The Corporate Veil

The General Principle

The majority of the commercial businesses currently operating in Qatar, whether wholly owned by Qatari nationals and/or by Qatari nationals in joint venture with foreign investors, are registered with limited liability and referred to as limited liability companies (LLC) in accordance with the provisions of Law No.(11) of 2015 (Companies Law).

LLCs have traditionally been seen as a safe option by investors on the basis of the general principle of the "corporate veil", a legal concept which separates the personality of the LLC from the personalities of its investors. Investors rely on this concept to limit their liability to the amount each has invested in the LLC. In exceptional circumstances however, generally involving fraud, the corporate veil may be "lifted" or "pierced" in order to directly access the investors.

In Qatar the circumstances where the corporate veil can be lifted or pierced may not be so exceptional. Under Article 298 of the Companies Law (Article 298) in circumstances where the LLC loses half or more of its capital regardless of the reason for such losses it may be possible for the creditors of the LLC to look beyond its limited liability and claim against the personal assets of the shareholders and in some instances the general manager. It is critical therefore that investors, and general managers, are aware of the effect of Article 298 when doing business in Qatar through an LLC. Where the LLC has more than one manager and/or a board of directors, these individuals may likewise be culpable.

Article 298

According to Article 298 where an LLC has losses amounting to half or more of its share capital, as a result of losses from its business, the following steps should be taken:

(1)

The manager(s),or any person whose name appears on the Commercial Register as an authorised signatory, of the LLC must call a Shareholders' General Assembly (Assembly) to be held no later than 30 days from the date the losses amounted to half or more of the LLC's share capital.

(2)

In that Assembly, the shareholders must resolve by a 75% majority of shareholders holding 75% of the share capital, to either:

(a) reinstate/refinance the LLC's capital; or

(b) resolve to dissolve the LLC.

Both of these steps must be complied with and completed within the required 30 day period in order to avoid the shareholders and/or the manager(s) as the case may be, becoming jointly and severally liable for the LLC's liabilities. Failure to...