A Comprehensive Guide to Private Shareholding Companies in Jordan

A Comprehensive Guide to

Private Shareholding Companies in Jordan

 

Al Majali and Partners Law Firm is a leading legal practice in Jordan, renowned for its specialization in the formation and structuring of Private Shareholding Companies (PSC). With over 20 years of experience, the firm has built an impeccable reputation for delivering fast, reliable, and comprehensive legal services tailored to the unique needs of businesses seeking to establish or restructure their corporate presence in Jordan.

The firm has successfully registered hundreds of Private Shareholding Companies across various sectors in Jordan. Its legal team possesses in-depth knowledge of the relevant laws, regulations, and procedural requirements, ensuring that each client receives precise guidance and efficient service throughout every stage of company formation and share structuring. Al Majali and Partners are known for streamlining complex processes, minimizing delays, and providing clients with peace of mind as they navigate the Jordanian corporate landscape.

A cornerstone of Al Majali and Partners’ success is Attorney Maha Al Saheb AlTamimi, whose exceptional record in company registration and formation sets a benchmark in the legal community. Maha brings a wealth of experience, legal acumen, and a client-focused approach to every engagement. Her expertise encompasses the full spectrum of corporate legal services, including company incorporation, share allocation, restructuring, regulatory compliance, and ongoing legal support. Clients consistently commend her efficiency, attention to detail, and unwavering commitment to delivering optimal results.

The Private Shareholding

A private shareholding company stands as one of the most significant forms of business entities recognized by Jordanian law. This structure offers a blend of limited liability, flexibility, and privacy, making it attractive to investors and entrepreneurs alike. In this article, we will explore the essential aspects of private shareholding companies in Jordan, focusing on their legal framework, registration process, terms and conditions, formation requirements, advantages, disadvantages, and other key considerations relevant to anyone contemplating this business form.

Legal Framework and Definition

Under the Jordanian Companies Law No. 22 of 1997 and its amendments, a private shareholding company is defined as a company established by a limited number of founders, with its capital divided into shares of equal value. Unlike public shareholding companies, the shares of a private shareholding company are not offered to the public and cannot be traded on the stock exchange. The law specifically provides for the governance, operation, and oversight of such companies, ensuring that shareholder rights and corporate obligations are clearly outlined.

Key Legal Features

• Limited Liability: Shareholders’ liability is limited to the value of their shares.
• Capital Structure: The company’s capital is divided into shares, which must be fully subscribed at incorporation.
• Private Ownership: Shares cannot be offered to the public or traded on stock exchanges.
• Separate Legal Entity: The company enjoys a legal personality distinct from its shareholders.

Formation of a Private Shareholding Company

Founders and Shareholders

A private shareholding company in Jordan can be established by a minimum of two founders (except in some special cases where a single corporate entity can establish a company). The maximum number of shareholders is not strictly limited but remains small compared to public companies.

Minimum Capital Requirements

The Companies Law stipulates that the minimum share capital for a private shareholding company is typically 50,000 Jordanian Dinars (JOD), which must be fully subscribed and deposited in a local bank account before the company is registered.

Steps in the Formation Process

• Preparation of Articles of Association and Memorandum of Association: These documents outline the company’s objectives, capital structure, management, and internal regulations.
• Name Reservation: The intended company name must be reserved and approved by the Companies Control Department (CCD) to ensure it is unique and complies with legal requirements.
• Application Submission: The founders submit the required documents, along with identification papers, proof of capital deposit, and the draft Articles of Association, to the CCD.
• Review and Approval: The CCD examines the application, verifies compliance with the law, and may request modifications if necessary.
• Issuance of Registration Certificate: Once approved, the CCD issues a certificate of registration, and the company acquires legal status.
• Tax Registration and Licensing: The company must register for tax purposes and obtain the relevant business licenses from local authorities before commencing operations.

