Commercial Law Amendments Bahrain: Your Complete Investor Guide for 2024

If you are ready to invest in Bahrain, but the legal problems make your head spin. Commercial Law Amendments, Bahrain does not have to feel like reading a phone book. 

Between 2014 and 2018, the Kingdom quietly revolutionized its business laws, everything from who can own what to how boards operate. This guide translates the Bahrain Commercial Companies Law Amendments into language your grandmother would understand. 

We will go through liability rules, ownership opportunities, and compliance requirements. No law degree required, just practical information that helps you invest smarter and sleep better at night.

Why Commercial Law Amendments Bahrain Matter for Investors

The Commercial Companies Law, enacted in 2001, has received three major updates. Decree No. 50, issued in 2014, introduced significant changes. Decree No. 27, issued in 2015, introduced new provisions. Decree No. 1, which arrived in 2018, introduced governance reforms.

These Commercial Law Amendments Bahrain changed ownership rules and accountability standards. The updates also introduced new company types and governance requirements. Understanding these changes helps you operate legally in the Kingdom.

What are the Commercial Law Amendments

The 2014 decree introduced Article 18-bis, establishing personal liability for company leaders. It also repealed Article 6,4, which previously restricted foreign ownership. Article 5-bis created a name reservation system for new companies.

The 2015 decree completely replaced Article 345 regarding foreign capital companies. It added Article 345-bis, introducing the concept of shelf companies into Bahraini law. These changes opened new options for investors to form businesses.

The 2018 decree amended Articles 172, 173, and 240 on board composition. It added Articles 184-bis and 241-bis, which require the establishment of audit committees. Articles 168-bis, 187, and 189 significantly enhanced shareholder rights.

Key Benefits of the Amendments in Commercial Laws

Ownership changes:

• Article 64 was repealed, allowing non-Bahraini shareholders in public companies
• Article 65 permits foreign capital in Bahraini public shareholding companies
• Article 345 will enable companies owned partially or wholly by non-Bahraini partners
• The Cabinet of Ministers can approve foreign ownership in restricted sectors

Protection improvements:

• Article 18-bis holds leaders personally liable for nine specific violations
• Article 168-bis allows shareholders to challenge unfair prejudicial operations
• Article 187 permits shareholders to file derivative actions for the company
• Article 189 requires full disclosure of conflicts of interest

Operational efficiency:

• Article 5-bis provides a 30-day name reservation with two renewals possible
• Article 23-bis permits electronic meetings for boards under certain conditions
• Article 345-bis introduces shelf companies for faster market entry
• Article 358-bis-1 establishes corporate governance charter requirements

Decree No. 50 of 2014: Strengthening Corporate Accountability

Decree No. 50 of 2014 amended multiple articles in the Commercial Companies Law. The decree focused on liability, foreign participation, and procedural improvements. This decree updated five major articles.

The amendments became effective after publication in the Official Gazette. Companies had to comply with new requirements within specified timeframes.

Enhanced Liability Framework Through Article 18-bis

Article 18-bis was added to establish personal liability for company leaders. The article applies to promoters, partners, capital owners, managers, and board members. Personal liability extends to all personal funds and property.

The nine liability triggers specified in Article 18-bis:

Number	Trigger From PDF	Application
1	False particulars about the company’s capital	In documents or dealings
2	Using the company for fraudulent or illegitimate purposes	Any fraudulent use
3	Treating the company’s funds as personal funds	Asset commingling
4	Not separating personal interest from the company’s interest	Conflict situations
5	Incurring obligations that the company cannot perform	With knowledge or negligence
6	The company’s inability to pay taxes and fees	Due to actions or negligence
7	Violating provisions of law or company documents	Any violation
8	Exceeding powers or committing fraud/negligence	In duty performance
9	Not acting as a discerning person would	In the circumstances

Article 18-bis paragraph B states that liability applies even if the violation resulted from a board resolution. Opposition must be recorded in meeting minutes to avoid liability. Absence from the meeting does not exempt unless the absence is due to a lack of knowledge.

Article 18-bis, paragraph C, specifies that liability may be personal or joint. Multiple violators share joint liability for the same violation.

Foreign Ownership Liberalization

Article 64 was repealed by Decree No. 50 of 2014. This article previously required all shareholders to be Bahraini nationals. The repeal removed nationality restrictions on public joint-stock companies.

Article 65 was replaced, allowing Bahraini public shareholding companies with foreign capital. The Minister responsible for trade affairs can specify the participation percentages. Sector-specific percentages can be determined after consulting supervisory authorities.

