Branches benefitting from an exemption from the requirements of article 120 may be required to be transformed into subsidiaries before 5 May 2016 if they were registered prior to the entry into force of the revised OHADA Uniform Act on Commercial Companies and Economic Interest Groups. This may have a significant impact on the corporate structuring of Oil&Gas and power companies.
The changes introduced by the revised OHADA Uniform Act on Commercial Companies and Economic Interest Groups (the “Revised Uniform Act”), which entered into force on 5 May 2014, have been widely commented on1.
One year later, we focus in this note on the impact of the Revised Uniform Act on branches registered by foreign companies in OHADA countries prior to the entry into force of the Revised Uniform Act.
Under the previous version of the Uniform Act on Commercial Companies and Economic Interest Groups (the “Uniform Act”), article 120 thereof provided that a branch registered by a foreign company (i.e. a company which itself was registered outside an OHADA member State) had to be converted into a subsidiary within two years (as from its registration date). However, exemptions could be granted by order (arrêté) of the minister in charge of trade in the OHADA member State in which the branch was located. No limitation was provided by the Uniform Act regarding the duration of such exemptions or the number of exemptions that could be obtained and each member State was entitled to establish its own rules freely in this respect. It had thus became customary for foreign companies (particularly those active in the Oil & Gas sector during the exploration period or in the power sector during the entire operation of the plant) to register a branch and to obtain an exemption from the requirements provided by article 120.
The Revised Uniform Act has clarified the regime applicable to branches and provides that exemptions to the provisions of article 120 are now limited to a one-time non-renewable two year exemption2. Failure to comply with the provisions of article 120 may result in the branch being struck from the registre du commerce et du crédit mobilier (trade and personal property credit register) and to imposition of penalties (for the directors of the relevant foreign company). Accordingly, a foreign company can now operate in an OHADA member state through a branch only for a limited period of four years maximum (i.e. two initial years + two year exemption).
The impact of the revised provisions of article 120 on branches registered by foreign companies in OHADA member States prior to the entry into force of the Revised Uniform Act is not clear3. However, in practice, several countries (for example in Senegal and in the Republic of Congo) have considered that past exemptions are no longer applicable and require foreign companies with a branch registered prior to the entry into force of the Revised Uniform Act, to register a subsidiary within two years as from the entry into force of the Revised Uniform Act (i.e. prior to 5 May 2016).
If this approach is confirmed across OHADA member States, foreign companies should already be giving consideration to the impact of the conversion of their branches into subsidiaries. Even though such conversion is common in OHADA member States, several aspects (including the transfer of authorisations, the transfer of contracts, the distribution of dividends and tax consequences) should be closely reviewed and the conversion process must be carefully implemented.