Contents

Management and Governance of Limited Liability Company (WLL)

What is a Limited Liability Company (WLL)?.

Appointment of Manager:

Powers and obligations of the manager:

Limitations of the manager of a Limited Liability Company:

Dismissal of the Manager:

Death of the Manager

Supervisory Board:

Auditor of the Limited Liability Company:

Annual General Meeting of a Limited Liability Company:

Extraordinary Meeting of a Limited Liability Company:

Conclusion:

Management and Governance of Limited Liability Company (WLL)

What is a Limited Liability Company (WLL)?
A Limited Liability Company commonly known as a ‘with limited liability’ company in Kuwait, is a business structure that combines elements of corporations and partnerships. It provides the owners (called ‘Partners’) with limited liability protection, meaning their personal assets are protected from the company’s debts and liabilities. A WLL company is more flexible in structure, capital, and management than a shareholding company.

Article 92 of Kuwait’s Law No.1 of 2016 (‘Company Law’) defines a company with limited liability (WLL) as a private company established with a minimum of two and maximum of fifty partners, with each partner’s liability limited to the extent of their contributions in the company’s capital.

The key features of a WLL company are:

• WLL companies are not permitted to engage in banking, insurance activities, or act as a pure investment fund.
• The maximum percentage of shareholding by a non-Kuwaiti in a WLL should be 49% (except if such a WLL company is established as per the KDIPA laws).
• WLL companies are required to issue annual audited financial statements (prepared by an independent auditor).

The minimum capital required to establish a WLL company in Kuwait is 1,000 Kuwaiti Dinars (KWD) and the capital must be fully paid up at the time of incorporation. Such minimum investment requirement makes this business structure attractive to many investors and small businesses. Capital contributions in a WLL company can be made in cash or in-kind. If the contributions are made in-kind, such as property, equipment, workforce, etc., they have to be evaluated by an independent expert who is accredited by the Ministry of Commerce and Industry (MOCI) to ensure fair valuation of such contributions in the capital. Upon valuation by the expert, the valuation report has to be submitted to the Ministry to reflect the same in their records.

The capital of a WLL company is divided into membership interests of equal value, which are indivisible and must have a minimum value of 100 Kuwaiti Dinars each. The membership interests are proportional to the value of each partner’s contribution, whether in cash or in-kind and are expressed in Kuwaiti dinars. The total value of the membership interests must be equal to the registered capital of the company. If a single membership interest is owned by more than one person, then they shall appoint a representative among themselves to represent them before the company. Further, Article 95 of the Company Law requires the value of the membership interests to be clearly stated in the company’s memorandum of association (‘company contract’).

Management and Governance of a WLL Company in Kuwait
Effective management is the backbone of any successful company, regardless of its business structure. Kuwait’s Company Law (Law No. 1 of 2016) along with its Executive Regulations (Decree No. 245 of 2016) has laid down the management and governance framework for different business structures, including the WLL companies. It details the manner of management of a WLL company, the appointment of managers, auditors, the supervisory board of the company, and the procedures for general and extraordinary meetings. In this article, we will discuss about the various aspects of management of a WLL Company in Kuwait.

Appointment of Manager:
Article 103 of the Company Law states “The company shall be managed by one or more managers, to be appointed in the company contract from among the partners or third parties. In the event that the Company Contract does not appoint the managers, the general meeting of the partners shall appoint them” which means that the Limited Liability Company can be managed by one or more managers that could be among the partners or appointed externally. A manager can be appointed either at the time of incorporation through the company contract (memorandum of association) or by a resolution passed by the partners for the appointment of a manager in the general meeting.

Powers and obligations of the manager:
The manager of a company is responsible for conducting and the day-to-day operations of the business and representing the company before third parties and authorities. Powers of a manager include, but are not limited to, overseeing and managing the daily operations, preparing policies, and management reports, signing contracts, and agreements, executing transactions, managing financial activities, managing the workforce, convening general or extraordinary meetings, representing the company in legal matters, etc. While managers have significant authority, they must work within the limits defined by the memorandum of association or the board resolution that appointed them.

