Introduction:
In Egypt, drafting a shareholders’ agreement is vital for clarifying the rights and responsibilities of shareholders and ensuring the smooth operation of a company. To create a comprehensive and legally robust agreement, it’s essential to consider key provisions aligned with Egyptian corporate law.
When establishing a company in Egypt, drafting a shareholders’ agreement is crucial for defining the rights and obligations of shareholders and ensuring the smooth operation of the business. Under Egyptian law, certain considerations must be taken into account to create a comprehensive and legally sound agreement.
1. Clarity and Specificity:
Article 85 of the Egyptian Companies Law No. 159 of 1981 stipulates shareholders’ right to inspect corporate documents. You should Clearly define the rights and responsibilities of each shareholder to avoid ambiguity or misunderstanding and specify the purpose of the agreement and the objectives of the company to align the interests of all parties involved.
Example Provision: “Each shareholder shall have the right to inspect the company’s books and records upon reasonable notice.”
2. Shareholder Rights and Obligations:
Article 91 of the Egyptian Companies Law governs dividend distribution among shareholders. Accordingly, you should Detail the voting rights of each shareholder, including the percentage of votes required for major decisions and Specify dividend entitlements, profit-sharing mechanisms, and any obligations related to capital contributions.
Example Provision: “Dividends shall be distributed proportionally to each shareholder’s ownership percentage as determined by the company’s Articles of Association.”
3. Governance and Decision-Making:
Article 77 of the Egyptian Companies Law outlines the procedures for decision-making in shareholders’ meetings.so, you should Determine the composition of the board of directors and the process for electing or appointing directors and Outline procedures for decision-making, including regular meetings, quorum requirements, and voting procedures.
Example Provision: “Decisions requiring a significant impact on the company’s operations, such as mergers or acquisitions, shall require a two-thirds majority vote of shareholders.”
4. Transfer of Shares:
Article 77 of the Egyptian Companies Law addresses restrictions on the transfer of shares. You should Establish guidelines for the transfer of shares, including any restrictions or preemption rights. And Define the process for valuing shares and the mechanism for resolving disputes related to share transfers.
Example Provision: “Prior to transferring any shares, a shareholder must obtain written consent from the majority of the board of directors and offer the shares to existing shareholders at fair market value.”
5. Confidentiality and Non-Compete Clauses:
While not explicitly stated in the Companies Law, confidentiality and non-compete clauses are enforceable under general contract principles. And you should Include provisions to protect the company’s confidential information and trade secrets. And implement non-compete clauses to prevent shareholders from engaging in activities that may compete with the company’s interests.
Example Provision: “Shareholders shall refrain from disclosing confidential company information to third parties and shall not engage in activities that directly compete with the company’s business during their tenure and for a period of two years thereafter.”
6. Dispute Resolution Mechanisms:
Arbitration clauses are commonly used in Egyptian contracts and are governed by the Egyptian Arbitration Law No. 27 of 1994. And you should Specify procedures for resolving disputes among shareholders, such as mediation, arbitration, or litigation. And designate a neutral third party or establish an internal dispute resolution committee to handle conflicts effectively.
Example Provision: “Any disputes arising under this agreement shall be resolved through arbitration in accordance with the rules of the Cairo Regional Centre for International Commercial Arbitration.”
7. Compliance with Egyptian Law:
Egyptian law requires contracts to specify the governing law and jurisdiction in case of disputes. You should Ensure that the agreement complies with Egyptian company law and other relevant regulations. And seek legal advice from qualified professionals familiar with Egyptian corporate law to avoid any legal pitfalls.
Example Provision: “This agreement shall be governed by and construed in accordance with the laws of the Arab Republic of Egypt, and any disputes shall be subject to the jurisdiction of the Egyptian courts.”
8. Exit Strategies:
While specific provisions may vary, Article 207 of the Egyptian Companies Law governs the liquidation of a shareholder’s shares upon death. You should Address exit strategies for shareholders, including buyout provisions, rights of first refusal, and procedures for liquidating or winding up the company and Plan for contingencies such as shareholder death, disability, or insolvency to minimize disruption to the business.
Example Provision: “In the event of a shareholder’s death, disability, or insolvency, the remaining shareholders shall have the option to purchase the deceased shareholder’s shares at fair market value.”
Conclusion:
In conclusion, drafting a shareholders’ agreement under Egyptian law requires careful consideration of various legal and practical factors. By addressing key issues such as shareholder rights, governance, share transfers, and dispute resolution, parties can establish a framework for effective corporate governance and protect their interests in the company.
By incorporating these effective and practical provisions into a shareholders’ agreement in accordance with Egyptian law, parties can establish a solid foundation for corporate governance and protect their interests in the company. In WKILY, legal experts familiar with Egyptian corporate law is advisable to ensure the agreement’s enforceability and effectiveness in safeguarding the rights of shareholders.
