Business entities in Bahrain
Healy Consultants will assist our Clients to engineer the optimum corporate structure for their business projects in Bahrain. There are several ways of starting a new business in Bahrain, the most common being through the formation of a limited liability company (locally known as a WLL). Alternatively, our Clients may choose to set up another type of business entity in Bahrain, such as a free zone company (FZC) as well as a branch or a representative office of their existing overseas company.
The Bahrain limited liability company (WLL)
- Locally known in Bahrain as a private limited liability company (WLL), a limited liability company is the type of business entity most commonly used by foreign entrepreneurs willing to do business in Bahrain. Its formation requires i) the appointment of two directors ii) two shareholders and iii) a minimum paid-up capital of US$2,660;
- It is also possible to form a limited liability company with a sole director and shareholder. This type of company is publicly known as a “single person company (SPC) and requires a minimum investment of US$2,660 before the company is fully registered;
- SPCs and WLLs are required to appoint a resident manager in Bahrain. Trading companies in some industries are furthermore subject to joint venture requirements with a local partner in Bahrain, who must own at least 51% of the shares;
- Before incorporation of the company, the Bahrain authorities will require provision of a lease agreement for office premises in Bahrain. After incorporation, details on the shareholding and directorship structure of the company will be publicly available on the Bahrain Registrar of Companies. The company will also be required to i) submit a tax return and audited financial statements to the Bahraini Ministry of Finance and ii) contribute at least 10% of its earnings until its paid-up capital reaches 50% of its issued capital.
The Bahrain free zone company (FZC)
It is possible to obtain a permit to operate in a free zone for companies incorporated both locally and abroad. Such free zone companies are recommended for our Clients intending to use Bahrain as a regional manufacturing or distribution base, with the bulk of their business conducted outside the Bahraini Kingdom. Free zones can also be used by import/export companies who only require an office in Bahrain. In Bahrain free zones, these corporate entities also enjoy zero customs duties and government rebates.
The Bahrain branch
- The Bahrain Commercial Companies Law regulates the registration of a branch by a foreign company in Bahrain and stipulates they may be 100% foreign owned, if their industry of operations is also fully open to the formation of a LLC by foreign shareholders. Such business entity is allowed to invoice Bahrain customers, sign local sales contracts and receive income from customers. A local Bahrain agent or distributor must be appointed to sponsor visas and licenses. The foreign company must also issue a bank guarantee of US$133,000 in favor of the Ministry of Finance;
- For the registration of a branch in Bahrain, the incorporation documents of the overseas company must be translated and legalized at i) the Bahrain embassy in the country of incorporation and then ii) by the Ministry of Foreign Affairs of Bahrain. Parent company documents to be translated into Arabic include i) two years audited financial statements ii) a Board of Directors’ Resolution authorizing opening of the branch in Bahrain iii) a power of attorney issued in favor of the general manager of the Bahrain branch and iv) the overseas company’s Memorandum of Association and certificate of incorporation.
The Bahrain shareholding company (BSC)
- This entity is also known as a public joint stock company and suitable for large projects or operations, involving a large investment of funds or raising private or public capital. If our Client plans to offer shares to the general public to raise capital, we recommend forming a public joint stock company. This entity is similar to a UK Public Limited Company or German Aktiengesellschaft (AG);
- Main requirements to form a BSC in Bahrain include: i) a minimum share capital of US$663,000 ii) a minimum of 50 members and iii) a Board of directors consisting of a minimum of three members.
The Bahrain representative office
The representative office of a foreign company is not permitted to make sales within Bahrain. Such an office will only be allowed to engage in activities such as i) promoting the business of the parent company and ii) market research. A local Bahrain agent or distributor must be appointed to represent the overseas company locally.
Shareholder agreement with a Bahrain or US national
- Bahrain company law allows foreign companies draft flexible profit sharing arrangements, which can be different from the shareholding percentages. Healy Consultants will draft a legal shareholders agreement outlining terms and conditions, shareholder restrictions, expectations and remuneration;
- Through a legal shareholders agreement, the nominee will be designated a silent partner who will not interfere in daily activities of the Bahrain limited liability company (or another kind of Bahrain corporate entity type chosen by our Client). The foreign investor legally enjoys full power to solely operate the business and bank account;
- The shareholder agreement will be signed by both the investor and the nominee and witnessed by two different parties from each side. The shareholders agreement is legally valid in the Bahrain courts to arbitrate any dispute between the investor and the local partner;
- The parties to an international contract are free to choose the law and jurisdiction which will govern that contract. If they do not choose an applicable law, the contract will be governed by the Bahraini Civil Code. The parties may also agree in writing to refer disputes to arbitration;
- As the 2006 Bahrain-US Free Trade Agreement affords US citizens the same rights as Bahrain nationals, US citizens and USA companies are allowed to own 100% of shares of Bahrain business entities in all industries. Healy Consultants will be happy to provide our Clients with US nominee services.
The role of the Bahraini or USA shareholder
- While foreign companies prefer to establish a Bahrain company with a silent partner, there are advantages to having an active local Bahrain shareholder. Advantages include i) introduction to potential customers and suppliers ii) preference in the allotment of government contracts iii) navigation through Bahrain Government bureaucracy and iv) assistance with immigration and visa matters;
- Bahraini shares may only be transferred after they have first been offered to the other shareholders by way of pre-emption, unless the other shareholders have agreed to waive their right.
Frequently asked questions
Are there any business entity types in Bahrain that will require me to appoint resident shareholders?In Bahrain, corporate structures do not determine whether a company can be wholly foreign owned. In certain industries including trade and retail, travel and tourism, healthcare and pharmaceuticals, our Clients will require a resident shareholder.
How many resident shareholders will I need to incorporate a Bahrain LLC in a restricted industry?All Bahrain business structures incorporated in restricted industries will usuallly require the resident individual to contribute at least 51% capital to the company.
What are the most common company types in Bahrain?The most commonly incorporated entities in Bahrain are the FZ company and the LLC.
Approximately, how much time will be required to open an limited liability company in Bahrain?On an average, it takes 12 weeks to incorporate a Bahrain private LLC.
What are the advantages of Bahrain business setup?Incorporation of a private limited company in Bahrain will allow our Clients to enjoy multiple advantages including i) easy access to MEA (Middle East & Africa) consumer market ii) easy remittance of profits iii) ease of opening corporate bank account in the country and iv) exemption from corporate taxes, personal taxes withholding taxes, VAT and capital gains taxes.
What are the pre-requisites for the setup of Bahrain company?To complete Bahrain LLC setup, our Clients need to i) find local office premises ii) open a corporate bank account iii) notarize the company documents iv) register the company with the Labor Department v) obtain business license approval and vi) apply for work visas. Healy Consultants knows how to form a Bahrain LLC and can assist with all aspects of of the setup of a Bahrain business. For more information, please refer to our section on steps to incorporation in Bahrain.