Terms and Conditions

Ability to Issue Different Types of Shares and Choose Share Structure

One of the remarkable features of the private shareholding company under Jordanian law is its flexibility in designing its capital structure. Founders have the ability to issue different types of shares, such as ordinary shares and preferred shares, each with its own rights and privileges regarding voting power, dividends, and liquidation preferences. This flexibility enables the founders and shareholders to tailor the structure of the company to their specific investment goals, governance needs, and strategic interests. The Articles of Association and Memorandum of Association will outline the details of each share class, including rights to profits, voting mechanisms, and any restrictions on transferability. This adaptability provides a powerful tool for attracting various types of investors or accommodating special arrangements among shareholders.

Share Structure

Shares must be registered and may not be issued as bearer shares. The transfer of shares is subject to approval by the company’s board of directors, and restrictions on transferability may be included in the Articles of Association.

The ability for partners to customize share types and structures provides significant flexibility in aligning the interests of the company with those of its stakeholders. Partners can negotiate and agree upon the classes of shares to be offered, tailoring them to reflect investment levels, participation in management, or other partnership arrangements.

Management and Governance

A private shareholding company is managed by a board of directors, elected by the general assembly of shareholders. The board is responsible for strategic decisions, while daily operations are overseen by appointed managers or executive officers.

General Assembly

An annual general meeting of shareholders must be held to review company performance, approve financial statements, and elect directors. Special meetings can be called as required.

Auditing and Reporting

The company is required to maintain accurate books of account and must appoint an independent auditor to review the financial statements annually. Reports must be submitted to the relevant regulatory authorities.

Advantages of a Private Shareholding Company

• Limited Liability: Shareholders are protected from personal liability beyond their investment.
• Flexibility in Structure: Suitable for medium to large projects, the structure allows founders to tailor rules and management as per their needs.
• Greater Privacy: Since shares are not publicly traded, company affairs remain confidential and under the control of a smaller group.
• Attracting Investment: The ability to issue shares makes it easier to raise capital from a select group of investors.
• Continuity: The company’s existence is not affected by changes in individual shareholders.
• Transferability of Ownership: Shares can be transferred (subject to restrictions), facilitating exit strategies for investors.
• Customizable Share Classes: Issuing different types of shares allows for customized arrangements among founders and investors.
• Share Redemption: The Jordanian Companies Law permits private shareholding companies to issue redeemable shares.

Disadvantages of a Private Shareholding Company

• No Access to Public Capital Markets: Cannot raise funds by offering shares to the public.
• Regulatory Oversight: Subject to regular scrutiny by the Companies Control Department and other regulatory agencies in Jordan.
• Costs and Procedures: Establishment and compliance costs can be significant compared to simple business forms like sole proprietorships or general partnerships.
• Restrictions on Share Transfer: Share transfers may require board approval, which can limit liquidity and flexibility for shareholders.
• Disclosure Obligations: Although not as stringent as public companies, private shareholding companies must still comply with reporting and auditing requirements.

Other Useful Considerations

Foreign Investment

Jordan welcomes foreign investment, and private shareholding companies are an attractive vehicle for foreign investors. However, certain sectors may have restrictions or require special approvals. It’s crucial for foreign founders to consult with local legal advisors on sector-specific rules, taxation, and repatriation of profits.

Taxation

Private shareholding companies are subject to corporate income tax in Jordan. The rate may vary depending on the sector. Additional taxes, such as sales tax and social security contributions, may also apply.

Compliance and Corporate Governance

Maintaining a high level of corporate governance and transparency is not only a legal requirement but also enhances the company’s reputation and attractiveness to investors.

Comparison with Other Company Types

Compared to limited liability companies (LLC) or public shareholding companies (PSC), private shareholding companies offer a balance between the simplicity of an LLC and the expansive capital-raising power of a PSC—albeit with restrictions on public share offerings.

Latest legislation related to PSC:

The 2020 Instructions for Redeemable Shares for Private Shareholding Companies.