Managers have the following obligations towards the company:

• Duty of care and loyalty;
• Duty to avoid conflict of interest;
• Duty to provide up-to-date information;
• Duty to report irregularities to partners and supervisory board;
• Duty to convene annual general meetings, and other meetings as and when requested by the partners;
• Duty to implement decisions made in general meetings and extraordinary meetings;
• Duty to maintain records and to present them as and when requested by the partners and the supervisory board;
• Duty to act within the prescribed authority;

Article 105 states that, in the event that the powers of the manager are not specified in the company contract or the resolution appointing the manager, the manager shall have the authority to carry out the tasks and actions that are necessary to achieve the objectives of the company. It further states that the managers shall be jointly liable to the company, the partners, and the third parties towards any mismanagement of the company, breach of duty, or contravening any existing laws.

The cooperation of managers is another important factor in the successful management of a company. For example, the manager is responsible for calling ordinary and extraordinary general meetings. If the manager does not cooperate, the partners/owners of the company will face difficulties in discussing any crucial matters or executing resolutions. In such cases, the partners/owners shall send a notice instructing the manager to convene the ordinary or extraordinary meeting, either directly or through the court. If the manager fails to respond to the first notice within the specified period, generally one to two weeks, a second and final notice shall be sent to the manager after the expiration of the first notice period. If the manager remains uncooperative, these notices shall be submitted to the Ministry of Commerce and Industry (MOCI), which will then convene the meeting either at their location or by sending a representative to convene the meeting at the company’s premises.

Although this process ultimately stops a manager from indefinitely preventing the general assembly, it is time-consuming and sometimes it may not offer a practical solution in urgent situations requiring prompt decisions.

Limitations of the manager of a Limited Liability Company:
The managers of a company with limited liability (WLL) have broad authority to manage day-to-day operations, represent the company, and make decisions in line with the company’s goals and objectives. However, there are certain actions that require prior approval from the partners/owners of the company including:

• Making donations;
• Disposing of the company’s real estate;
• Pledging company assets;
• Extending guarantees to third parties;
• Deciding on matters concerning litigation and dispute resolution;
• Matters regarding incurring debt, loans, or making investments;
• Long-term contracts or contracts with significant financial implications;
• Any other significant decisions that may impact the company’s financial and market position.
• Matters requiring an amendment to Memorandum of Association or Articles of Association.

Further, Article 106 states that the manager cannot, without the approval of the ordinary general meeting of the partners, take on the management of a competing company or one with similar goals to the current company. Further, the manager is restricted from entering into a contract with the company either on their own behalf or on behalf of a third party, nor can they engage in any activities for a third party that are similar to the current company’s activities.

Dismissal of the Manager:
The dismissal of a manager in a limited liability company is a significant decision that can impact the operation and management of the company. Managers play a crucial role in the management and strategic direction of a limited liability company, and their removal can arise from various circumstances, including performance issues, misconduct, or strategic changes within the company.

The procedure for dismissing a manager depends on the mode of their appointment:

• Dismissal of a Manager appointed under the Memorandum of Association (MOA):  The dismissal of a manager appointed under the MOA requires a resolution from an extraordinary general meeting with the approval of partners who hold at least three-quarters of the company’s capital.
• Dismissal of a Manager appointed by a resolution of a general meeting:  The dismissal of a manager appointed through a resolution by a general meeting requires a resolution from the general meeting of partners.

Dismissal of Manager through a court order:

According to Article 104, a manager can be removed by a court ruling upon the request of one or more partners who hold at least 25% of the company’s membership interests. The grounds for such dismissal are as follows:

•     Commission of an act of fraud;
•     Commission of an error that has caused serious damage to the company;
•     Violation of the provisions of Article 106 of the company law.

Death of the Manager
One of the most significant challenges faced by the partners or owners of a WLL (With limited Liability) company arises when the sole manager of the company passes away. As the managers of a WLL are vested with broad responsibilities and day-to-day operations of the company including access to the MOCI portal and other portals to make applications, and requests, submit regulatory filings, reports, etc.

