Chapter Seven — Chapter Seven — Joint-stock Company's Management
1 — 1 — Board of Directors
Article (172)
The company shall be managed by a board of directors the formation and term of which shall be specified in the company's articles of association. The number of board members shall be at least five appointed for a period of three years renewable.
At a request by the board of directors, the Minister of Commerce and Industry may extend the membership term for no more than six months.
Article (173)
The member of the board shall fulfill the following conditions:
i— He must be fully qualified to act,ii— He must not have been convicted of a crime involving negligent or fraudulent bankruptcy or a crime affecting his honor or involving a breach of trust or of a crime on account of his breach of the provisions of this law, unless he was reinstated.iii— He must personally own a number of shares the nominal value of which shall be at least ten thousand Bahraini dinars or the person he represents must own a number of shares representing not less than 1% of the company's capital whichever is higher, unless the company's articles of association provide for a higher amount.If the member forfeits any of the above conditions, he shall no longer be a member from the date of forfeiture of that condition subject to the provisions of the next article.
Article (174)
The aforesaid quorum shares referred to in the foregoing article shall be set aside to guarantee the good conduct of the member, and shall be deposited within thirty days from the date of his election or appointment with one of the banks. The member shall not dispose of these shares in any manner whatsoever throughout his term until the balance sheet of the last financial year in which he was holding office is approved.
If the quorum shares are not deposited within the period specified in the foregoing paragraph, his membership shall be null. Membership shall also be null if such shares are reduced for any reason whatsoever during his term and are not completed within thirty days from the date of the reduction occurring.
Article (175)
Anyone who owns 10% or more of the capital shall appoint a person to represent him on the board of directors for the same percentage of the number of the board members. If he exercises this right, he shall lose his right to voting for the percentage for which he appointed a proxy. If the remaining percentage is not enough to appoint another member, he may use this percentage in vote.
In all cases the number of board members shall be subject to the company's articles of association and the rules and procedures decreed by the Minister of Commerce and Industry.
Article (176)
The general assembly shall elect the board members by secret ballot and they shall be selected by relative majority of the valid votes. As for the members of the first board, the company's articles of association may stipulate the election of not more than half the members from among the company's founders.
Article (177)
The general assembly may appoint a number of experts on the board of directors other than the founders or the shareholders. The Minister of Commerce and Industry shall decree the necessary conditions thereof.
Article (178)
i— The company's articles of association shall specify the cases in which board membership is terminated.ii— The general assembly may dismiss all or some of the board members even if the company's articles of association provide otherwise. A request shall be submitted by a number of shareholders representing ten percent (10%) at least of the company's capital. The board of directors shall refer the request to the general assembly within one month at most from the date it is submitted, otherwise the Ministry of Commerce and Industry shall make the invitation. The general assembly shall not consider the request if it is not listed on its agenda, unless there appear in the meeting serious matters that require such dismissal. The dismissed member may claim compensation from the company if the dismissal has not been justified or has been made at an inconvenient time.iii— The board member may resign his office provided that he resigns at a convenient time otherwise he shall be liable to pay compensation.Article (179)
i— If the office of one of the board members becomes vacant, he shall be replaced by the member next to him in the number of votes in the latest elections of the board. The new member shall complete the unexpired term of his predecessor. In cases other than this, the board shall elect by secret ballot, a member to replace him from among the candidates nominated by two of the board members, at least until the next meeting of the general assembly.ii— If the vacant offices are equal to one-fourth of the original offices, the board of directors shall invite the ordinary general assembly to convene within two months from the date of the last office becoming vacant to fill them.iii— If the vacant offices exceed more than half the number of the board members, the board shall be deemed dissolved, and new elections shall be called for to elect a new board of directors for the company.Article (180)
The board of directors shall convene at an invitation by the chairman or by two members at least. The meeting shall be valid only if attended by half the members, provided that three members thereof at least are present, unless the company's articles of association provide for a higher number or percentage.
The board member may not delegate any other person to attend on his behalf unless otherwise stipulated by the company's articles of association. In such case, he shall be one of the board members or the representative of the public entity whom the original member represents. However, proxy may not also be given to more than two members, provided that the present number of members in person shall not be less than half the board members including the chairman. Proxy shall be personal and in writing and shall be sent to the board of directors three days at least before the meeting. The resolutions of the board of directors shall be passed by the majority of the present members. In case of equal vote, the chairman shall have the casting vote, and any objecting member shall put his objection on the minutes of the meeting.
The board of directors shall meet at least four times in the financial year unless the company's articles of association provide for more times.