The decree states that dealing in stocks representing foreign capital is prohibited for three years. This applies from the company registration date, unless among foreign partner representatives.

Simplified Company Name Reservation

Article 5-bis was added, establishing a name reservation system. Applications go to the Ministry concerned with trade affairs. The reservation lasts thirty days and may be renewed twice.

Procedures, conditions, and situations are specified in ministerial order. Fees apply to the reservation and renewal applications. The Minister sets fees subject to the Council of Ministers’ approval.

Minimum Capital Requirements

Article 21-bis was added, giving ministerial authority over minimum capital requirements. Paragraph A allows the Minister to specify the minimum capital by company type. This applies to all companies established under the law.

Paragraph B permits the Minister to specify minimum capital for specific sectors. This happens after consulting the authority supervising that economic sector. Separate minimums can apply to different business activities.

Electronic Meetings Become Possible

Article 23-bis was added, allowing companies to convene electronic meetings. The Company Memorandum or Articles of Association may include this provision. Electronic or telephonic communication means can be used.

Required measures from Article 23-bis:

• Verify participant identity and validate any power of attorney
• Enable full participation as if physically present at the meeting
• Record all statements and voting by participants properly
• Implement other measures specified by ministerial order

Article 23-bis paragraph B excludes public shareholding company general assemblies. Secret voting proceedings under the law also cannot use electronic means.

Decree No. 27 of 2015: Opening Markets to Foreign Investment

Decree No. 27 of 2015 made substantial changes to foreign investment provisions. Article 345 was entirely replaced with a new framework. Article 345-bis was added, introducing the concept of shelf companies.

These amendments specifically targeted attracting foreign capital to the Kingdom. The changes provided flexibility while maintaining regulatory oversight.

Revolutionary Foreign Capital Companies Framework

Article 345 was entirely replaced by Decree 27/2015. The new article has four paragraphs establishing the foreign capital framework.

Paragraph A: Activities Access for Foreign Investors

Companies may be established to be owned, in whole or in part, by non-Bahraini partners. These companies can carry out activities exclusively licensed for Bahrainis. They can also conduct activities requiring a majority ownership.

Permission depends on the company’s share capital or the jurisdiction chosen for the headquarters. The company must conduct business from the selected location.

Paragraph B: Cabinet Authority for Activities

Activities that foreign capital companies can conduct are determined by Cabinet resolution. The Minister responsible for commercial affairs presents the recommendation. Coordination occurs with the minister concerned with licensing the activity.

The concerned ministry licenses, administers, and controls such activities. This ensures proper sector-specific oversight of foreign operations.

Paragraph C: Strategic Activity Licensing

The Minister responsible for commercial affairs can license additional foreign companies. This requires the Cabinet of Ministers’ approval first. Activities not mentioned in paragraph B may be licensed.

The Minister must estimate the activity’s strategic and economic importance. Profitable benefits to the Kingdom’s economy are considered. Coordination with the concerned minister occurs following standard procedures.

Paragraph D: Operational Flexibility Provisions

The Minister may exempt foreign capital companies from minimum capital requirements. Their boards of directors can hold meetings outside the Kingdom. General and extraordinary general assemblies may also meet abroad.

All meetings must comply with all provisions contained in the law. This flexibility is maintained while complying with legal requirements.

Shelf Companies Speed Market Entry

Article 345-bis was added by Decree 27/2015, introducing the concept of shelf companies. These companies can be established with the initial objective of being ready. They exist to carry out activities determined and licensed after establishment.

Companies cannot carry out activity without approval from the concerned authorities. The specific activity must be registered in the commercial registration. These companies are referred to as “Shelf Companies” in the law.

Shelf company naming requirement:

The company’s name and legal status must include the phrase “Shelf Company”. This designation remains in effect until the company receives activity licensing.

Registration protection:

Company registration cannot be deleted for the reason of not carrying out activities. This provision applies apart from any other law provisions. The protection ensures that shelf companies remain registered during periods of inactivity.

Decree No.1 of 2018: Modernizing Corporate Governance

Decree No.1 of 2018 represented the most comprehensive governance update. Multiple articles were amended or added to address board composition. Shareholder rights received significant enhancement through new provisions.

The decree focused on transparency, accountability, and international governance standards. Implementation required companies to update their structures and procedures.

Board Composition Requirements 

Article 172 was amended to establish new requirements for board composition. The board manages public shareholding companies with specified formation and terms. At least five members serve 3-year renewable terms.