To address this, the Ministry of Commerce Industry (MOCI) has developed a procedure to ensure that the company can continue its business operations in the event of the death of its sole manager, who has had exclusive access to the company’s profile on the MOCI’s portal, by allowing any other person authorized by the company to access the company’s profile and carry out the necessary actions. For the Ministry of Commerce and Industry (MOCI) to grant access to any other person authorized by the company to access and manage the profile, a specific form must be submitted, containing information about the deceased manager, along with the following documents attached to the form, including:

•     A copy of the company’s commercial license.
•     A copy of the Civil ID of both the deceased manager and the authorized individual.
•     A copy of the death certificate of the deceased manager.
•     A copy of the power of attorney (if any).

Supervisory Board:
According to Article 107 of Company Law No. 1 of 2016, a Limited Liability Company with more than 7 partners is required to appoint a Supervisory Board. The supervisory board shall consist of at least three members among the partners. The term of membership is a fixed period of three years, which can be further renewed.

Key responsibilities of the supervisory board include the following:

•     The Supervisory Board is responsible for overseeing the company’s management to ensure that management is properly fulfilling its responsibilities.
•     The board is authorized to inspect the company’s records and documents, conduct inventories of cash, stock, and other assets, and request reports from management concerning their activities.
•     The board also oversees the company’s financial accounts, including the distribution of profits and preparation of the annual report, and shall submit its report in this regard in the general meeting of the partners.

The members of the supervisory board shall perform their duties without remuneration unless the memorandum of association or the general meeting resolution appointing the board provides otherwise.

In cases where the number of partners does not exceed seven, and the Memorandum of Association does not mandate the establishment of a supervisory board, partners who are not the managers of the company, have the right to supervise the actions of the managers, and may also inspect the company’s books and records, similar to that of a supervisory board.

Members of the supervisory board cannot be held liable for errors or misconduct of the managers unless they were aware of such errors or misconduct and failed to disclose it in their report to the partners in the general meeting.

Auditor of the Limited Liability Company:
Article 109 of the Company Law No. 1 of 2016, states that the company contract (Memorandum of Association) shall provide for the appointment of one or more auditors to audit the accounts of the company. The auditor shall have the right to access all books, registers, records, and documents of the company necessary for the audit and shall submit an audit report to the partners in the annual general meeting.

In the event that the auditor is unable to exercise their rights or is denied access by the management, they must report the matter in writing to the partners or the supervisory board of the company, detailing the circumstances preventing them from fulfilling their duties.

The auditor, along with any authorized accountants, must submit an audit report on the company’s financial statements. The audit report should provide a clear and independent assessment of these statements, such as whether the balance sheet and profit and loss statements are accurate, comply with accounting principles and are free from material misstatements.

If the company has appointed more than one auditor, the auditors must jointly prepare and submit an audit report. Each auditor is responsible for the accuracy and completeness of the financial statements included in the report, and they are also jointly liable for any damages sustained by the company, its partners, or other parties due to any fault on their part in performing their duties, unless either of the auditors can prove that they were not involved in, or responsible for, the error or default that caused the damage or loss.

In the event that an auditor leaves the company without proper notice, and such resignation or departure causes any damage or loss to the company, the auditor shall be liable for any damages or losses incurred by the company.

Every partner/owner of the limited liability company has the right to discuss and scrutinize the auditor’s report at the general meeting and to seek clarifications regarding the contents of the report in case of any inconsistencies.

The auditor is required to be independent and impartial in carrying out their duties. They shall not have any conflict of interest that could compromise the integrity of their audit and should adhere to professional standards and ethics, local laws, regulations and best practices in financial auditing.

Annual General Meeting of a Limited Liability Company:
An Annual General Meeting (AGM), also known as the ‘Annual General Assembly,’ is a formal gathering of a company’s partners or owners that occurs once a year to discuss and make decisions regarding various aspects of the company’s performance, governance, and other important matters. According to company law, a limited liability company is required to convene a general meeting of all partners, which must be convened by the company’s manager. Furthermore, Article 114 of the Company Law No.1/2016 states that the annual general meeting shall be convened within three months after the end of the financial year.

