Limited Liability Companies Law

Business Law

Limited Liability Companies

-Definition: It’s a commercial company whose maximum partners are 50, each of which are liable to the extent of their contribution.

-It’s similar to Joint Stock Companies through: 1) Each partner is liable to the extent of their contribution, 2) The contribution passes through inheritance to his successors, and 3) The management of LLC is similar to Joint Stock Company Management.

-It’s Similar to Partnerships as: the partner’s contributions are not negotiable in the market.

-Assignment of Contributions to others is not free, but it is bound by the partners rights to buy back said contribution within the same term it was assigned in.

-It is difficult to determine whether or not LLC are personal or capital companies; for it has characteristics of both. The personal element is apparent however, in the establishment and existence of LLC’s:   1-The partners all have strong relationships with one another

2-The capital of the company is not formed through public subscription; rather it is distributed in accordance to the contract. Partners may choose to limit the contributions to third parties, and are entitled to recover them.

-LLC’s can have a legal identity (like JSC) or Names (Like Partnerships).

        -The name should represent its purpose

        -The legal identity can contain one or more of the partner’s names.

-The LLC is recognized legally, only when all the distributions of cash contributions have been paid in full.

-The Partners:

-The number of partners is 2-50; but each of those partners can own any percentage of the capital

-If the number of partners exceeds 10, then the company will be supervised by a board made of 3 members.

-The Capital:

-The capital can continue to increase or decrease throughout the company’s term, but can’t be reduced to less than 50,000 EGP.

-The capital is divided into equal parts, the minimum of which is 100 pounds. There is no minimum or maximum number of parts; holders of those parts may assign them to third parties.

        -LLC’s can’t issue negotiable shares or bonds.

-The capital can be cash or in kind.

-Partners can’t be paid in parts for their services.

-Services or work are not considered as a contribution to the capital.

-Procedures for the establishment of the LLC:

-The LLC is based on a contract that both reflects the desire of the partners in being involved in a project with the end result of profit; and contains all general elements and specific elements required of all contracts when establishing a company.

-The capital must be determined, and divided into equal parts, and distributed among the partners. All the parts should be subscribed by the time the contract is concluded.

-Partners Rights: 1) The liability of the partner is limited to his contribution, 2) The partner can assign or transfer his part, 3) He is entitled to an annual share of the profit, 4) He is entitled to a portion of the company upon its liquidation, and 5) Has the right to take part in the management of the affairs of the company.

-Each “part” entitles its owner to one vote; however the parts may hold a greater percentage of the profit.

-The contract can allow certain parts, in the case of increase in capital, to be preferred parts, which give their holders special privileges.

-Transfer of Parts:

-The transfer of parts of the partners shall be subject to the right of restitution of parts in accordance to the contract establishing the company.

-Meaning: If a partner wishes to transfer his parts, he must inform the managing director of the offered price; Due to the fact that the other partners have the priority in acquiring the part at the same price offered, and they have a month to complete the deal. If this month passes with no offers, then the partner can sell his part as he sees fit, without any objections.

-If the partner told an untrue price in order to make the other partners not want to acquire the part, and the partners found out, then they still have the right of restitution.

-The restitution may be affected by more than one partner, if so the part would be divided among them in proportion to the part of each in the company.

-Restitution is applied only when the partner sells to an outside party. If the partner intends to sell to a partner, then restitution is not applied, unless stated otherwise in the contract.

-The assignment of the part is not legally binding until the date of the assignment is entered in the register of the company.

-Same goes with transfers of parts resulting from the death of a holder.

-The share of profits and assets in case of Liquidation:

-It’s the most important right of a partner in a LLC.

-Annual Share of Profits: If the company has a surplus in profit, after deducting the necessary funds for its reserves, then it shall distribute the remaining profit to the part holders. This is done through the mangers proposal, but not finalized until the approval of the General Assembly.

-Share of Assets upon Liquidation: The partner would receive the nominal value of his parts, and if there are any remaining parts, they will be distributed on the partners in accordance to the contracts rules.

-If the remaining assets do not cover the nominal value of the parts, then the partners must bear the loss.

-The loss and profits of a partner are proportionate to his parts in the company.

-The Management of a LLC:

-The Management of a LLC is divided into 3 groups: Managers, Supervisory Council, and General Assembly.

-The Manager:

-Main Task: To achieve the purpose of the company as stated in the contract.

-Other Tasks: Managing the company to achieve profits, and is responsible for distributing the profits among the part holders. He is also responsible for preparing the budget, conducting inventories, deducting the reserves from the profit, and drafting a proposal for the distribution of profits.

-The Supervisory Council:

-The Supervisory council exists to supervise and control the managers, so they won’t mismanage the company for their own interests.