Key Article 172 requirements:

• The board must include independent and non-executive members. The Central Bank of Bahrain sets rules for companies it licenses. The Minister of MOIC sets rules for other companies.
• Membership terms may be extended for up to 6 months. This requires CBB approval for licensed companies. MOIC Minister approval is needed for other companies upon the board’s request.
• Article 173 was amended to define the qualifications of board members. Paragraph II prohibits previous bankruptcy or trust breach convictions. Paragraph III prohibits those barred by law from board membership.
• Paragraph IV prohibits the Chairman or the Vice Chairman from holding the highest management position. Paragraph V sets out the conditions for independent, non-executive, and executive members, as set out in the ministerial order. This applies to non-CBB companies.
• Paragraph VI specifies that CBB determines conditions for companies it licenses. Articles 65 of the CBB and the Financial Institutions Law apply. Paragraph VII allows for other conditions in the company documents.
• Article 240 was amended for closed joint stock companies. Minimum three board members serve terms per the articles of association. Independent and non-executive members required for listed companies.
• The requirement also applies to other closed JSC categories per ministerial order. CBB-licensed companies follow Central Bank requirements instead.

Mandatory Audit Committees Ensure Oversight

Article 184-bis was added, requiring the formation of an audit committee. The Board of Directors’ resolution forms the committee. The committee reviews accounting and financial practices.

Audit committee scope from Article 184-bis:

• Paragraph (i) defines the formation of a committee by board resolution. The committee reviews accounting audits and related matters. It monitors adherence to law provisions and company regulations.
• The Corporate Governance Code defines the composition, specializations, and work system. Member remuneration is also specified in the code.
• Paragraph (ii) grants inspection rights to the audit committee. The committee can inspect the company records, documents, papers, and accounts. Requests for clarification or statements can be made to the board or management.
• Paragraph (iii) requires an annual report statement about committee work. The statement must include details stipulated in the Corporate Governance Code.
• Article 241-bis was added for certain closed joint stock companies. A board resolution establishes an audit committee for listed companies. Other categories, per ministerial order, also need audit committees.

Shareholder Rights Receive Major Enhancement

Three articles significantly enhanced shareholders’ rights and protections. These provisions balance power between different shareholder groups.

Unfair Prejudice Claims – Article 168-bis

Article 168-bis was added, allowing shareholders to file unfair prejudice claims. Shareholders can claim if operations are conducted unfairly. The claim applies when the interests of shareholders generally are prejudiced.

It also applies when one or more shareholders’ interests are harmed. This includes the shareholder filing the claim. The company’s acts or omissions can give rise to claims.

Acts by third parties on the company’s behalf also qualify. Intention to do or refrain from acts likely to cause damage triggers claims. The court judges as it deems appropriate in these cases.

Derivative Actions – Article 187

Article 187 was replaced, establishing new procedures for derivative actions. Paragraph I states that the company has the right to file liability claims. The General Assembly passes a resolution to file the action.

• If the Chairman is among those litigated, the assembly appoints another member. If action is against all board members, a non-member gets appointed.
• Paragraph II allows individual shareholders to bring derivative actions. This applies if the company fails to take action in accordance with paragraph I. Direct damage to the shareholder as the shareholder creates standing.
• Registered letter notification is required 30 days before filing. Any contradictory articles of association provision is null. The shareholder may request that the defendant or a third party provide relevant documentation.
• Paragraph III gives the bankruptcy trustee the right to file for bankruptcy. Liquidator files during liquidation without a general assembly resolution.

Conflict of Interest Disclosure – Article 189

Article 189 was replaced, establishing strict disclosure requirements. Paragraph I requires informing the board of any direct or indirect interest. Detailed statement covering all required substantive matters.

• The interested party cannot participate in deliberation or attend the meeting. Cannot vote on resolutions regarding the matter. The statement must be recorded in meeting minutes.
• Paragraph II prohibits directors from having a personal interest in company contracts. This applies to direct or indirect interest. Board of Directors approval is required for such agreements.
• CBB may establish additional regulations for companies it regulates. This covers contract and action approval procedures.
• Paragraph III requires the Chairman to inform the General Assembly of the results. This happens at the first meeting after contract execution or action completion. An external auditor’s special report must accompany the notification.
• The company must disclose contracts in audited financial statements. Annual report disclosure is also required. Details include the nature and extent of the interest, and the beneficiary’s identity.
• Paragraph IV permits the claim of a contract or an action. This applies when conditions were unfair or involved conflict. The offender must return any profit or benefit from the violation.
• Good faith third-party rights remain protected. The prohibition can be claimed for these remedies.
• Paragraph V establishes joint liability for the board with the offender. This applies under Article 18-bis, paragraph B, and Article 186. Board liability exists if a violation was stated or known.
• Paragraph VI grants document access to shareholders holding at least 10%. They can obtain copies or extracts of related documents.