The manager may call a general meeting at any time for any matter requiring the decision of partners/owners of the company and must do so upon the request of the partners holding at least 1/4^th of the membership interest in the capital of the company, the supervisory board, or the auditors of the company.

Each partner in the limited liability company has the right to participate in the general meeting either personally or through a representative. The representative must not be a member of the supervisory board or the manager of the company and must have a power of attorney or authorization from the concerned partner. The voting rights of each partner are proportional to the number of membership interests held by them.

Quorum and Validity of the General Meeting:
A general meeting is deemed invalid unless partners representing more than half of the company’s capital attend the meeting. For a resolution to be approved during a general meeting, it requires a majority vote from the partners, unless the company’s Memorandum of Association stipulates a higher majority requirement.

If the required quorum is not met at the first meeting, a second meeting must be convened within ten days to discuss the same agenda. The second meeting will be considered valid regardless of the number of membership interests represented. Resolutions will be passed by a majority of the membership interests present unless otherwise stated in the Company Contract.

Agenda of the Annual General Meeting:
As outlined in Article 114 of the Company Law No. 1/2016, the agenda of the annual general meeting shall discuss and resolve the following matters:

• The manager’s report on the activities of the company and the financial position of the company during the previous financial year.
• The supervisory board’s report (if applicable).
• The financial statements of the company.
• Audit report on the financial statements of the company.
• Proposals from the manager regarding the distribution of profits.
• The appointment, dismissal, or restriction of the authority of the company manager if not appointed in the company contract.
• The appointment or removal of the supervisory board
• The appointment of an auditor for the following financial year and determination of their remuneration.
• Any other issues deemed appropriate for inclusion in the agenda by any party entitled to request the convening of the general meeting.

Extraordinary Meeting of a Limited Liability Company:
An Extraordinary General Meeting (EGM) of a WLL (With Limited Liability) Company, is a special meeting convened to address urgent or significant issues that cannot wait until the next Annual General Meeting (AGM). Similar to the annual general meeting, the manager may call an extraordinary meeting at any time and must do so upon the request of the supervisory board, the auditor, or partners holding at least 1/4 of the membership interest in the company’s capital.

Each partner in the Limited Liability Company has the right to participate in the extraordinary general meeting either personally or through a representative. The representative must not be a member of the supervisory board or the manager of the company and must have a power of attorney or authorization issued by the partner. Each partner has voting rights proportional to the number of membership interests they hold in the company.

Quorum and Validity of the Extraordinary General Meeting
An Extraordinary General Meeting (EGM) is only considered valid if attended by partners representing at least three-quarters of the company’s capital. Additionally, any resolutions passed during the EGM require the approval of partners who collectively own at least three-quarters of the capital.

Agenda of the Extraordinary General Meeting
An EGM is convened to address the following matters:

• Amendment of the Company Contract (MOA/AOA)
• Dissolution or liquidation of the company.
• Merger, transformation, or division of the company.
• Increase or decrease the capital of the company.
• Dismissal of the manager of the company or restricting their authority if appointed in the company contract.

It is important to note that, resolutions concerning the merger, transformation, or division of the company become effective upon registration in the commercial register.

Conclusion:
In conclusion, the effective management of a WLL company relies on a structured governance framework that ensures both operational efficiency and legal compliance. Appointing a qualified manager with clearly defined responsibilities and limitations is crucial for smooth management and operations of the company. The supervision of the partners or a supervisory board, as the case may be, is vital to ensure that management’s actions align with strategic objectives and uphold accountability. A holistic approach is necessary that prioritizes transparency and open communication across all levels of the company. Further, having robust internal policies and implementing comprehensive internal controls are essential. By adopting sound governance practices and complying with the applicable laws, a WLL company can establish a strong foundation for long-term success and promote effective management.

Link to the PDF: Management of a WLL Company in Kuwait