A general partnership must have two or more Kuwaiti partners. Foreign nationals may participate in general partnerships, but Kuwaiti nationals must own at least 51% of the capital. In a partnership, the liability of the partners is unlimited, and they are jointly and severally liable with respect to the partnership’s obligations to the entire extent of their assets. The partnership must be managed by at least one of the partners. If no manager is appointed, and no method for appointment is stated, then the partnership is managed jointly by all the partners. The name of the partnership must consist of the name of one or more of the partners adding thereto the words “and Partners” or “and their Partners”.
A limited partnership is comprised of at least one general partner and one limited partner. The extent of a limited partner’s liability for the partnership’s obligations is restricted to the amount of capital invested by the limited partner in the partnership. A limited partner may not participate in the management of the business, and if this is done, the limited partner is jointly and severally liable for the partnership’s liabilities in the same way as the general partners. All general partners must be Kuwaiti nationals and Kuwaiti partners must hold at least 51% of the capital. Foreigners can only be limited partners. The name of the partnership must consist of the name of one or more of the partners adding thereto the words “and Partners” or “and their Partners”.
Partnership Limited By Shares
A partnership limited by shares consists of a minimum of five partners including at least three limited , or shareholding, partners. A supervisory board, consisting of at least three limited partners, is to be formed if there are more than seven limited partners. The liability of the general partners is unlimited. The partnership must be managed by at least one of the general partners. Limited partners are not responsible for the debts of the partnership, except to the extent of the value of their shares in the partnership. Limited partners may not interfere in the management of the partnership, and if they do so, they shall be personally liable for losses caused as a result thereof. All general partners must be Kuwaiti nationals and Kuwaiti partners must hold at least 51% of the capital.
Single Person Company
A single natural or corporate Kuwaiti person may incorporate a one-person company. The incorporation formalities of a one-person company are similar to that of a limited liability company. The company may be managed by the owner of the capital or by another manager appointed by the owner of the company’s capital. The proprietor of the capital of the company shall not be personally liable except to the extent of the capital of the company. Certain exceptions to this rule exist. Firstly, if the owner of the company liquidates the company or suspends its activities in a mala fide manner before the objectives of the company have been realized. Secondly, if the owner of the company fails to separate personal finances and the company’s capital, and this prejudices a bona fide third party.
Limited Liability Company
A limited liability company is the most common form of corporate entity in Kuwait. The limited liability company must have at least two, and no more than fifty partners, who are liable for the debts of the company only to the extent of their respective paid interest in the capital. A supervisory board is to be formed if there are more than seven partners. At least one company member must be a Kuwaiti national, and the total membership interests held by Kuwaitis (or nationals of the GCC) may not be less than 51%. The capital shall be divided into equal interests with a minimum nominal value of KD 100. The letters WLL (“With Limited Liability”) must follow the name of the company. Limited liability companies may not engage in banking, insurance or investment activities on behalf of third parties. The minimum share capital for establishing a with limited liability company depends on the company’s activities, but cannot be lower than KD 1,000.
A shareholding company is a company whose capital is divided into tradable shares of equal value. In a shareholding company, shareholders are liable to the extent of their contribution of the value of the shares subscribed for. Shareholders shall only be liable for the company debts to the extent of the nominal value of their shares. Capital shares have a minimum value of 100 fils. The minimum share capital for establishing a shareholding company depends on the shareholding company’s activities, but cannot be lower than KD 10,000.
A differentiation has to be made between public shareholding companies and closed shareholding companies. Public shareholding companies are shareholding companies that have been incorporated by way of public subscription or that have been transformed by act of law from a closed shareholding company into a public shareholding company by a public offering of shares. Closed shareholding companies are shareholding companies that require at least five shareholders and can be established through an “authenticated document” (authenticated by a notary public).
The incorporators of a shareholding company must subscribe for no less than 10% of the initial capital and cannot transfer their shares to another party until two fiscal years have elapsed, except to a fellow incorporator or a relative of the second degree. The name of a shareholding company must be followed by the letters KSCC (“Kuwaiti Shareholding Company – Closed”) or KSCP (“Kuwaiti Shareholding Company – Public”).
Foreign Ownership Restrictions
By law, foreigners may only own up to a maximum of 49% of the capital of a general partnership, a limited partnership, a partnership limited by shares or a limited liability company. A foreign investor cannot be the proprietor of a single person company. Although not set out in the law, foreign participation in shareholding companies is limited in practice to 49% of the capital. These foreign ownership restrictions do not apply to shareholding companies listed on the Kuwait Stock Exchange, with the exception of banks and insurance companies.
In accordance with Law No. 116 of 2013 Regarding the Promotion of Direct Investment in the State of Kuwait, the Kuwait Direct Investment Promotion Authority may grant an investment license that allows for 100% foreign ownership in any type of company incorporated in Kuwait. In accordance with the same law, a branch of a foreign company can potentially obtain a license to perform direct investment activities in Kuwait. Representative offices that have the objective of performing marketing studies or research, without performing any other commercial activity, may also be eligible for a license.
Foreign ownership restrictions do not apply to nationals of other GCC countries. These individuals are provided equal treatment to Kuwaiti nationals in accordance with the terms of the GCC Treaty of 31 December 2001.
Under Decree Law No. 25 of 2012 Promulgating the Companies Law as amended (“Companies Law”), it is permitted to enter into shareholder agreements, which regulate the relationship between shareholders. Such agreements may deviate from non-mandatory provisions of the law or the constitutional documents of the company. For example, the parties to a shareholder agreement can validly agree that the distribution of profits shall differ from the actual equity ownership position. However, parties cannot agree to completely exclude a shareholder from the distribution of profits. Such exclusion would violate a mandatory provision of the law, and a shareholder agreement cannot deviate from such provision.
Further, other matters to which parties can agree in shareholder agreements include super-majority voting requirements for “reserved matters” that are of key importance to the parties, allocation of key roles or responsibilities, power for certain shareholders to appoint managers and restrictions on transferring shares.