Article (181)
The board of directors shall elect by secret ballot a chairman and a deputy for one year unless the company's articles of association provide for another period.
The board of directors may elect by secret ballot a managing director or more who shall have the right to sign on behalf of the company either severally or jointly as decided by the board of directors.
The Ministry of Commerce and Industry shall be given a copy of the decisions of electing the chairman, his deputy and the managing directors.
Article (182)
The board of directors shall undertake the powers and the acts necessary for the company's management in accordance with its objectives except for those banned by the law, the company's articles of association or the general assembly resolutions.
The company's articles of association shall specify the extent to which the board of directors can borrow for more than three years or sell company's property or business or mortgage such property or provide guarantees for third parties or discharge the company's debtors of their liabilities or reach a compromise with them or donate the company's property. If such matters are not provided for in the company's articles of association, the board shall refrain from carrying out such acts without the approval of the general assembly, unless such acts are falling within the ambit of the company's objectives.
Article (183)
The chairman of the board is the company's chairman, and represents it before third parties, and his signature is considered as a signature of the board of directors before third parties, unless the company's articles of association provide for including another member or another person authorized by the board of directors to co-sign with the chairman. He shall implement the board decisions and abide by its recommendations. The vice-chairman shall act for the chairman in his absence.
Article (184)
The board of directors may allocate its duties among its members in accordance with the nature of the company business, and the board shall exclusively have to do the following:
i— Delegate any of its members or a committee from among its members to carry out a specific assignment or more or to supervise one of the company's activities or to exercise some of the powers or authorities granted to the board.ii— Delegate a member or more to perform actual management, and the board shall specify the powers of the member so delegated.Article (185)
The chairman and the members of the board shall be jointly liable before the company, the shareholders and third parties for all acts of fraud and misuse of powers and any violation of the law or the company's articles of association and for mismanagement. Any condition to the contrary shall be null and void.
A decision by the general assembly absolving the board of directors of liability shall not preclude instituting action of liability against it.
Article (186)
The liability referred to in the foregoing paragraph shall be either personal relating to a specific member or joint for all board members. In the last case the members shall be jointly liable for paying compensation unless some of them have objected to the decision causing the liability and put their objection on the minutes of the meeting. The absence of a member from the meeting in which the resolution was passed, shall not be a reason for exemption from liability unless he proves that he was unaware of the resolution or that he was aware of it but was unable to object to it. If more than one member committed the wrongdoing, they shall be jointly liable towards the company. The liability actions shall be time-barred after the elapse of five years from the date of the general assembly meeting at which the board of directors reported on its management.
Article (187)
i— The company shall have the right to file an action of liability against the board members whose wrongdoing has caused damages to the shareholders. The general assembly shall pass a resolution to file the action which shall be carried out by the chairman of the board. If the chairman of the board is among those litigated by the company, the general assembly shall appoint another board member to file the action. However, if the action was against all board members, the general assembly shall appoint a non-member to file the action.ii— In case of the company's bankruptcy, the bankruptcy trustee shall file the action, and if the company is in the process of liquidation, the liquidator shall file the action following a resolution by the general assembly.Article (188)
The company's articles of association shall specify the manner of determining the remuneration of the chairman and members of the board, the total of which shall not exceed 10% of the net profits after deducting the legal reserves and distributing a profit of not less than 5% of the company's paid-up capital. The general assembly may decide to pay an annual remuneration to the chairman and members of the board in the years in which the company has not achieved profits or the years in which no dividends are paid to the shareholders, provided that the Minister of Commerce and Industry approves such payment. The board of directors' report to the general assembly shall include a comprehensive account of all payments to the board members during the financial year, including salaries, profit shares, representation allowances, attendance allowances and expenses and the like. The report shall also include an account of the amounts paid to the members of the board in their capacities as employees and administrators, and what they have received for technical, administrative or consulting services or any other business.
Article (189)
i— Any one of the company's board members or managers shall have no direct or indirect personal interest in the business and contracts concluded on behalf of the company unless allowed by the general assembly. Any contract or business concluded in contravention of this provision shall be null and void.ii— Any member of the board shall notify the board of his direct or indirect personal interest in the matters presented to the board. Such member shall not participate in deliberations or voting on these issues and his declaration shall be recorded in the minutes of the meeting.iii— The chairman of the board shall notify the general assembly of the results of the permitted works and contracts at the first meeting following the termination of the work or the implementation of the contracts. The notification shall be accompanied by a special report from the auditor. The company shall disclose such dealings and contracts in its financial statements.iv— Any member who violates this ban shall be liable to pay compensation to the company for any damages it has sustained. However, this provision shall apply neither to the ordinary dealings which the company concludes with its customers nor to those awarded in public tenders if the offer presented by the board member is the best.Article (190)
The public entity shall receive all the amounts due for its representative in the company's board of directors in any manner, and the chairman of the board shall pay these amounts to the public entity within one week from the date they become due. The public entity may determine the remunerations and salaries of those representatives.
