scale of commitments expected of a partnership.
ALL partnerships should be seriously considered – with serious consideration.
Where the contractual agreement between cooperating parties evolves beyond the realm of the mercantile, and requires operations within the kingdom such as the acquisition of a local office to receive customers or render a service – in addition to the hiring of a Bahraini citizen to serve as manager, the cooperating parties would then be mandated to incorporate as a partnership company without limited liability through the procedure of commercial registration with the Ministry of Industry, Commerce and Tourism.
Such partnerships seeking commercial registration would be required to draft a memorandum of association to include parameters of the company (name, trademark, headquarters, branches, objectives, financial term, liquidation plan), active partners (names, titles, nationalities, residences, qualifications, capital, profit), and executives or authorized signatories.
The initial provisions of the 2001 Commercial Companies Law have been cited as requiring majority ownership (at least 51 percent) of both general and limited partnerships to be in name of Bahrain nationals residing within the kingdom, but recent (as of July, 2016) amendments to these regulations enable complete ownership of a general partnership by foreign nationals (Article 25). As of the time of this writing, the original restrictions requiring local majority ownership in partnership agreements have been retained with respect to limited partnerships (Article 55) and partnerships operating in the fields of banking and insurance (as described by the Ministry of Industry, Commerce and Tourism). According to some prominent financial consultants, the restriction of partnership enterprise activities extend to the financial services sector precluding some foreign financial institutions such as brokerages or investment firms from operating within the kingdom.
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With the recent amendments, the ministry no longer requires foreign partners involved in either general or limited partnerships to be represented by resident Bahraini sponsors in interactions with third parties; additionally, the capital deposit certificate required for the registration of a commercial enterprise involving more than two principals is waived for both general and limited partnerships.
Despite the protections of Article 55 of Bahrain’s 2001 Commercial Companies Law for Bahraini limited partnership enterprises, foreign commercial entities can still get involved as silent partners named only on the partnership’s memorandum of association, contingent upon active partners being Bahraini citizens with the minimum majority ownership amounting to 51 percent of the enterprise (Article 53).
The commercial registration strategies laid out by the kingdom’s Ministry of Industry, Commerce and Tourism, in conjunction with the provisions of Bahrain’s Commercial Companies Law of 2001, enable the global population of commercial entities to engage in nearly every sector of its economic landscape to varying degrees, from the diffuse nature of associations in participation permitting relatively low-risk forays into the region’s economic landscape, up to limited partnership opportunities where silent partners can increase the equity of their portfolios under the protection of thoughtful commercial legislation.
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