By Dr AbdelGadir Warsama, Legal Counsel
The economy in all countries is in need of sole enterprises, family companies as well as public companies. Each of such entities play a pivotal role in the economy. However, there is a move among sole enterprises or family companies to go public.
According to Company Law of Bahrain, one of the duties to be undertaken by the founders, is to prepare Memorandum of Understanding (M o U) and the Articles of Association (A o A) for the company. These important documents shall include, inter alia, name of the new company, place of work, duration and objectives of the company, names of directors and personal info about them, capital of the company and number of shares into which the capital is divided, value of each share and other info related to such shares such as price. Also, the amount to be paid by directors regarding the incorporation and an undertaking to finalize incorporation formalities within the permissible time.
Above information shall be stated with particular emphasis on the objectives and duties of the company such as banking co, insurance, general contracting, services…etc. This info is necessary for transparency purposes that is required to give investors full info. The relevant info will help each potential investor to take the appropriate decision regarding his participation in the company. The most important part of the info is the objectives of the company which could be services or merchandise or tourism or industry or whatever… and in all cases the objectives shall be stated clearly so as to distinguish the company to be established from other similar companies. This clarity and transparency is basically required for licensing purposes. In some instances a license may be required from more than one government institution.
Founders shall forward the (M o U) and the (A o A) along with a feasibility study to the Ministry. Therein the concerned technical personnel will review docs, feasibility study and the appropriate decision shall be taken. In some cases the authorities may reject the application for a new company for any reason. Legally speaking this decision could be taken to the Court after exhausting all possible appeals submitted to the relevant executive bodies. The Court, however, after hearing both parties and checking necessary docs, shall issue the decision it deems appropriate. I mentioned this point to show that the founders could follow their legal rights before the executive bodies as well as the Courts. Founders, after obtaining the go-ahead to establish the company are required to call the public-at-large for subscription. The invitation along with the prospectus shall be published in newspapers and media. The prospectus shall be exhaustive and informative, however, it normally includes, statement to show that the founders have paid their shares, maximum number of shares to be subscribed by each investor, number of shares required by each person to qualify for board membership, dates & places and conditions for subscription including shares to be owned by nationals and foreigners, if any.
Founders shall sign the prospectus and, legally speaking, they are jointly responsible regarding the accuracy and all contents of the prospectus. Before publishing the prospectus, the founders shall forward to the official authorities, all docs to show that they have paid their subscribed shares. The prospectus informs the public or investors about the names of the banks to enable interested persons to subscribe and take shares. After closing the prospectus process, the equity shares of the company shall be allotted accordingly.
This explains the legal steps required for establishment of public-joint-stock companies.