Article (191)
Subject to the provisions of article (215) of this law, any board member or manager of a joint-stock company shall not exercise any business in competition with the company's activities without special and justified authorization by the general assembly, to be renewed annually, otherwise the company may claim compensation from him, or consider the operations he exercises as conducted for the company.
The chairman and members of the board of directors and the company's managers shall not disclose any of the company's confidential matters they come to know.
Without prejudice to the provisions of the Penal Code and this law, whoever violates the ban provided for in this article shall forfeit his membership of the board of directors and be liable to pay compensation.
Article (192)
The company shall not give cash loans whatsoever to any member of its board or guarantee any loan contracted by any of them with third parties.
Excluded from this ban are banks and other credit companies. In exercising activities falling within the ambit of their objectives under the supervision of the Bahrain Monetary Agency and on the same terms and conditions applied to their clients, they are allowed to lend any board member or to open a credit for him or to guarantee loans he contracts with third parties.
A statement by the auditors shall be placed at the disposal of the shareholders, for their personal information, at the date specified in article (195) of this law declaring that the loans, credits or guarantees mentioned above have been concluded without breach of the provisions of the foregoing paragraph.
Any contract concluded in contravention of the provisions of this article shall be void without prejudice to the shareholders' right to claim compensation from the violator if necessary.
Article (193)
i— No person shall be appointed or elected member of the board of directors unless he declares in writing his acceptance. The declaration shall also disclose any business he conducts that competes directly or indirectly with that of the company and the names of the companies and the entities in which he is engaged in such business.ii— In case the board member has been appointed or elected in breach of the provisions of this law or has misused his membership by conducting works in competition with those of the company thereby causing damages to the company, the general assembly of the company shall convene to consider dropping his membership within forty-five days from the date of discovering the violation.Article (194)
The minutes of the meetings of the board of directors shall be entered in a special register and signed by the members present at the meeting and the secretary of the board.
The member who objects to any of the board's resolutions shall put his objection on the minutes of the meeting, and those who sign the minutes of the meetings shall be liable for the accuracy of the information included in the register.
Article (195)
Each company shall prepare, for each year, a detailed list approved by the chairman of the board and the managing director — if any — of the names of the chairman and members of the board and their designation and the names of the company's managers. The company shall maintain a copy of this list and send the original to the Ministry of Commerce and Industry attached with the annual report prepared by the board of directors and the company's balance sheet and the profits and losses account. The company shall notify the said ministry of any changes that may take place in the list during the year.
The board of directors shall prepare for each financial year, within a period not exceeding three months from the end thereof, a report on the company's activities and financial position during the ended year and the company's balance sheet and the profit and loss account. The chairman and another member of the board shall sign the report, the balance sheet and the profit and loss account. The board members shall be responsible for the implementation thereof.
Article (196)
The board of directors shall publish the balance sheet, the profit and loss account and an adequate summary of the annual report and the full text of the auditors' report in one of the local daily Arabic language newspapers at least fifteen days before the general assembly meeting.
Article (197)
The Minister of Commerce and Industry may dissolve the company's board of directors if the company has encountered severe financial or administrative difficulties, or if it has sustained heavy losses prejudicing the rights of the shareholders or its creditors, or if the provisions of this law have been violated. All such incidents shall be evidenced by whoever the Minister of Commerce and Industry appoints, either from the staff of the ministry or from amongst others, to inspect the works and accounts of the company. The minister may also dissolve the company if the chairman and board members have resigned their offices, or if the board of directors has lost its quorum so that it becomes unable to convene, or if the general assembly has not been able to elect a new board of directors.
In case of board dissolution, the Minister of Commerce and Industry shall appoint an interim committee composed of specialized experts to manage the company for a six month term renewable only once until the general assembly elects a new board at an invitation by the Minister of Commerce and Industry.
Any interested person shall have the right to appeal against the decision of dissolving the company within fifteen days from the date it is issued before the High Civil Court, and the court shall decide on the case on an urgent basis.
