Commercial and Company Law
Commercial and Company Law tests the Egyptian legal framework governing traders, commercial acts, company formation, governance, capital, profit distribution and liquidation. The core statutes are the Commercial Law 17/1999 and the Companies Law 159/1981, with the Investment Law 72/2017 and Capital Market Law 95/1992 relevant for investment and listed companies.
Company forms and capital
- The main company forms are the joint stock company, the limited liability company, the partnership limited by shares, and the simple partnership.
- A joint stock company issues shares of equal nominal value; its capital is divided into shares and it is managed by a board of directors.
- A limited liability company is formed by one or more persons with capital divided into equal shares; partners' liability is limited to their capital contribution.
- Increases and reductions of capital follow statutory procedures, including shareholder approval and registration.
Profit distribution and reserves
- The annual general assembly approves the financial statements and the distribution of profits.
- A legal reserve is appropriated from net profit at the statutory percentage until the reserve reaches the prescribed proportion of capital; the reserve is not distributable as a dividend.
- Dividends are paid only from distributable profits; the company may not pay dividends that impair its capital.
Worked example
A joint stock company reports net profit of EGP 1,000,000. The legal reserve is 5% of net profit until it reaches 50% of capital. If the reserve is not yet at the cap, the appropriation is EGP 50,000. The remaining EGP 950,000 is available for the general assembly to retain or distribute, subject to any statutory or article restrictions. If the reserve had already reached the cap, the full EGP 1,000,000 would be available. The reasoning is that the legal reserve is a mandatory appropriation, not an expense.
Traps that cost marks
- Confusing the legal reserve with a voluntary reserve or with retained earnings.
- Treating a shareholder loan as capital without checking the legal and disclosure requirements.
- Ignoring the registration and publication steps needed for company resolutions.
- Assuming a limited liability company has a board of directors in the same way as a joint stock company.
- Paying dividends from unrealised revaluation gains when the law restricts distribution.