The redemption of shares is a significant mechanism in corporate governance, allowing companies to restructure their share capital and manage their shareholder base. In Jordan, this process is governed by the Jordanian Companies Law and the 2020 Instructions for Redeemable Shares for Private Shareholding Companies. This article explores the legal basis, procedural steps, and implications of the share redemption process under Jordanian law.

The foundation for share redemption in Jordan is established in Article (68/b) of the Jordanian Companies Law. This article permits private shareholding companies to issue redeemable shares, provided that the right to redemption is explicitly stated in the company’s articles of association. In addition, the “Instructions for Redeemable Shares of Private Shareholding Companies for the Year 2020” provide comprehensive regulations and detailed procedures for carrying out the redemption of shares. These instructions set forth the specific conditions and safeguards that must be observed to ensure compliance with the law.

Before a private shareholding company in Jordan can issue or redeem shares, several conditions must be satisfied:

 

1. Authorization: The company’s memorandum and articles of association must clearly authorize the issuance and redemption of shares.
2. Specification of Rights: The articles must also define the rights, benefits, priorities, and terms associated with the redeemable shares.
3. Shareholder Approval: An extraordinary general assembly meeting must approve any decrease in share capital resulting from redemption.
4. No Liens: Shares subject to seizure or pledge cannot be redeemed unless the entity that imposed the lien or the pledgee creditor grants approval.
5. Creditors’ Rights: The redemption process must not infringe upon the rights of the company’s creditors.

The procedure for redeeming shares in a Jordanian private shareholding company involves several key steps:

1. Board of Directors Decision: The board initiates the process by passing a resolution, based on the terms set forth in the articles of association.
2. Extraordinary General Assembly Approval: If redemption leads to a reduction in capital, it must be approved by an extraordinary general assembly meeting.
3. Financial Preparation: The company must ensure that the redemption is financed, either through distributable profits or by issuing new shares specifically for this purpose.
4. Regulatory Approvals: In cases where the share redemption results in a capital decrease, approvals from the Ministry of Industry and Trade and the Jordan Securities Commission (JSC) are required.
5. Share Cancellation or Reissue: According to the 2020 Instructions, the company has three options regarding the redeemed shares:
6. Cancellation: The redeemed shares are canceled, reducing the company’s capital by their nominal value.
7. Retention as Treasury Shares: The company may hold the redeemed shares as treasury stock for a period, although the law does not specify a maximum duration.
8. Reissue: The company may reissue the redeemed shares to new investors.
9. Transfer of Ownership and Payment: Ownership of the redeemed shares is transferred back to the company, and the shareholder is paid the redemption value according to the agreed terms.
10. Optional “Jouissance” Shares: Instead of, or in addition to, a monetary payment, the company may grant “jouissance” (enjoyment) shares to the redeeming shareholder, provided that this right is explicitly stated in the articles of association. These shares typically do not carry voting rights.

The redemption of shares has several important consequences for both the company and its shareholders:

• Change in Legal Status: A shareholder whose shares are redeemed experiences a shift in their legal standing within the company. If “jouissance” shares are issued, the shareholder’s rights, particularly voting rights, may be altered.
• Reduced Capital: If the redeemed shares are canceled, the company’s share capital decreases, necessitating official approval from the relevant authorities.
• Judicial Recourse: If a shareholder does not receive the agreed payment for their redeemed shares, they have the right to seek a court order to claim the value.
• Limitations on Redemption: The company cannot proceed with redemption if it is unable to meet its liabilities for the twelve months following the transaction, ensuring protection for creditors and maintaining financial stability

Conclusion

The private shareholding company structure under Jordanian law provides a robust framework for entrepreneurs and investors seeking to establish a business with limited liability, flexibility, and the potential for significant growth. While the registration and ongoing compliance requirements are more demanding than for simpler business forms, the benefits in terms of investor protection, privacy, and capital-raising capacity make it a compelling choice for many business ventures. As with any corporate decision, careful consideration of legal, financial, and strategic factors—ideally with professional guidance—is essential to ensure a successful and compliant business operation in Jordan.

 

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