2 — 2 — General Assembly
A — A — Ordinary General Assembly
Article (198)
The ordinary general assembly of the shareholders shall convene at an invitation by the chairman of the board of directors at the time and place designated in the company's articles of association. The general assembly shall convene at least once a year during the six months following the end of the company's financial year.
The board of directors may invite the ordinary general assembly to convene upon a justified request by the auditor or by a number of shareholders representing at least 10% of the company's capital. The auditor may invite the ordinary general assembly to convene in the cases specified in article (218) of this law.
The Ministry of Commerce and Industry may invite the general assembly to convene if a period of one month has lapsed from the date appointed for its meeting without it convening, or if the number of the board members becomes less than the minimum number required for the meeting to be valid, or if a number of shareholders representing at least (10%) of the company's capital so requests for serious reasons.
The Minister of Commerce and Industry may invite the general assembly to convene if he deems the meeting necessary.
Article (199)
i— The invitation to the shareholders shall be published in at least two daily Arabic newspapers; one of them at least must be local. The publication shall be made at least 15 days before the meeting and shall include the agenda of the meeting.ii— Copies of the invitation documents shall be sent to the Ministry of Commerce and Industry at least (10) days before the general assembly meeting.Article (200)
The founders shall prepare the agenda for the constituent general assembly, and the board of directors shall prepare the agenda for the ordinary or extraordinary general assembly.
If the general assembly convenes at an invitation by the shareholders, the auditors or the Ministry of Commerce and Industry, the agenda shall be prepared by whoever requests the meeting. The general assembly shall not consider any matters not listed on the agenda.
Article (201)
The chairman of the board of directors or his deputy or whoever is delegated by the board of directors or by the general assembly shall preside over the general assembly meeting.
The meeting shall not be valid unless it is attended by a number of shareholders representing more than half the capital. If this quorum is not available, an invitation shall be sent for a second meeting to be held for the same agenda within 7 to 15 days from the date fixed for the first meeting. The second meeting shall not be valid unless it is attended by a number of shareholders representing more than 30% of the capital at least. The third meeting shall be valid regardless of the number of attendees. Sending a new invitation for the last two meetings may not be necessary if the dates thereof have been fixed in the invitation for the first meeting, provided that publication shall be made in at least two daily Arabic newspapers, at least one of them shall be local, that none of these two meetings has been held.
Article (202)
The Ministry of Commerce and Industry may appoint a representative to attend the general assembly meetings. The representative shall not have the right to vote on the deliberations and shall submit a report thereon to the Ministry.
Article (203)
Each shareholder, regardless of the number of the shares he owns, shall have the right to attend the general assembly, and shall have a number of votes equal to the number of shares he owns in the company. Any provision or decision to the contrary shall be null and void. Any shareholder may delegate a person, from among the shareholders or from among non-shareholders to attend the general assembly on his behalf, provided that this person shall not be the chairman of the board or from among the members of the board of directors or from among the members of the company's staff. However, this shall not prejudice the right to delegate a first-degree relative. The company shall prepare a special written form for this purpose. The delegate shall not represent in this capacity a number of votes exceeding 5% of the issued capital in the general assembly meetings. Legal representatives of the members lacking capacity or under legal incapacity shall represent them in the meetings. The company shall prepare special cards for the shares owned by the shareholder and for the shares he represents on behalf of other shareholders. Delegation shall be made, and delegation capacity shall be shown to the company, twenty-four hours at least before the general assembly meeting. No member shall vote for himself or for whomsoever he represents in matters in which he has a direct interest or on an unsettled dispute between him and the company.
Article (204)
Voting at the general assembly shall be conducted in the manner specified in the company's articles of association. Voting must be conducted by secret ballot if the resolution is related to the election or dismissal of the members of the board of directors or to filing liability action against them or if the chairman of the board or a number of members representing at least one-tenth of the present votes at the meeting so requests.
Article (205)
The members of the board of directors shall not vote on the general assembly's resolutions relating to the determination of their salaries and remuneration or to discharging them or exempting them from liability for their management.
