BAHRAIN BUSINESS ENVIRONMENT Legal and Regulatory Framework DR

BAHRAIN BUSINESS ENVIRONMENT Legal and Regulatory Framework DR. MARIA CECILIA P. LAGARAS

BAHRAIN BUSINESS ENVIRONMENT Methods of establishing business �What the starting a business indicators measure �Where does the economy stand today? �Starting a business �What are the details?

COMPANY FORMATION Types of Company 1. Joint stock company 2. WLL (limited liability company) 3. Single-person company 4. Variable capital company

BRANCH OR REPRESENTATIVE OFFICE Branch office companies are businesses that are established outside Bahrain and are permitted to open branches or offices in the country, on the condition of approval from the Minister of Commerce and Agriculture and a local sponsor is appointed. The sponsor must be a Bahraini merchant. However, the branch offices are exempted from the necessity of a Bahraini sponsor if the office uses Bahrain as a regional centre or a representative office for their activities.

TYPES OF COMPANY Joint –stock company Requires a minimum capital of BHD 250, 000 (unless it is a fund issue in which case the minimum capital is BHD 1, 000)

TYPES OF BUSINESS Limited � The Liability Company most popular form of company foreign investors, the business must have between two and fifty shareholders and the shares are not available for public purchase. � It is worth noting that at least one shareholder must be Bahraini and the shareholdings by Bahrainis must not be less than 51%. As in other countries, the shareholders are only liable for the capital of the business, although limited liability companies are not permitted to engage in banking, insurance or brokerage activities

TYPES OF BUSINESS Single-person company (SPC) � These companies need to have only one shareholder; � Minimum capital – BDH 50, 000 � Other aspects – similar to WLL � If shareholder dies, heirs must convert the SPC to WLL

TYPES OF COMPANY Variable Capital Companies � May be formed as joint stock companies � There are 2 classes of capital Management shares – there must be at least two shareholders, can vote and have management powers Participation shares – these shares participate in the increase of value of the assets of the company and its annual profits, but carry no management or voting rights

MANAGEMENT OF BAHRAINI COMPANIES Some Bahraini companies enter into agreement with foreign shareholders will receive dividends and management fees. In the case of WLL, the management powers may be entrenched, and only withdrawn by a vote of at least three quarters of the shareholders

PROFESSIONAL PRACTICES Accountants and Auditors are regulated by the Ministry of Industry & Commerce Engineers and engineering consultants – Ministry of Works and Agriculture

COMPANIES NOT REQUIRING SPONSOR Telecommunication High technology Educational and training services

LEGISLATION The New Arbitration Law provides that Bahrain will use option 1 in Article 7 of the UNCITRAL Law for the definition of an arbitration agreement and its form. In order to ensure successful reliance on arbitration as a method of dispute resolution, parties must ensure the arbitration agreement is in line with and meets the criteria of the provisions of Article 7 of the UNCITRAL Law, which provides as follows:

ARBITRATION An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means. The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; � contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. � The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided the reference is such as to make clause part of the contract.

ELECTRONIC COMMUNICATION “electronic communication” means any communication the parties make by means of data messages; “data message” means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.

GCC LAWS AND PRACTICE OF INTERNATIONAL ARBITRATION GCC laws and practice of international arbitration, specifically with regard to the recognition and enforcement of foreign arbitral awards, were insufficient and required updating to fully conform to modern international arbitration practice, due to hindrances and lack of understanding of typical arbitration proceedings. This well-established GCC-wide issue is, however, rectified by the New Arbitration Law.

ARTICLE 7 OF THENEW ARBITRATION LAW Article 7 of the New Arbitration Law provides no arbitrator appointed on the basis of the provisions of the UNCITRAL Law will be questioned on an act or omission in the carrying out of his duties, unless they were carried out in bad faith or were the result of a serious error. This provision also applies to the employees of the arbitrator or those authorised by him to direct some of the work associated with the tasks entrusted to him. Thus, arbitrators cannot be held liable save for cases of bad faith or grave error, which is a positive advancement sure to lead to an increase in the number of available arbitrators in Bahrain, boosting overall faith in the arbitral process.

NEW YORK CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS Bahrain’s signature of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1988 was a positive step in itself towards encouraging means of alternative dispute resolution, as the traditional route of local courts can be an expensive and time-consuming process. However, other GCC countries have been reluctant to amend or produce local legislation reflecting the desire to committedly promote arbitration. The New Arbitration Law takes a huge leap forward to ensure Bahrain’s arbitration laws are in line with international best practices, bringing predictability in arbitral procedures and certainty in enforcement of awards in the region. Going forward, the enactment of the New Arbitration Law will hopefully result in an increase in the number of parties opting for Bahrain as the appropriate jurisdiction for their international commercial arbitrations.

THE FREE ARBITRATION ZONE Once an arbitral award has been rendered by a Tribunal, the parties are contractually obliged to comply with that award. There will however be occasions where the losing party does not wish to comply, and the winning party must seek to enforce the award in the country where the losing party has assets.