Trends and climate
What is the current state of the M&A market in your jurisdiction?
The M&A market in Qatar is showing signs of strong activity for 2019.
Have any significant economic or political developments affected the M&A market in your jurisdiction over the past 12 months?
Are any sectors experiencing significant M&A activity?
The oil and gas, pharmaceutical and food and beverages sectors are experiencing significant M&A activity.
Are there any proposals for legal reform in your jurisdiction?
What legislation governs M&A in your jurisdiction?
M&A in Qatar is governed by the Commercial Companies Law (11/2015) and the Qatar Financial Market Authority’s Rulebook on M&A.
How is the M&A market regulated?
The M&A market is regulated by the Commercial Companies Law (11/2015) and the Qatar Financial Market Authority’s Rulebook on M&A.
Are there specific rules for particular sectors?
Types of acquisition
What are the different ways to acquire a company in your jurisdiction?
A company can be acquired by way of:
- a merger, through which the merged companies expire and a new legal entity is created. The new entity is the legal successor to the merged entities; or
- an acquisition, through which the buyer becomes the shareholder of the target company.
Due diligence requirements
What due diligence is necessary for buyers?
As in other comparable jurisdictions, the buyer should consider what level of due diligence is required, based on the target’s business and the circumstances of the transaction. Generally, at least 51% of an ‘onshore’ company must be owned by a Qatari national or entity.
What information is available to buyers?
Company searches are generally unavailable for onshore Qatari companies. Only the relevant company (or an individual authorised via a power of attorney provided by that company) can obtain a copy of the trade licence and commercial registration certificate. Thus, the ownership structure should be verified through the due diligence process.
What information can and cannot be disclosed when dealing with a public company?
The following cannot be carried out when dealing with a public company:
- the provision of false information, statements or data that could affect the market value of securities and an investor’s decision on whether to invest; and
- the exploration of undisclosed information to achieve personal benefits that could affect the prices of securities.
How is stakebuilding regulated?
The Qatari Financial Markets Authority and Qatar Stock Exchange regulate stakebuilding.
What preliminary agreements are commonly drafted?
The outline terms of a transaction are often recorded in writing in heads of terms. The parties should consider whether they wish to be legally bound by the heads of terms and review the wording accordingly. This is particularly the case in Qatar, where the requirement of good faith may create an enforceable obligation to proceed in accordance with the heads of terms. The heads of terms may be governed by either Qatari or foreign law.
What documents are required?
The documents generally required for a private transaction include:
- an information memorandum;
- a confidentiality agreement;
- a process letter;
- an offer letter;
- an exclusivity agreement;
- an acquisition agreement;
- a disclosure letter;
- ancillary agreements;
- signing authorities; and
Which side normally prepares the first drafts?
The seller will usually draft the confidentiality agreement, process letter, information memorandum and exclusivity agreement and the buyer will draft the offer letter. Either party may draft the acquisition agreement, disclosure letter or ancillary agreements.
What are the substantive clauses that comprise an acquisition agreement?
What provisions are made for deal protection?
Deal protection may be strengthened by a requirement for the buyer to pay a refundable deposit into an escrow account when a non-binding offer is given. In case of no deal, the deposit will be:
- refunded to the buyer, if the seller does not proceed with the transaction; or
- paid to the seller, if the buyer does not make a binding offer at the end of the due diligence stage.
What documents are normally executed at signing and closing?
In addition to the principal documentation listed above, in case of a share sale, the parties must sign a standard share transfer form (in Arabic or dual English and Arabic) before a Qatari notary to transfer the shares from the seller to the buyer.
Are there formalities for the execution of documents by foreign companies?
Qatari law contains no specific provisions relating to the execution of a Qatari law-governed agreement by a foreign entity. However, it is not uncommon for a local counterparty to require a foreign counterparty to execute a contract pursuant to a power of attorney. Further, there is no requirement for the power of attorney to be notarised, unless it is to be used in a government process (eg, registering an amendment to a company’s memorandum of association).
Are digital signatures binding and enforceable?
An electronic signature that meets the requirements of the law has legal force and effect. The term ‘electronic signature’ is broadly defined and includes all types of signature (eg, alphabetical, numerical, symbolic and vocal), which are attached to or logically associated with an electronic agreement and serve as a method of authentication.
Reliance on electronic signatures must be ‘reasonable’, which determination is generally based on the following factors:
- the nature, value and importance of the transaction being supported by the electronic signature;
- the steps taken by the party relying on the signature to verify the identity of the electronic signatory;
- evidence of prior breach or revocation of the electronic signature;
- previous reliance on an electronic signature between the contracting parties; and
- any other relevant factors.
In addition, there are certain categories of transaction and document for which the use of an electronic signature is not allowed, including:
- negotiable instruments;
- transactions involving immovable property;
- documents legally required to be attested before a notary; and
- any other document or transaction exempted by the law.
Foreign law and ownership
Can agreements provide for a foreign governing law?
Share purchase agreements and ancillary documents are often governed by English law or other foreign governing laws that are generally recognised and commonly used in international M&A transactions. If all the parties are Qatari nationals, it is common (although not compulsory) for the documents to be governed by Qatari law.