Asset Disposal Requires Shareholder Approval

Article 194-bis was added to control significant asset disposals. Disposing of more than half of the company’s assets requires board approval. Extraordinary General Assembly approval is also required per paragraph B.

Asset disposal process from Article 194-bis:

• Paragraph (a) defines the ordinary course of business exception. Disposal outside ordinary business needs approvals. Mortgage and subsidiary disposals are exempted.
• The invitation must include sufficient disposal details. Terms and conditions must be explained clearly. Assets include any subsidiary company assets for calculation.
• Paragraph (b) protects the rights of good-faith third parties. The board is not required to complete the transaction after assembly approval. Justification must exist for not completing the transaction.
• The board must explain the reasons to the general assembly. Explanation happens at the first meeting after the board resolution.
• Article 241-bis-1 was added, applying the same rules to closed JSCs. The same provisions apply to closed joint-stock companies. Both paragraphs exactly mirror the requirements of Article 194-bis.

Corporate Governance Charter Becomes Mandatory

• Article 358-bis-1 was added, requiring the adoption of a corporate governance charter. Paragraph (a) requires a ministerial order issuing the charter. The best internationally recognized management principles guide the charter.
• Paragraph (b) states the charter applies to all commercial companies. Companies subject to legal provisions are covered. An exception applies to shareholding companies licensed by the CBB.
• CBB-licensed companies follow the Central Bank’s governance principles. This ensures appropriate standards for regulated financial institutions.

Practical Investment Guidance

Different company structures exist under the Commercial Companies Law. Each type has specific requirements stated in the law. Your choice depends on ownership structure and business needs.

Articles throughout the law set out the requirements for each company type. Understanding these distinctions helps select the appropriate structure.

Company Type Options From the Law

Article 2 lists seven forms of commercial companies. Article 2(b) states that companies that do not take these forms are null. Those entering into contracts face personal and joint liability.

Seven company forms from Article 2(a):

1. General Partnership Company (Article 25)
   • Two or more persons under a specific name
   • Partners are jointly liable for all property
   • May be formed among Bahraini or non-Bahraini partners
2. Limited Partnership Company (Article 50)
   • One or more joint partners with full liability
   • Sleeping partners are liable only to the extent
3. Association in Participation (Article 56)
   • Concealed company without a corporate entity
   • Not subject to publication procedures
4. Joint Stock Company (Article 63)
   • Persons subscribe via negotiable shares
   • Liable only to share the value extent
   • Article 226 defines a closed joint stock company
5. Limited Partnership by Shares (Article 246)
   • Joint partners with full liability
   • Sleeping partners are liable to the extent only
6. Limited Liability Company (Article 261)
   • Up to 50 partners maximum
   • Each is liable only to the extent
7. Single Person Company (Article 289)
   • Economic activity with one owner
   • Capital wholly owned by a natural or corporate person
8. Holding Company (Article 298)
   • A company owning shares in other companies
   • Participates in establishing such companies
   • Can take JSC, LLC, or SPC form per Article 299

Meeting Compliance Requirements

Article 286 establishes financial reporting requirements for limited liability companies. Managers prepare documents within three months after year-end. Balance sheet, profit and loss account, and activity report required.

Timeline requirements from various articles:

Company Type	Articles	Assembly Timing	Filing Deadline
Public JSC	198, 195	3 months after year-end	Per Article 195
Closed JSC (some)	242, 244-bis	3 months after year-end	6 months (Article 244-bis)
Closed JSC (others)	242, 244-bis	6 months after year-end	6 months (Article 244-bis)
LLC	283, 286	6 months after year-end	6 months (Article 286)

Article 244-bis requires that documents be forwarded to MOIC within 6 months. Required documents include the balance sheet, profit and loss account, and annual report. An auditor’s report or signed auditor letter is also required per the circulated format.

• If the company’s loss exceeds half its capital, audited financial statements are required. The Ministry can request any additional financial statements, documents, reports, or information.
• Article 286 paragraph (iii) repeats these requirements for limited liability companies. The same 6-month timeline and documentation requirements apply.
• Article 288-bis requires profit distribution within 30 days. This applies from the date of ratification by the General Assembly.

