The limited liability company (LLC) is the default vehicle for anyone starting a business in Oman, and for good reason, since the shareholders’ liability stops at the value of their shares. But that protection is not automatic. It comes from a body of rules in the Commercial Companies Law and its executive regulation. This post walks through what the law requires to set an LLC up, and what it requires to keep running one.
Who can form one, and with what
Under article 234 of the Commercial Companies Law, an LLC is formed by no fewer than two and no more than 50 persons, natural or legal, and each of them is liable for the company’s debts only up to the value of their shares. If there is only one owner, article 291 provides a separate but closely related vehicle, the one-person company, which is in substance an LLC with a single shareholder. A natural person may own only one of these, so a founder cannot spin up a separate one-person company for every venture.
Under the law, the name of the company can be the shareholder’s name or any word or phrase, provided it does not mislead as to the company’s objectives or the identity of its owners, and requires that wherever the name appears it is followed by “limited liability company” or “LLC”. Check availability with the Ministry of Commerce, Industry, and Investment Promotion before settling on anything, under article 40, a registered name cannot be used by another merchant in the same line of business, though two companies in genuinely different fields can carry similar names.
In terms of capital, it is divided into shares of equal value. Article 239 allows contributions in cash or in kind, but not in services or labour, because founders often plan for one partner to contribute effort rather than money. That works in a partnership. It does not work in an LLC. However, where a contribution is in kind, article 242 requires its type, location, and value to be set out in a report prepared by a valuation office or an auditor licensed in Oman, and if the value turns out to have been inflated, the contributing shareholder must pay the difference to the company in cash out of his own pocket.
Getting registered
Once the shareholders have settled the constitutive documents, they have 30 days to apply to register the company with the Registrar. The application goes through the Ministry’s electronic system, and article 87 of the Commercial Companies Regulation requires it to be accompanied by the constitutive contract, the minutes of the partners’ meeting where one of the partners is a legal person, and identity documents for the partners and managers. Any later amendment to the constitutive documents follows the same route within the same 30 days.
The constitutive contract must contain:
- The name and principal place of business.
- The capital and the breakdown between cash and in-kind shares.
- The shareholders with their nationalities and shareholdings.
- The company’s objectives, its date of establishment and duration.
- The manager’s name and powers.
- The start and end of the financial year.
- The body that will resolve disputes between the shareholders.
- The majorities needed to pass resolutions at the shareholders’ meeting.
These constitutive documents must all be written in Arabic; otherwise, they are considered void. The company then acquires legal personality only from the date of its registration, so anyone who does business in the company’s name before that point is personally liable for the obligations he creates.
If one of the shareholders is not Omani
Under the Foreign Capital Investment Law, no foreigner may carry out an investment activity in Oman except after obtaining a licence from the Ministry of Commerce, Industry, and Investment Promotion. Article 12bis of its executive regulation also requires the company to appoint at least one Omani worker no longer than a year from the start of its commercial activity, to register that worker with the Social Protection Fund, and to comply with the Omanisation percentages if set for its sector.
Running the company
For the company, the management is entrusted to one or more managers who must be natural persons, drawn from the shareholders or from outside, and appointed either in the constitutive documents or by a resolution of the shareholders. Removing a manager requires a resolution of shareholders owning three quarters of the capital, and that same resolution must appoint his replacement, so the shareholders cannot vote a manager out and leave the seat empty.
Ten per cent of the company’s net profits each year must be set aside by the managers, after tax, into a legal reserve, and to keep doing so until that reserve reaches one third of the capital. It cannot be paid out as dividends; it exists to absorb accumulated losses.
An auditor plays a huge role in an LLC, but not every LLC needs one. They are only needed when a company has more than seven shareholders, when its capital exceeds 50,000 Rial Omani, when the constitutive documents call for one, or when its shareholders representing at least a fifth of the capital ask for one. A small company starting out will often fall outside all four, though it will still need audited accounts for tax purposes.
Things to keep in mind for later
Shares in an LLC are not tradable, so bringing in a new partner means transferring existing shares, and the other shareholders have a right of pre-emption which they may exercise within 45 days by depositing the full price. Increasing or reducing the capital requires a unanimous shareholder resolution, and a reduction gives creditors 30 days to object. Once the first financial year closes, a reporting cycle begins. The managers have 90 days to prepare the financial statements, and 180 days from the year-end to circulate them to the shareholders with the notice of the meeting that approves them. Filing obligations also continue past incorporation since resolutions and records must reach the Ministry of Commerce, Industry, and Investment Promotion within seven days, and the company has seven working days to produce audited financial statements when the ministry asks for them.
In short
An LLC is not difficult to set up in Oman, but the protection it offers is conditional on doing a handful of things properly. When setting up a company, it is always good to check the Commercial Companies Law and understand all requirements that apply to you depending on your size or the type of establishment.
You can read the Commercial Companies Law in full in English at the link below:
