Corporate Governance in Yemen
State of Corporate Governance in Yemen
Intense corporate governance is crucial for the Middle East and North African (MENA) countries as they attempt to boost economic growth, strengthen competitiveness, and build prosperous societies. Corporate governance is still a slow process in Yemen compared to most MENA countries, including Egypt and the UAE. The Corporate Governance Guide in Yemen, issued in 2010, was considered to represent a partnership between the government and the private sector in an integrated way. It was aimed at improving the business and investment climate to create appropriate conditions for investment and encourage companies to commit to the principles of governance, and was considered a lifeline for them. The guide includes two annexes, the first for banks, due to the economic importance of this sector in general, and the second for family businesses, due to the dominance of this type of company in the Yemeni market. This guide is complementary to Yemen’s enforced laws, foremost of which is Commercial Companies Law No. 22 of 1997 and its amendments, executive regulations, and decisions.
Corporate governance is an essential and significant part of economic change, but it is not given adequate attention in Yemen with regard to the economic aspect of the country. This absence has led to a weak ability to attract private investment and low competitiveness in the private sector. The World Bank’s Doing Business 2020 report shows a low minority investor protection score for Yemen of 26.0, ranking 162nd. Yemen occupies a lower rank in the investor protection index because its companies fail to adhere to corporate governance principles and rules. One of the most important reasons why a corporate governance system in Yemen has not been implemented may be the lack of a stock exchange market, which would include the conditions for registering institutions and companies; Yemen is the only country in the Middle East that does not have a stock exchange.
Categories of companies
The law provides for two categories of companies –partnerships and corporations. Company law states six types of companies as follows:
-
general partnership;
-
limited partnership;
-
particular partnership;
-
joint-stock company;
-
partnership limited by shares;
-
limited Liability Company.
Establishing a business for foreign entities
Conventional Laws: A foreign entity may enter into the Yemeni business market in any one of these forms listed below:
-
Registering a Branch office of foreign company or business house, under the provisions of law number “23” for the year 1997 regarding arrangement of the agencies and companies branches and foreign houses, to carry out businesses within the jurisdiction of the Republic of Yemen.
-
Incorporating a Limited Liability Company in the Republic of Yemen, under the provisions of Commercial Companies Law No. “22” for the year 1997. During recent years, an amendment was made allowing incorporation of a local company fully owned by foreign partners.
Special Laws: A foreign entity may get its business activities registered under the following special laws by fulfilling respective conditions:
-
Registering an Investment Project of company, under the provisions of law number “15” for the year 2010 by presenting application to General Investment Authority (GIA) an independent body to govern activities of all investment projects. A license is issued by the GIA to those projects that fully comply with the requirements.
-
Registering a project under Free Zones Law No. 4 of 1993 in the Republic of Yemen in specific areas for activities specified by the law. In order to avail incentives as per the law.
-
Production sharing agreement (PSA) and Gas Development Agreement (GDA) are also form of special laws, which are signed by and between business entities and the government which is further ratified by the parliament. Thus attain the status of individual special laws that override the conventional laws.
Foreign entities intending to perform the business activity in Yemen are generally required to have permanent establishment in Yemen.
-
Available forms of business are as follows:
-
Limited Liability company
-
Joint stock public or private company
-
Joint venture
-
Branch of a foreign company
-
Sole proprietorship
-
Partnership
All the above forms of business entities in Yemen must register with the Yemeni Chamber of Commerce & Industry and complete the necessary procedures specific to the form of business selected as discussed below.
A presidential decree No. 1 of 2008 promulgated and amended the “ Trade Law No. 22 of 2004” by authorizing Foreign entities and persons to establish all sorts of business and trade activities without involving local partners. Since then, the government simplified the process of LLC registration and establishing LLC with 100% foreign ownership is considered a preferred form of business for the foreign companies and individuals.
............................
Sources:
