Structure and process, legal regulation and consents

Structure

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

Acquisitions and disposals of Egyptian privately owned companies are structured according to the type of the company; and the target sale item (ie, assets or shares).

On the assumption that the target is shares, the process will depend on the legal type of the target shares of the company. The sale of shares in a joint stock company would be through a licensed brokerage firm that undertakes the execution of the sale via the Egyptian stock exchange and hence paper work by the Egyptian stock exchange is required, inter alia, sale and purchase orders. In relation thereto, for unlisted companies, a document proving the actual transfer of the purchase price to the seller’s bank account in a licensed Egyptian bank within a month at most is required, provided that the transaction exceeds 100,000 Egyptian pounds. This process usually takes about five business days excluding the conclusion of the transaction documentation (eg, share purchase agreement), whereas sales of quotas of a limited liability company are finalised via the annotation on the quota-holders ledger, which takes around one to two business days excluding the conclusion of the transaction documentation (eg, quota purchase agreement). The sale of assets, on the other hand, is a more burdensome process as it depends on the nature of each of the target assets (eg, real property requires notarisation before the notary public, which takes up to two months).

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

The applicable law governing acquisitions in Egypt depends on the type, objective and law by virtue of which the target company is established; and (ii) the target sale item (ie, assets or shares). In cases of the sale of shares, the following would be applicable: the Companies Law, the Capital Market Law and the Investment Law, noting that if the target company is listed on the Egyptian stock exchange, listing rules would also apply. In an asset sale, the applicable law would depend on the type of asset.

From a practical standpoint, transaction documentation may be governed by different laws. However, to execute the transfer of shares and assets, Egyptian laws prevail. In this regard, the governing law must be Egyptian Law in sale of real property among other items that mandate the application of the Egyptian law.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

Under Egyptian law, there is no distinction between a beneficial and a legal title. Legal and beneficial title of shares are assumed once the transaction is executed via the Egyptian stock exchange. The process is different in assets, whereby the general rule mandates that movable assets are transferred by possession and fixed assets (eg, real property) are transferred after being notarised before the notary public.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

In Egypt, sellers are not obliged to acquire all the shares of a company. Generally, pursuant to Egyptian law, the drag-along concept is not regulated and hence not possible. Nevertheless, acquisitions of more than 33 per cent of the share capital of a listed joint stock company mandates a mandatory tender offer to all the shareholders of such company. In addition, the delisted joint stock companies may be subject to the mandatory tender offer, provided that the shares of the company were publicly offered before the delisting.

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

Pursuant to general rule under Egyptian law, any liability arising out of fraud or gross error cannot be excluded. Further, the parties may agree to exclude any liability arising out of tax or employees’ entitlements. Although the latter is contractually possible, however, in the case of a share sale, all the liabilities of the company are assumed upon title transfer. Hence, the transaction documentation usually provides for an indemnification mechanism.

Unlike the share sale, in an asset sale, the liability is assumed if a company sold all of its assets and stopped its operations. Generally, there are no required consents or notifications to effect the transfer of assets or liabilities.

Consents

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

In Egypt, certain laws mandate obtaining a prior consent on the transfer of ownership of a business (eg, acquisition of 10 per cent of the voting rights or shares of a holding company requires the consent of the Financial Regulatory Authority; companies established in a free zone are required to obtain the consent of the General Authority of Investments and Free Zones; change of ownership of an Egyptian licensed bank requires the approval of the Central Bank of Egypt; and acquisition of companies operating in a non-banking financial activity requires the approval of the Financial Regulatory Authority, subject to a 10 per cent threshold). Additionally, there are further foreign ownership restrictions in some industries such as commercial agency that requires a company to be fully owned by Egyptian nationals (individuals or juristic person) and importation activity requires 51 per cent of the share capital to be owned by Egyptian nationals (individuals or juristic person).

Furthermore, in certain situations, if the company operates in the Sinai Peninsula, it should obtain the prior approval of Sinai Development Authority’s board of directors along with other approvals for the transfer of its shares. In addition, recently, the Press and Media Organizational Law requires the prior written approval of the Supreme Council for Media Regulation on certain transactions (eg, disposal of a press).

Are any other third-party consents commonly required?

Yes, in cases where the articles of association requires them. Further, some of the company’s material documents might include a change of ownership or control clauses whereby the prior consent of such party is required.

Regulatory filings

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Yes, in a share deal, there is a stamp duty tax imposed on both the seller and the buyer, whereas the sale of assets depends on the nature of the asset (eg, notarisation fees are paid in transfer of real property before the notary public).