What provisions and/or restrictions are there for foreign ownership?
At least 51% of an ‘onshore’ company must be owned by a Qatari national or entity. However, up to 100% of a company can be foreign owned if it is registered at the Qatar Financial Centre.
Valuation and consideration
How are companies valued?
Public companies and private companies that are planning to go public are valued by a valuator, registered with the Qatar Financial Markets Authority.
What types of consideration can be offered?
Qatari law has no requirements concerning the form of consideration.
What issues must be considered when preparing a company for sale?
Company books, accounts and filings should be up to date and the scope of the target business should be clearly defined. In Qatar, many target companies will be government or family owned; where this is the case, it is particularly important to consider the separation of the target business from other interests.
What tips would you give when negotiating a deal?
As in many countries in the gulf region, it is important to be aware of cultural sensitivities. It is also worth establishing who will be the key decision maker for the transaction, as this may not be the general manager or local partner.
Are hostile takeovers permitted and what are the possible strategies for the target?
Since foreign ownership restrictions prevent foreign companies from acquiring majority ownership and control of onshore companies, a hostile bid by a foreign entity is impossible. A Qatari company could launch a hostile bid against a Qatari public company, provided that both of them are wholly or mainly owned by Qatari entities.
Warranties and indemnities
Scope of warranties
What do warranties and indemnities typically cover and how should they be negotiated?
Warranties and indemnities cover a broad range of issues relating to the target, including:
- authority and capacity;
- real estate;
- intellectual property;
- information technology; and
- environmental matters.
Limitations and remedies
Are there limitations on warranties?
A seller may seek to limit its potential exposure to warranty claims, as is customary in other jurisdictions.
What are the remedies for a breach of warranty?
A buyer’s remedy for breach of warranty is a claim for damages for breach of contract.
Are there time limits or restrictions for bringing claims under warranties?
The Civil Code provides a 15-year limitation period for civil claims. As in other civil systems, Qatari law requires parties to perform their obligations under a contract in good faith, which may prevent a claim (eg, if a buyer has knowledge of a seller’s breach of warranty when a contract is entered into and subsequently attempts to bring a claim for breach of warranty).
Tax and fees
Considerations and rates
What are the tax considerations (including any applicable rates)?
At present, Qatar has no corporation, income, capital gains, withholding or sales taxes.
Exemptions and mitigation
Are any tax exemptions or reliefs available?
What are the common methods used to mitigate tax liability?
What fees are likely to be involved?
Notary fees are payable in connection with the execution of agreements to transfer shares, real estate and other assets.
Management and directors
What are the rules on management buy-outs?
No specific rules or typical structures for management buy-outs exist in Qatar and the transaction will be determined by the relevant parties.
What duties do directors have in relation to M&A?
A director must act in accordance with the company’s objectives and the powers granted to them by the shareholders. Therefore, a director must ensure that they have obtained the necessary internal approvals before entering into any arrangement to bind the company.
Each director is liable towards the company and third parties for any fraudulent actions that they carry out and will be required to compensate the company for any losses or expenses incurred due to their:
- abuse of power;
- violation of any law in force, the company’s memorandum of association or their contract of appointment; or
- gross error.
Any provision in the memorandum of association or the contract of appointment contradicting this provision is null and void.
A director must not undertake any activities competing with the company’s line of business unless they obtain approval from the company’s shareholders. In addition, a director may not vote on any resolution in which they have a direct or indirect interest and must report in writing to the other directors with full details of such matter.
A director is prohibited from utilising or disclosing company secrets or attempting to damage the company’s business. In addition, the code for listed joint stock companies provides that a director shall, when exercising their powers and duties:
- act honestly and faithfully, taking into consideration the interests of the company and its shareholders;
- make the utmost effort; and
- adhere to applicable laws, regulations and resolutions, as well as the company’s articles of association and internal regulations.
Consultation and transfer
How are employees involved in the process?
There are no specific provisions regarding this issue.
What rules govern the transfer of employees to a buyer?
There are no statutory provisions regarding the transfer of employees. An employee’s contract remains in place and unchanged (except where the parties agree otherwise) as there is no change to the employer. Should the employer wish to terminate the employment contract, the employer would have to follow normal procedures (by serving a contractual notice period and paying contractual and statutory entitlements).
What are the rules in relation to company pension rights in the event of an acquisition?
Only Qatari nationals are subject to pension rights.
Other relevant considerations
What legislation governs competition issues relating to M&A?
The Law on the Protection of Competition and the Prevention of Monopolistic Practices (19/2006).
Are any anti-bribery provisions in force?
Under the Qatari Penal Code, bribery is a criminal offence which can be committed by public officers or private individuals.
It is an offence to offer a public officer a donation, advantage or promise of any kind in order to commit or omit an act in violation of the duties of their functions, even if the public officer does not accept the bribe. It is also an offence for a public officer to accept for themselves or another a gift, benefit or privilege that influences them as a public officer.
What happens if the company being bought is in receivership or bankrupt?
Usually, a buyer carries out the normal due diligence process to make sure that the target company is not under bankruptcy or receivership before proceeding with acquisition. Thus, this question is not practically feasible.