Statutory reserve requirement from Article 224:

• 10% of net profits is deducted yearly for the statutory reserve. Deduction continues until the reserve reaches 50% of the paid-up capital. Company articles may specify a higher percentage for either requirement.
• Deduction may be suspended when the 50% threshold is reached. If the reserve falls below the percentage, deduction resumes immediately. Reserves cannot normally be distributed to shareholders.
• Reserve may ensure 5% dividend distribution in low-profit years. This happens only when profits don’t allow for minimum distribution.

Enforcement and Penalties

Part XVI addresses penalties for violations of the law. Articles 361 and 362 specify different penalty levels. The severity depends on the type committed. Penalties protect the integrity of commercial operations in Bahrain. They also protect shareholders, creditors, and other stakeholders.

Serious Violations Under Article 361

Article 361 lists violations punishable by imprisonment and fines. Fines range from 10,000 to 100,000 Bahraini Dinars. Either penalty or both may be imposed.

Eleven violation categories in Article 361:

(a) Stating false data in company documents or subscription prospectuses

• Applies to anyone providing false data, violating the law
• Includes those who willfully signed or distributed documents

(b) Inviting public subscription violates the law provisions

• Applies to founders, managers, or board members
• Includes those offering shares/bonds, knowing of a violation

(c) Fraudulently evaluating in-kind shares above real value

• Applies to any partner or non-partner involved

(d) Preparing a false balance sheet or profit/loss account

• Applies to board members, managers, or auditors
• Includes failing to send required statements per Articles 244-bis or 286
• Includes not sending audited statements, documents, reports, or letters

(e) Distributing untrue profits or interests

• Applies if the distribution violates the law or the articles of association
• Includes those approving such distributions

(f) Taking excessive remuneration beyond the law or the articles allowance

• Applies to managers or board members

(g) Stating false data in financial documents or reports

• Applies to managers, board members, liquidators, or auditors
• Includes failing to submit required reports
• Includes willfully ignoring essential facts, making the position untrue

(h) Disclosing company confidential matters learned ex officio

• Applies to managers, directors, the control board, consultants, experts, and auditors
• Includes assistants, employees, government officers, or inspectors
• Also covers exploiting secrets for personal or others’ benefit

(i) Stating false facts about inspection in reports

• Applies to persons appointed by the Ministry for inspection
• Includes willfully ignoring essential data affecting inspection results

(j) Cases under Article 18-bis paragraph (a)

• All nine liability trigger situations

(k) Providing wrong data in the board candidacy papers

• Applies to public joint stock company board candidates
• Includes deliberately concealing required disclosure data

Lesser Violations Under Article 362

Article 362 lists violations punishable only by fines. The maximum fine is fifty thousand Bahraini Dinars. Imprisonment does not apply to these violations.

Eleven violation categories in Article 362:

(a) Issuing shares, receipts, certificates, or bonds violating the law

(b) Appointment as a board member or managing director while prohibited

• Includes holding office while prohibited
• Covers obtaining guarantees or loans that violate the law

(c) Establishing a company that violates the Bahraini capital percentage requirements

(d) Willfully ignoring essential facts affecting financial position

• Applies to managers, board members, auditors, or liquidators
• Must be in the balance sheet or profit/loss account

(e) Failing to call the general assembly when losses reach the threshold

• Applies when knowing of such a loss
• Threshold defined in law or company articles

(f) Refraining from inviting the general assembly or listing agenda matters

• When the law requires assembly convening
• When the law requires agenda inclusion

(g) Preparing reports, balance sheets, or accounts violating the Article 195 decision

• Applies to board members
• Applies to auditors preparing reports violating Article 219 data

(h) Issuing spending orders without supporting documents

• Applies to board members, managers, or employees
• Documents must indicate the spending reasons and the receiving party

(i) Ignoring essential facts affecting inspection results

• Applies to persons assigned by the Ministry or the court
• Must be willful ignoring

(j) Refusing access to books and documents

• Applies when partners, auditors, or Ministry staff are authorized
• Inspection permission granted by the Minister or the court

(k) Refusing to enforce any order provided in law

• Applies to willful refusal

If you want to read more about the commercial law amendments 2018, you can check it out here. 

Frequently Asked Questions

Conclusion

The Commercial Law Amendments in Bahrain, introduced between 2014 and 2018, substantially changed company law. Article 64 repealed nationality restrictions on shareholders in public companies. 

The Official Gazette publishes all decrees and legal requirements. Professional advisors help interpret specific article applications to your situation.PI Startup Advisory specializes in company formation under Bahrain’s updated commercial law. Our team understands all amendments to the Bahrain Commercial Companies Law that affect your business structure. Contact us today for guidance on compliance, governance setup, and regulatory requirements.