Article (206)
Except for what the law has reserved for the extraordinary general assembly, the ordinary general assembly shall be competent to consider all matters relating to the company and pass the appropriate resolutions thereon. In particular, it shall consider the following:
i— Election and dismissal of members of the board of directors.ii— Determination of the board members' remunerations.iii— Consideration and approval of the board's report on the company's activities and financial position during the ended financial year.iv— Discharging or refusing to discharge the members of the board from any liability.v— Appointment of an auditor or more for the following financial year and determination of his/their fees or authorizing the board to do the same.vi— Consideration of the auditor's report on the financial statements of the company for the ended financial year.vii— Approval of the profit and loss account and the balance sheet and the statement allocating the net profits and determining dividends.viii— Consideration of recommendations relating to bond issue, borrowing, mortgaging and issuing guarantees and deciding thereon.Article (207)
The general assembly shall not consider matters not listed on the agenda, unless they are urgent and have occurred after the agenda has been prepared or during the meeting. If the competent government body or a shareholding public entity or a number of shareholders representing at least 10% of the company's capital requests the board of directors to include a certain subject in the agenda but the board did not do so, the general assembly shall have the right to consider this subject at the request of the interested party. If, in the course of the discussion, it becomes clear that the information relating to some agenda items is not adequate, the meeting shall be adjourned for no more that ten days if so requested by a number of shareholders representing one-fourth of the shares present in the meeting.
The resolutions adopted by the general assembly on the urgent matters, shall be submitted for approval by the Ministry of Commerce and Industry, otherwise they shall be null and void.
Article (208)
Adequate minutes of the meeting shall be prepared, reporting deliberations, proceedings, the quorum, the resolutions adopted, the number of "Yes" and "No" votes and all such matters as the shareholders may request to enter into the minutes.
The names of the attendees, whether for self or by proxy, shall be entered in a special register, to be signed before the meeting by the auditor, the vote counter and the chairman of the meeting. The company shall maintain all documents and instruments evidencing the contents of the minutes and send a copy of the minutes to the competent government authority within fifteen days from the date of the meeting. Each interested shareholder may have a copy of the minutes.
B — B — Extraordinary General Assembly
Article (209)
The provisions applicable to the ordinary general assembly shall apply to the extraordinary general assembly, subject to the provisions of the following articles.
Article (210)
The following matters shall be reserved for the extraordinary general assembly:
i— Amending the company's memorandum or articles of association and extending the company's term.i— Increasing or reducing the company's capital.i— Selling the entire project carried out by the company or disposing of it in any other manner.iv— Winding up the company or merging it with another company.The company's nationality shall not be changed, nor its Head Office be transferred outside Bahrain, nor the obligations of the shareholders be increased, and any provision to the contrary shall be null and void.
Article (211)
The extraordinary general assembly shall convene at an invitation by the board of directors or a written request to the board of directors by a number of shareholders representing 10% at least of the company's shares.
In these cases the board of directors shall invite the general assembly to convene an extraordinary meeting within a month from the date of the request. Otherwise, the Ministry of Commerce and Industry shall send the invitation within fifteen days from the date of expiry of that period, subject to the provisions of article (199) of this law.
Article (212)
The extraordinary meeting of the general assembly shall not be valid unless it is attended by shareholders representing at least two thirds of the company's capital. If this quorum is not available, an invitation shall be sent for another meeting to be held within fifteen days from the date of the first meeting. The second meeting shall be valid if attended by shareholders representing more than one-third of the capital. If the quorum is not available for the second meeting, an invitation shall be sent for a third meeting to be held within fifteen days from the date of the second meeting. The third meeting shall be valid if attended by one-fourth of the shareholders.
A new invitation for the last two meetings may not be sent if the dates thereof have appeared in the invitation for the first meeting, provided that publication shall be made in at least two daily Arabic newspapers, one of them is local, that none of these meetings has been held.
The extraordinary general assembly's resolutions shall be passed by a two-thirds-majority vote of the shareholders represented in the meeting. However, if the resolution relates to increasing or reducing the company's capital, extending the company's term, winding it up, converting or merging it with another company, the resolution shall not be valid unless adopted by a three-fourths majority of the shares present at the meeting and with whose attendance the meeting is considered valid. The extraordinary general assembly's resolutions shall not become effective except after they are approved by the Ministry of Commerce and Industry.
Article (213)
The extraordinary general assembly may pass a resolution falling within the powers of the ordinary general assembly provided that the quorum and majority required for the ordinary general assembly meeting are available and that the matters subject of the resolution are included in the agenda.
C — C — Common Provisions
Article (214)
i— The resolutions passed by the general assembly in accordance with the provisions of the law and the company's articles of association shall bind all the shareholders whether they attended the meetings at which the resolutions are passed or not and whether they voted for or against them.ii— The board of directors shall implement the general assembly's resolutions.Article (215)
Without prejudice to the rights of bona fide third parties, any resolution passed by the general assembly in contravention of the provisions of the law, the company's memorandum of association or articles of association shall be null and void. The court may overrule any resolution passed to the advantage or disadvantage of a certain class of shareholders or to the benefit of the members of the board of directors or others without taking the company's interests into account. In this case, only those shareholders whose objection to the resolution has been put in the meeting's minutes or failed to attend the meeting for acceptable reasons may file the nullity action. The Ministry of Commerce and Industry may act on behalf of the said shareholders in filing the nullity action if serious reasons are given.
