Transformation of companies in Kuwaiti law

The Kuwaiti legislator aims to establish a system governing the transformation of companies to encourage investors and companies to change and keep pace with economic developments, as it permitted them to change the legal form of the company, but set conditions and procedures, the company may be transformed from a one-person company to a limited liability company, a joint stock company, or any other legal form of company, taking into account the limitation of the partners’ liability to the amount of each partner’s shares and his share in the company.

What is the transformation of companies?

The transformation of companies is the change of the legal form of the company to another legal form with the legal personality of the company remaining and the absence of a new legal person.

Conditions that must be met when companies transform

Several conditions must be met for companies to convert, which are:

  1. Issuance of a decision by the company’s extraordinary general assembly to convert it to another form with the same procedures prescribed for amending the company’s contract
  2. At least two fiscal years have elapsed since the company has been registered in the Commercial Register
  3. The company is not in the liquidation stage
  4. That the company has achieved a profit return on the equity of the partners in the last two fiscal years at a rate of no less than 5% of the paid-up capital
  5. The paid-up capital upon transfer shall not be less than the minimum capital specified for the company to be transferred to
  6. The form of the company to be converted to must be legally compatible with its objectives
  7. Preparing a detailed report approved by the auditor, evaluating the company’s assets and liabilities, and the results of the budget for the last two fiscal years.
  8. Fulfilling the procedures prescribed for the transformation

Converting a joint stock company that borrowed by issuing bonds or sukuk

The approval of the bond or sukuk holders authority is required for the decision to convert the joint-stock company that borrowed by issuing bonds or sukuk, by a majority of those who represent at least two-thirds of these bonds or sukuks.

In the event that the Bonds and Sukuk Holders Board does not approve the conversion decision or the settlement offered to it by the company by a majority of two-thirds of these bonds or sukuk holders, or the commission is unable to convene, the representatives of the commission must, within thirty days from the date of publishing the conversion decision, submit the matter to the High Court. As a consequence, the transformation process will be suspended.

Corporate Transformation Procedures

The company shall not be transformed except after following the prescribed procedures for this, which are:

First: The transfer request is submitted to the Ministry of Commerce and Industry according to the form prepared for this, accompanied by the following:

  1. A copy of the minutes of the extraordinary general meeting or the meeting of companies in which the decision to convert was taken
  2. A copy of the last two financial budgets from the auditor and partners for partnership companies and the board of directors for joint stock companies
  3. A copy of the company’s contract and all amendments or restrictions made to it until the date of submitting the application
  4. A copy of the company’s license, valid for a period of no less than six months
  5. An economic feasibility study for the transformation project if the capital exceeds five million Kuwaiti dinars

Second: The Ministry of Commerce and Industry examines the application and issues its decision approving the transfer if it deems the papers complete, and in the event of rejection, the company is notified of the reasons for rejection.

Third: Take publishing and advertising procedures at the company’s expense

Fourth: Amending the company’s contract according to the form it is transforming into

Fifth: Registration in the Commercial Register

The company applying for the transformation, within six months at most from the date of submitting the application, must complete all the transformation procedures, In the event that it does not complete these procedures within that period, the transfer request shall be considered null and void.

Implications for corporate transformation

The company retains its legal personality

In the event of the company’s transformation, this does not entail its acquisition of a new legal personality, but rather it retains its rights and obligations prior to the transformation.

Obligations of the general partners prior to the transformation vis-à-vis creditors

If the creditor does not object to the decision to transform the company within thirty days from the date of publishing the decision in the Official Gazette, his right to the obligations of the general partners prior to the conversion of the company towards him shall forfeit.

The creditor submits his objection to the decision to transform the company in accordance with the usual procedures for filing a lawsuit, and the court is competent to consider it. The submission of this objection results in the continuing obligation of the joint partners against the creditor, until a final judgment is passed on his objection.

Taking into account the value of the shares or shares of the partner in the company that has been transferred to

In the event of conversion, each partner shall have a number of shares or shares in the company to which he was transferred equal to the value of the shares or shares he had in the company before the conversion.

In the event of a transformation into a limited liability company and the value of the partner’s shares or share in the company prior to the conversion was less than the minimum set for the nominal value of the share in the limited liability company, he must complete it in cash.

The right of the partner to withdraw and object to the transformation of the company

A partner may withdraw from the company and recover the value of his share or shares in the event of his objection to the decision to transform the company, by a request submitted to the company within sixty days from the date of registration, The value of the shares or shares shall be settled according to their actual value stated in the assessment of the company’s assets and liabilities.

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