Introduction To Corporate Governance Regimes In Oman: Examining Directors? Duties

Abstract

As a matter of introduction, the main backbone legislation for determining the duties which are required from directors are the Code of Corporate Governance of 2016 and the Omani Commercial Companies Law of 1974 (Oman Law No 4/1974). The Code of Corporate Governance provides a legal framework and clarifies principles for the management and control of SAOGs listed on the Muscat Securities Market (MSM), and outlines the composition of the Board as mentioned in Principle 2 in the case for Omani companies, as well as the functions and powers attributed to them in Principle 3.

Analysis

The case with LLCs

It is worth mentioning that under Omani laws and regulations mentioned above, only a joint stock company, whether closed or a public joint stock company, is required by law to appoint a board of directors (BoD) as the company's management arm. On the other hand, Omani limited liability companies (hereinafter abbreviated as 'LLC's') are not required by law to have them, but is executively managed instead by one or more 'executive managers', who are required by law to be natural persons, and who may or may not be shareholders in the company. Omani LLCs are in comparison simple to form and establish and are subject to relatively straightforward annual statutory filing requirements, and it is therefore typically the vehicle of choice for most business lines in Oman.

Article 152 of Oman Law No. 4/1974 provides:

"The Managers of the Limited Liability Company may perform all acts in pursuance of the Company's objectives unless their authority is limited by the Company's Memorandum of Association or by subsequent agreements made between all the partners of the Company and registered in the Commercial Register.

The Managers, however, shall not perform the following acts unless they are expressly authorised to do so by the Company's Memorandum of Association or by an unanimous decision of all the partners:

1. Donations, except donations required by business and, in ordinary, small amounts.

2. Sale of all or substantial part of the Company's assets.

3. Mortgage or pledge the Company's assets except to secure the Company's debts incurred in the ordinary course of the Company's business.

4. Guarantee debts of third parties, except guarantees made in the ordinary course of business for the fulfilment of the Company's objectives."

As it is evident from the article and its subsections, the principle document that determines the duties of directors in LLCs is the respective memorandum of association of said company. Unless explicitly mentioned within the memorandum of association, the managers of an LLC can give donations (which is prohibited in general as mentioned in subsection A), the managers could also sell substantial parts of the company and finally mortgage or pledge or guarantee debts using the business's assets.

As provided in the article, managers of a Limited Liability Company in the Sultanate must perform in the best interest of the business and must pursue the objectives of the company that are mentioned in the company's constitutive contract or memorandum of association. Although it is common practice amongst businesses today in Oman to establish a 'Board of Directors' even though the concerning laws do not require to do so. Due to the ease in procedure in establishing an LLC, this is currently the vehicle of choice to do business in Oman.

The importance of the managers abiding by the duties and refrain from the prohibitions either mentioned above in the article or explicitly included in the memorandum of association of said company arises from the fact that according to article 153 of the law mentioned above is that the company shall be bound by all acts performed by the managers acting in its name and within the scope of their respective powers. Here lies the pivotal and crucial role of considering the acts of the managers as acts of the company therefore the need for limiting their powers either by law as it is clear under article 152 of the Omani Commercial Companies Law of 1974 mentioned above and by limiting said powers in the company's memorandum of association. The law furthered the duties...