A resolution adjudged by the court as null and void shall be deemed inexistent for all the shareholders, and the board of directors shall publish the judgment in a daily local newspaper. Filing the nullity action shall not entail suspension of the implementation of the resolution unless otherwise ordered by the court. A nullity action shall be barred after the lapse of one year from the date of the resolution.
Article (216)
The names of the shareholders shall be entered in a special register to be prepared for this purpose at the company's head office at least twenty-four hours before the meeting. This register shall include the names of the shareholders, the number of shares they own, the number of shares they represent and the names of their owners together with letters of attorney. The shareholder shall be given an attendance card in which the number of votes he is entitled to either in person or by proxy is written.
3 — 3 — Auditors
Article (217)
a— The company shall have an auditor or more to be appointed from those licensed to practise auditing by the ordinary general assembly, which shall determine their remuneration and term of appointment. The founders of the company may appoint an auditor to carry out auditing until the constituent general assembly is held. If more than one auditor is appointed, each of them shall exercise auditing separately. If the auditor appointed by the general assembly has not assumed his duties for any reason, the board of directors may, if necessary, appoint another auditor to replace him, provided that the matter shall be presented to the general assembly at its next meeting to resolve it.b— If there is more than one auditor, they shall be jointly liable for auditing.c— The auditor shall not be the chairman or a member of the board of directors of the company the accounts of which he is auditing, nor a managing director nor a person assuming any administrative work or supervising its accounts; nor a second-degree relative of a person supervising the company's management or accounts. He shall not also buy or sell shares in the companies the accounts of which he is auditing during his term.In all cases the company's auditor shall not become a member of the company's board of directors or staff before the lapse of two years from the date of discharging him of his liability.
Article (218)
a— The auditor shall have at any time the right of access to the company's books, registers and documents, and of requesting any details he deems necessary. He shall also have the right to verify the company's assets and liabilities.b— The board of directors shall enable the auditor to carry out his duties specified in the foregoing paragraph. If the auditor is unable to exercise such rights, he shall report this in writing to the board of directors, and if the board does not facilitate his task, the board shall invite the ordinary general assembly to consider the matter.c— In all cases the auditor shall provide the Ministry of Commerce and Industry with copies of his reports and remarks whatsoever, whether they are financial or administrative and whether they are presented to the company's general assembly or to the board of directors.Article (219)
The Auditor shall attend the general assembly and express his opinion in all matters pertinent to his work, and in particular, the company's balance sheet. He shall read his report to the general assembly. The report shall be prepared in accordance with the international auditing principles and standards or the standards approved by the competent authority; and shall include in particular the following details:
a— Whether the auditor obtained the information he deemed necessary for doing his work satisfactorily.b— Whether the balance sheet and the profit and loss account are conforming to the facts, and are prepared according to the international accounting standards or to the standards approved by the competent authority; and whether they include all what is provided for in the law and in the company's articles of association and honestly and clearly reflect the actual financial position of the company.c— Whether the company maintains regular accounts.d— Whether the stock taking undertaken by the company has been carried out in accordance with the accepted practices.e— Whether the data included in the report of the board of directors are in conformity with what is stated in the company's books.f— Whether there have been violations of the provisions of the law or the company's articles of association during the financial year in a way that affects the activity of the company or its financial position, and whether these violations are still existing to the extent of the information made available to him.If the company has more than one auditor and they do not submit a joint report, each of them shall prepare an independent report.
The auditor's report shall be read at the general assembly, and each shareholder shall have the right to discuss the report and request clarifications on its contents.
Article (220)
The auditor shall be responsible for the accuracy of the details included in his report in his capacity as the representative of all the shareholders, and each shareholder shall have the right to discuss, at the meeting of the general assembly, the report of the auditor and seek clarifications on its contents. The auditor shall be liable towards the company for any damages sustained by the company as a result of his mistakes. If the company has more than one auditor and they were involved in the mistake they shall become jointly liable towards the company.
The civil liability action referred to in the foregoing paragraph shall be barred after the lapse of one year from the date of the general assembly meeting at which the auditor's report was read. If the act attributed to the auditor constitutes a crime, the civil liability action shall not lapse except with the lapse of the general action.
The auditor shall also be liable to pay compensation for any damage that may be sustained by any bona fide shareholder or third parties as a result of his professional error or of not complying with the accounting principles and standards.
Article (221)
The board of directors or a number of shareholders representing at least 25% of the capital may request the replacement of the auditor during the financial year. The board of directors shall invite the ordinary general assembly to convene to consider the request after the lapse of fifteen days from the date it is submitted. The request shall be sent during this period to the auditor to prepare his reply thereto in writing, and such reply shall be sent to the company at least five days before the general assembly meeting. The chairman of the board of directors or the board member representing him shall read the request and the reasons thereof and the auditor's reply thereto before the general assembly in order to pass a resolution thereon. Any resolution passed for replacing the auditor in breach of these procedures shall be null and void.
Article (222)
The auditor may resign, at a suitable time, during the term of his appointment by submitting a written application to the board of directors. If there are matters he must bring to the notice of the company's shareholders and creditors, he shall submit a report thereon to the general assembly. The board of directors shall invite the ordinary general assembly to convene to consider the report within a period not exceeding thirty days from the date of its submission. The auditor shall be liable for any damages sustained by the company as a result thereof.
4 — 4 — Financial System
Article (223)
The company shall have a financial year that starts on the first of January and ends on the 31st of December of each year, unless otherwise provided for in the company's articles of association.
The first financial year shall be an exception. It shall begin at the date of the final incorporation of the company and end with the end of the financial year.
Article (224)
10% of the net profits shall be deducted every year and set aside for the statutory (legal) reserve, unless the articles of association specify a higher percentage.
Such deduction may be suspended if the reserve amounts to 50% of the paid-up capital, unless the articles of association provide for a higher percentage. Yet, if the statutory reserve falls below the said percentage, deduction shall be resumed until the reserve reaches the said percentage.
The statutory reserve shall not be distributed to the shareholders, but may be used to ensure the distribution of dividends to the shareholders not exceeding 5% of the paid-up capital in the years in which the company's profits do not allow to ensure such limit.
Subject to the approval of the general assembly, a percentage of the company's net profits that results from the sale of fixed assets or any compensation in lieu thereof may be distributed, provided that this shall not lead to the company's inability to restore the original condition of its assets or to buy new ones.
Article (225)
The general assembly may, upon a recommendation by the board of directors, decide every year to deduct a part of the net profits for the voluntary reserve.
The voluntary reserve shall be used for the depreciation of the company's assets or for compensation of the fall in its value or for such purposes as may be decided by the general assembly.
Closed Joint-stock Company
Article (226)
A closed joint-stock company consists of a number of persons — not less than two — who subscribe for negotiable shares that are not offered to the public for subscription.
Article (227)
All provisions contained in this law in respect of public joint-stock companies, which do not conflict with the provisions of this part, shall apply to the closed joint-stock company.
Article (228)
The capital of the company shall be adequate to realize its objectives. The Executive Regulation shall determine the minimum limit of capital.
Article (229)
a— The founders shall subscribe for all the capital shares.b— The founders shall deposit with one of the accredited banks the full value of the shares or at least 50% thereof, provided that they shall pay the remaining amount within a period not exceeding three years.Article (230)
A closed joint-stock company shall not acquire a corporate entity and shall not commence its operations before being registered in the Commercial Registry and the publication of its incorporation decision in the Official Gazette at the company's expense.
Article (231)
a— The founders shall call for a constituent assembly to be convened within seven days from the date of the incorporation approval by the Ministry of Commerce and Industry, and the provisions provided for in article (199) of this law apply to the procedures of invitation.b— The meeting shall be presided over by whoever is elected by the numerical majority of the present members.Article (232)
The constituent assembly shall, in particular, consider the report prepared on the company's incorporation process, the incurred expenses and the evaluation of the in-kind shares. It shall also elect a board of directors and appoint the auditors and announce the company's final incorporation.
Article (233)
The provisions of article (116) of this law shall apply to the due installments of shares, and in case shares are sold, priority of purchase shall be given to the shareholders of the company in accordance with the provisions of this Part.
Article (234)
The shares of closed joint-stock companies shall not become tradable before the lapse of three years from the date of registering the company in the Commercial Registry and the payment of the full value of the shares. Excluded from this shall be trading in shares among the founders during this period.
Article (235)
Except for the companies listed on the Bahrain Stock Exchange, the articles of association of a closed joint-stock company shall not restrict the shareholder's right to dispose of his shares by containing one or all of the following restrictions:
a— The stipulation that preference shall be given to the company's shareholders to purchase the shares the owner of which wishes to sell.b— The stipulation that the board of directors shall approve the buyer of the shares.Excluded from these two restrictions shall be the disposal of shares among shareholders, spouses, ascendants and descendants.
