It is common for foreign companies to find a contract or tender and then begin registering for the purpose of the contract or tender. In the last year, we have seen a significant increase in joint venture (JV) registrations in the construction sector as the government has increased their rate of tenders and contracts in the sector.

There is also an increase in oil and gas investments creating an expansion of opportunities for foreign companies especially to register an entity in Libya for. On the other hand, most oil and gas companies register a branch to operate in Libya rather than a JV company for practical and operational reasons.

In the last year, both the oil and gas sector alongside the construction sector have witnessed increased investments from the government prioritising the rebuilding of the country. This has encouraged many foreign companies to enter the Libyan market.

A JV in Libya may only be established as a joint stock company and the following requirements have to be met.

Required Capital

The required capital must not be less than LYD1 million and one-third of the cash capital has to be paid up during incorporation.

Fields of Practice

These companies will have the ability to undertake economic activities in all fields in Libya, except the activities specified in Article 6 of Decision No 207 of 2012, which only Libyan nationals can practice.

There is currently only one vehicle for JV companies and that is a joint stock company or a JV company. Rules and laws on general JV companies are regulated as well as governed by the Commercial Code, associated ministerial decisions and the articles of association of the company. The articles of association are what largely regulate profit and loss, assets and revenues and decision-making. The law requires all companies to submit financial statements annually and fulfil their tax and social security obligations.

Under Libyan law, the Ministry of Economy is the regulator. However, when it comes to law and regulations, Law No 23 of 2010 regarding commercial activities is the law governing all commercial activities including JVs. A JV will therefore be established as a joint stock company and will have to comply with the commercial law. Regulation No 207 of 2012 adds certain requirements and prohibitions on the contributions of foreigners when establishing a legal entity in Libya.

The existing legal framework addressing money laundering in Libya is primarily derived from Law No 2 of 2005, which was enacted by the General People’s Congress (GPC).

The Law along with Regulation No 300 of 2007 sets the penalties for money laundering.

Libya is recognised as a member of the Middle East and North Africa Financial Action Task Force (MENAFATF). Efforts have already been made to ensure the development of AML goes in the right direction.

In 2012, after the issuance of Decree No 207 of 2012, foreign shareholdings in JVs were capped at 49%. Before this Decree, some JVs had a foreign shareholding of 60% which was more desirable for the foreign investor.

However, the 49% can be raised if requested. An exemption might be made for the foreign investor through a request from the Minister of Economy which may increase the share to 60%.

Shareholding caps are not the only restriction, as JVs are not allowed to specialise in certain activities such as:

• retail and wholesale trade;
• importation;
• catering services;
• all types and fields of commercial agency activities;
• land transport services;
• inspections of all imported and exported commodities and goods unless by virtue of prior permission from the minister;
• handling, shipment and discharge in airports;
• legal and financial audit works;
• packing and packaging;
• stone crushing breakers;
• contracting and civil works including the activity of construction and building with regards to the contract whose value is less than LYD30 million; and
• any other fields limited to Libyans by virtue of special laws.

Therefore, a JV’s activity will never be specialised within activities limited to Libyan nationals.

In addition to the existing legal regulations governing market competition, the Commercial Council has established a Competition Council to maintain market competition at a specified level. The Competition Council helps to safeguard the stability of competition in the market.

All individuals and entities engaged in commercial activities are prohibited from forming alliances that could influence or control market activity beyond the threshold set by the resolution of the competent secretary. This threshold is capped at a maximum of 30%.

There are no restrictions on the number of shareholders. However, there has to be a minimum of three board members and the chairman has to be a Libyan citizen. The monitoring committee must have at least five members and they can be of any nationality.

A shareholder must register themselves as a shareholder in order to officially obtain shares. If this is not done, in case of disputes, there would be no protections for the shareholder as they would not be recognised as one. When registering, they must submit their identification documents if they are an individual and commercial documentation if they are a commercial entity.

All members of the board of directors must also be registered with the local commercial registry and will appear in the registry document.

The details of the monitoring subcommittee members will have to be disclosed to the Libyan authorities in the articles of association. The commercial authorities in Libya must always have the latest articles of association on file.

In the last few years, there have been no significant legal developments governing the laws on JV companies. In terms of significant court decisions, Libyan law is more dependent on legislation than court decisions.

The most recent enacted and currently active legislation governing JV companies is Decision No 823 of 2013 which added shipping activities to the list of prohibited activities for JV companies consisting of a foreign shareholder. This legislation also banned the registering of a JV company as a limited liability company and partially amended the procedures for the gathering of the seed capital initiating a JV company.

The market standard for the start of the negotiation stage is for the potential shareholders to sign and notarise an NDA covering all matters related to the negotiation stage.

It is then standard to proceed with the negotiations using a Heads of Terms and memoranda of understanding. Shareholders are free to decide how to go about their negotiations with each other.

It is recommended external assistance be sought for due diligence. This is because external parties will have more means of obtaining information on the ground. This is important especially from a business and compliance standpoint.

The disclosure is typically made after articles of association have been signed. This is done during the registration process as governmental authorities will then be approached for registration.

It may be sooner if one of the parties is a governmental entity as there are public disclosure laws for governmental entities. JV companies with governmental entities as shareholders are common in Libya especially with oil and gas operators (only in some cases for service and material contractors), hospitals and banks.

Other than these standard circumstances, there are no legally required disclosure timings. After the JV company has been disclosed and registered, any further disclosures will only be required for tax and social security payment purposes and will only be made to the relevant governmental authorities.

The laws governing JV companies in Libya are quite straightforward and simple. However, the procedures to register the entity are extensive and complex. The simplified process lasts for between four and six weeks and in some cases, considerably more and this processing timeline only begins once all notarised (and, if foreign, apostilled and translated) documents have been gathered. The documents required for a foreign shareholder include:

• a copy of the foreign company’s memorandum of incorporation and its articles of association;

• an updated extract/certificate of incorporation issued by the Commercial Registry of its country of origin;
• the shareholder’s internal articles of association; and
• a board of directors’ minutes of meeting where the following items were agreed:
1. a statement conveying the intention to participate in a JV company;
2. a determination of the specific fields in which the JV company will operate in;
3. the company’s shares, percentage wise of the company’s capital; and
4. an authorisation or a delegation to a specific individual for the signing of the company’s memorandum of incorporation, its articles of association and the opening of bank accounts.

In light of Decision No 207 of 2012, it is important to note that JVs with foreign shareholders are not permitted to operate within the fields of:

• retail and wholesale trade;
• any form of importation activities;
• catering services;
• all types and fields of commercial agency activities;
• land transport services;
• inspecting all imported and exported commodities and goods unless by virtue of prior written permission issued by the Minister of Economy and Trade;
• handling, shipment and discharge in airports;
• legal and accountancy activities;
• packing and packaging activities; and
• contracting and civil construction works with contract values of less than LYD30 million.

Once all these documents have been obtained, bank accounts will be opened and the name of the new JV company will be approved. The memorandum of incorporation, the first general assembly meeting and the articles of association of the JV company will be signed before a public notary. The seed capital will then be transferred to the appropriate account. There are taxes and governmental fees to be paid throughout the process. Once this is all completed, the company will receive a commercial registration document, tax documents and social security file documents among others depending on the activities as well as the field of practice of the company.

As there is currently only one JV vehicle option in Libya, the primary terms of the agreement are quite straightforward.

A primary agreement for JV companies is the articles of association which must begin with a statement by a local public notary stating who is present to sign. It typically includes terms for:

• the signifying of the intention to register a JV company specifying the name of the company;
• the purposes of the company including the domicile, registration duration and the total capital amount;
• the specific split of shares and amount to be paid for those;
• a set of rules for transferring shares, increasing capital and other matters relating to shares, capital, dividends, shares of liabilities, depositing of funds and loans;
• a list of board members as well as shareholders, their capacities and nationalities;
• a list of members for the auditing/monitoring subcommittee along with reserve members;
• a list of procedures for meetings and voting for the shareholders and the board of directors;
• the list of rules on the powers for the board members and shareholders; and
• a set of rules and procedures for dissolution and liquidation of the JV company.

These are quite standard terms in the legal field internationally. However, it is important to note that while the documentation is straightforward, the procedures are quite extensive.

Other documentation will include the memorandum of incorporation detailing the intention to go through the procedures for the initial registration and the opening of the bank account and further documentation obtained from entities of the government for the registration of the JV company.

Generally, decision-making in JV companies is done by absolute majority in line with the ownership of shares.

Decisions for day-to-day operations are made by the chairman of the board of directors. The chairman has to be a Libyan citizen. However, the tasks and responsibilities of the chairman can be delegated by the shareholders to a foreign individual, but the original chairman will remain the chairman.

Any further procedures on the matter of decision-making will be dependent on the conditions set by the company’s articles of association.

For the funding of JV companies, Libyan authorities require in most cases, a minimum total seed capital amount of LYD1 million to be paid into the account of the JV company during the registration process. The amount each shareholder must transfer is dependent on their ownership of shares.

Once the company is registered, it can take out loans, increase its capital by separate agreement or use any other legal means. The company can also obtain funding for its projects through external investors who invest in the project rather than the company itself.

Shareholders of JV companies typically break deadlocks by agreeing within their articles of association to allow the chairman or their representative to cast a vote. This is the industry standard procedure for deadlocks. However, the law does not prevent shareholders from agreeing to another procedure.

Additional required documents include an NDA and not many other documents. Agreements to transfer assets or other procedures are often agreed upon within one agreement and the company’s articles of association. There is not an extensive list of further documentation.

Additional documentation will be required if the company intends to register IP, bring foreign employees in, import materials or their operations or perform other specific acts. These procedures are unnecessary, if not.

Generally, in accordance with Decision No 207 of 2012, foreign ownership of JV companies is capped at 49% with very few exceptions. However, the division of profit can be decided at the free will of the shareholders within the company’s articles of association. The number of shareholders should not exceed six individuals or local or foreign corporate entities.

The chairman of the board of directors is required by law to be a Libyan citizen. Even with this requirement, it is typically seen that the foreign company actually manages the day-to-day operations which is permitted if the foreign shareholder has been delegated to do so by a decision of the board of directors. For this to be possible, the delegation decision needs to specify the name of the foreign individual delegated to manage the operations. This is an especially important note in cases where the foreign shareholder is a corporate entity. The corporate entity needs to provide the name of an individual to be delegated those responsibilities.

Voting procedures are also decided within the articles of association. Voting rights are dependent on the ownership of shares. A decision generally requires an absolute majority. A more specific percentage of a majority required to issue a decision can also be decided at the free will of the shareholders within the articles of association.

In terms of subcommittees, it is typical to see JV companies appoint a subcommittee for monitoring purposes. This subcommittee will normally have three to five members, who are local or foreign and some reserve members. The members are responsible for monitoring operations and providing reports to the shareholders. As shareholders do not always communicate on a regular basis or some are based abroad, a subcommittee to monitor operations can be useful in ensuring all parties are well-informed on the operations of the JV company and allowing them to be more equipped in discussions and voting.

Each director will have their own responsibilities. The chairman will have authorisation to oversee operations, make legal decisions in representation of the company and have full authorisation over the bank accounts of the company. The deputy chairman has the same responsibilities but is assisted by the chairman. JV companies typically also have a director for administrative matters and human resources, another for finance and accounting and in some cases, a registered director for legal advisory purposes.

Under the common provisions of Law No 23 of 2010 regarding commercial activities applicable to companies incorporated in Libya, Article 181 states the following.

• The chairman or board members are not permitted to be a party in any compensation contracts to be concluded with the company, except with prior approval from the general assembly. If a contract is concluded contrary to this clause it will be considered null and void.
• If the chairman or a member of the board of directors has interest in an operation or a transaction for his own account or for the account of one of his relatives up to the fourth degree or for the account of the party which he represents or deputises for contrary to the company interest, he should inform the board of directors and the control board thereof. He should also refrain from participating in deliberations in respect of that operation or transaction. If the member violates this prohibition, he will be responsible for the losses which the company may incur due to completion of the operation or the transaction.

Given that a JV involves collaboration between two distinct entities, IP rights are likely to become a point of contention. To safeguard the rights of each party, it is essential to address IP matters from the outset. The memorandum of incorporation for establishing a JV should comprehensively outline all relevant IP rights to prevent potential ownership disputes.

Not all IP rights require registration to be protected. For example, copyrights are automatically granted from the moment a work is created and disseminated. Protection for other IP rights, such as trademarks and patents requires formal registration with the relevant authority.

The use of trademarks or patents must be conducted under one of two conditions: either through licensing agreements or ownership. The unauthorised use of trademarks or patents in Libya may result in various legal penalties.

There are no environmental protection regulations specifically enforced on JV companies in Libya. These regulations are more dependent on the field of practice and the general activities of companies. For example, there are specific rules for construction projects, oil and gas activities and regulations on general pollution and waste generated by corporate entities.

The Environmental Protection and Biodiversity Conservation Law of 2003 is the primary law governing these matters in addition to other legislation and a number of constitutional provisions. There are international conventions Libya has ratified including the Convention on Biological Diversity (CBD).

Any liabilities for violating these regulations will be divided between the shareholders in line with the shareholder agreement. The Libyan government has a specific unit that is responsible for inspecting the practices of corporate entities, investigating violations of environmental law and enforcing penalties and criminal charges for those violations when appropriate.

Shareholders of a JV company typically decide to liquidate due to the fact that they have completed the contracts they have registered for or they no longer see any other project opportunities in the near future.

The procedure to liquidate a JV company is quite strict and extensive. The first step is to prepare a bilingual general assembly meeting invitation which then has to be sent to the registered shareholders. This invitation should provide:

• the company name;
• the registration number from the Commercial Registry;
• a reference to the specific article in the articles of association specifying the conditions for holding a general assembly meeting;
• the time, date as well as location for the general assembly meeting;
• that a second invitation for another meeting will be sent if any shareholders fail to attend this meeting; and
• a list of the agenda of the meeting and that the meeting needs to include a discussion on the matter of liquidation referencing the articles on liquidation from the articles of association and from the Commercial Code.

During the meeting, minutes need to be compiled detailing the setting of the meeting including timestamps, venue, those who were in attendance and their capacity. If an invited person cannot attend, they can appoint another person to attend, discuss and vote in their place via a duly notarised power of attorney.

The minutes should include the discussion and voting procedures then go through every item in the listed agenda. All shareholders need to agree to the liquidation of the JV company as well as their own respective shares. For the process to move forward, every individual or company shareholder has to independently and officially issue a signed document conveying their agreement and intention to liquidate.

The board of directors has to hold a board meeting and call on the general assembly to hold the extraordinary general assembly meeting for the liquidation. Within this meeting, the board of directors will need to agree to appoint a specific local liquidator to handle the matter. The board will also need to agree to close their files with every governmental entity. This includes the Tax Department, Social Security Fund and visa and immigration departments.

These decisions must be included in a signed, stamped and notarised board of directors’ decision.

Once this is done, the company and its shareholders have expressed the intention to liquidate and have agreed to do so as evidenced by signatures and stamps. This intention must also be expressed publicly under the law. A notification must be placed by the JV company in the official gazette/daily newspaper specifying the details of the proposed extraordinary general assembly meeting under the law as well. This is required as it gives debtors an opportunity to claim their debts before the company is liquidated.

The appointed local liquidator can then submit the liquidation file to the Company and Commercial Registration Department of the Ministry of Economy and Trade and request it be officially accepted as the local liquidator and as a legal representative of the company for the purpose of liquidating the company.

The submitted file must include:

• a statement from each shareholder stating their intention to liquidate;
• the minutes of the board of directors meeting;
• the board of directors’ decision; and
• a copy of the official gazette/daily newspaper article announcing the commencement of the liquidation process of the JV company.

A local and independent accountant must then be appointed to deliver:

• a tax clearance and file closure certificate addressed to the Ministry of Economy, Commercial Registry Office and Chamber of Commerce Authority;
• a clearance and file closure certificate addressed to the Ministry of Economy, Commercial Registry Office and Chamber of Commerce Authority; and
• a liquidation balance sheet,

to the liquidator.

Once the debts are settled, all assets are liquidated or handled and all employees have been terminated in accordance with Libyan Labour Law, all of the documents gathered throughout the process must be submitted to the Company and Commercial Registration Department for the purpose of requesting the company be struck off the commercial registry. Once this is done, a statement from the Department confirming the striking off will be issued.

This will be used to close all files within every public entity the company has a file with. This includes the Tax Department, Social Security Fund, Chamber of Commerce, Intellectual Property Registry and other public entities. The bank accounts of the JV company will also be shut down and the shareholders must agree through a separate agreement how to divide the remaining balance within the accounts. To simplify the process substantially, it is recommended to ensure all purchases, debts and costs are properly recorded regardless of the amount.

The transferring of assets between shareholders of a JV company is largely governed by the articles of association and other agreements made between the shareholders. The board of directors typically have the responsibility to prepare an annual report with an inventory list of all assets and liabilities of the company. This allows the shareholders to make well-informed decisions on the matter.