7 legal questions you should know if you are an Egyptian startup
Levari is an international law firm with a presence in Cairo, Dubai, and London. Through its presence in Egypt, Levari has provided legal support to startups and SMEs over the past 5 years. Levari launched The Legal Clinic to be the place where start-ups can have access to qualified lawyers to get their legal support. The Legal Clinic serves hundreds of start-ups by giving them access to international legal services and providing them with a free legal consultation. We believe that our contribution to the development of the current startup scene through the Startup Manifesto is to elaborate to startups the legal landscape in Egypt tackling the most common legal issues facing startups and the ecosystem and to provide legal advice and solutions for such issues. Throughout this process, we’ve noticed that start-ups founders face similar legal challenges. The same questions have been frequently raised, so here are your answers to the Start-up legal FAQs. .
1) What are the types of companies in Egypt?
There are two types of companies in Egypt:
This type is based on the personal criteria of the partners, therefore, there's a lot of disadvantage, such as:
-Partners cannot sell their shares, unless all other partners agreed;
-Death of one partner may lead to the dissolution of the company;
-The provisions of the Commercial Law on bankruptcy shall apply. -Partners are jointly and fully liable for all the company’s debts.
t can be concluded that Partnerships are NOT RECOMMENDED to Startups, whereas each partner has unlimited liability, and full responsibility for all debts and actions of a business.
Liability of the shareholders in the capital companies is limited to payment of the value of the subscribed shares, he/she is not liable for the company’s debt except for the amount which he contributed in the company’s capital.
Types of Capital Companies are:
Joint Stock Company “JSC”
Limited Liability Company “LLC”
One Person Company/ Sole Corporation “OPC”
2)What are the required documents for the incorporation process?
-At least three founders in case of JSC. At least two founders in case of LLC, and one founder in case of OPC (approval from the competent authority should be submitted first if a shareholder is working in the public sector);
-Power of Attorneys for the incorporation of companies;
-Certificate of non-confusion for the company’s name; -
Bank certificate which proves the capital’s deposit, except for the LLC
-Copies of the shareholders’ IDs/Passports
-Board of Directors’ IDs (at least 3 members in case of JSC) OR Managers IDs in case of LLC and OPC
-Security clearance in case of the foreign shareholder;
Notarized lease contract for the company’s headquarter
-The company’s auditor certificate (the auditor is the one who is responsible for submitting tax reports and the financial statements)
3) What are the required documents to open a bank account?
In order to open a bank account, you should have the following documents:
-Updated Commercial Register
-Articles of Association
-Manager ID (authorized person to deal with banks)
-Sign the bank’s KYCs and other requirements.
4)What is the importance of the Employment Contract?
An employment contract is a written agreement between the company and the employee by which it governs the relationship between the employee and the company under the Egyptian Labour Law. Employment contracts should include the employee’s job title, salary, working days/hours, and obligations. Also, an employment contract helps secure the company and employees rights.
5) Why should a Startups register their Trademark?
One of the most important steps you should undertake is registering the company’s trademark in order to save your rights upon it and to ensure that no one can register it under a new company and use your branding, name and IP rights.
6) What is the Shareholders’ Agreement “SHA”?
The Shareholders’ Agreement is a written agreement amongst the shareholders in order to identify and preserve the rights and duties of the shareholders in relation to the management and operation of the company. SHA often grant to some of the shareholders privileges and rights different from the rights which are granted by the company’s articles. In all cases, SHA cannot contradict with the articles and is considered complementary to its provision.
Now, the Egyptian Law recognises SHAs, therefore, Egyptian companies can have a written SHA under Egyptian law, provided that the company’s General Assembly approve the SHA.
The most common clauses which are included in the SHA are Lockup Period, Anti-Dilution, Tag Along, Drag Along, and Exiting the company.
7)Why should Startups have a written agreement with third parties?
Once you start providing your services to your clients, you will need a written agreement to include the agreed commercial terms in order to secure your rights in terms of how and when payments shall be made to you, second party’s obligations, termination of the agreement, etc...
By Amr Hareedy
Junior Associate at Levari
December 1, 2018.