If the company's articles of association include any of these two restrictions, the company shall not be listed on the Bahrain Stock Exchange.
Article (236)
If the articles of association of a closed joint-stock company provide for preference to shareholders to buy the shares, the shareholder shall, before the disposal thereof, notify the company of the sale conditions. The disposal of the shares shall not become effective before the lapse of fifteen days from the date of notification without any shareholder requesting to buy the shares.
If any shareholder so requests this shall be for the declared price, and in case of disagreement, the price shall be determined in accordance with the rules of the Bahrain Stock Exchange.
Article (237)
If the articles of association of a closed joint-stock company provide that the board of directors must approve the shares' purchaser, the board shall, in case of rejecting the purchaser, purchase the shares for the company's account within fifteen days from the date of notifying the board of the request for approval. In this case, the purchase shall be concluded for the declared price without prejudice to the provisions regulating the purchase of a company of its shares.
Article (238)
a— In case the company's capital is to be increased, the shareholders shall have priority right to subscribe for the new shares, and any provision to the contrary shall be null and void.b— The shareholders shall be notified by registered mail of their priority to subscribe for the new shares of the date of opening subscription and the date of closing thereof and of the price of the new shares.c— Each shareholder shall express his wish to exercise his right of priority to subscribe for the new shares within fifteen days from the date of sending the registered letter referred to in the foregoing paragraph.d— The priority right may be assigned to third parties against money to be agreed upon between the shareholder and the assignee if the company's articles of association so provide or if the general assembly so decides.Article (239)
a— The new shares shall be distributed to the shareholders who requested to subscribe for them in proportion to the shares they own, provided that this proportion shall not exceed the new shares they have requested to subscribe for.b— The remaining new shares shall be distributed to the shareholders who requested more than they were allocated in proportion to the shares they own. If all the new shares are not distributed to the shareholders the board of directors may allocate them to new shareholders, provided that their value shall be paid in cash. The unallocated shares shall be considered as cancelled if three months lapse from the date of opening subscription without them being subscribed for.Article (240)
a— The company shall be managed by a board of directors, the composition and the membership term of which shall be specified in the company's articles of association. The number of board members shall not be less than three and membership term shall not exceed three years renewable.b— The members of the board of directors shall not be subject to the quorum conditions and the restrictions of multiple memberships provided for in this law.Article (241)
The board of directors shall meet at an invitation by its chairman or by any of its members, and the quorum shall be available with the presence of half the members, provided that the number of those present shall not be less than two.
Article (242)
The invitation for the general assembly meeting shall be sent by registered mail at least fifteen days before the meeting. However, the invitation may be conveyed by taking the signature of the shareholders indicating their knowledge of the time, venue and the agenda of the meeting.
Article (243)
The meeting of the ordinary general assembly shall not be valid unless attended by a number of shareholders representing more than half the shares. If such quorum is not available, the meeting shall be valid with those present after half an hour from the time fixed for the first meeting.
Article (244)
The meeting of the extraordinary general assembly shall not be valid unless attended by shareholders representing two-thirds of the company's shares. If such quorum is not available, an invitation shall be sent for a second meeting to be held within ten days from the date of the first meeting, and this meeting shall be valid if attended by the representatives of more than one-third of the capital.
If this quorum is not available an invitation shall be sent for a third meeting to be held within ten days from the date of the second meeting. The third meeting shall be valid if attended by the representatives of a quarter of the capital.
A new invitation need not be sent for the last two meetings if their dates were determined in the invitation for the first meeting, provided that the shareholders are notified that the first meeting has not been held. Resolutions shall be passed by a majority of two-thirds of the shares represented in the meeting.
Article (245)
A closed joint-stock company may turn into a public joint-stock company if it has fulfilled the following provisions:
a— The nominal value of issued shares have been fully paid.b— At least two financial years must have already elapsed.c— The company must have realized, through exercising the activities for which it was established, distributable net profits of not less than 10% of the capital on average during the two financial years preceding the application for conversion.d— The conversion resolution shall be issued by the extraordinary general assembly of the company by a majority of three-quarters of the shares of those present.e— The issue of a decision by the Ministry of Commerce and Industry declaring the conversion of the company into a public joint-stock company, and this decision shall be published together with the company's Memorandum and Articles of Association at the expense of the company.The Minister of Commerce and Industry may, in some cases, stipulate on the incorporation of the closed joint-stock company the conversion thereof into a public joint-stock company if the public good so requires.
