The One-Person Company & It’s Importance in Egypt

A single person company is a new form of company that was created pursuant to Law No. 4 of 2018 amending Companies Law No. 159 of 1981 regarding joint stock companies, limited partnerships by shares, and limited liability companies. Then the executive regulations for these latest amendments were issued pursuant to Resolution No. 16 of 2018, those amendments. Which is characterized by enabling the small investor to establish a company on his own without the need for multiple partners, and contrary to the general rule of multiple partners with at least two partners. It is also characterized by the fact that it reduces and limits the phenomenon of establishing fictitious, unreal companies due to the requirement of having multiple partners. It is also characterized by the ease of making decisions by its owner and founder, as he is a person. One person has all the powers granted to managers and the Board of Directors.

The one-person company is also characterized by the responsibility of its founder for the company within the limits of the company’s capital only, apart from the rest of his financial liability. Thus, it is similar to capital companies in which the responsibility is within the limits of the company’s capital and does not extend to the rest of its founders’ financial liabilities. Perhaps the only negative that exists in this company is Its credit is weak, considering that its owner is only liable within the limits of the company’s capital, apart from the rest of his financial liability, and in the event of its liquidation or declaration of bankruptcy, others will not be able to obtain his dues from it except within the limits of the company’s capital only.

After this introduction, we answer several questions through which we know The concept of a one-person company, the conditions and procedures for its establishment, what activities it is prohibited from undertaking, the limited liability of its founder and the exceptions contained therein, how to manage that company and the extent of its manager’s authority, the provisions for disposing of the company’s capital in whole and in part, and finally the dissolution of the company and the expiration of its legal personality.

First: The concept of a one-person company and its characteristics:

It is a company that every natural or legal person may establish, within the limits of the purposes for which it was established, with the full capital on his own. This company has limited liability, meaning that its founder is not liable for the company except within the limits of the company’s capital, apart from the rest of his financial liability, as the financial liability of the owner of the company is It is completely separate from the company, meaning that if the company loses and owes a debt to others, then the company’s responsibility towards others is for the assets and assets of the company, and its founder is not liable except within the limits of the company’s registered capital, and the rest of its founder’s funds are kept away from the claim, and it is not permissible to seize money and property.

The owner of the company in the event that the company’s assets do not repay the debts of those dealing with it. If the company goes bankrupt, this does not mean the bankruptcy of its owner except within the limits of the funds with which he founded the company. It is not required in that company that its owner be a merchant, and its owner has all the powers without the need for the approval of anyone from its management.

This company is an exception to the general principle that there must be multiple partners in the company, even if there are two partners. So the law introduced the one-person company to make it easier for young people, owners of medium and small startup projects, small investors, and the labor market in general, which enhances investment opportunities and helps integrate the informal economy into the formal economy, and it applies to One-person companies and provisions for limited liability companies in matters not specifically provided for.

Article 4 bis of the Joint Stock Companies Law No. 159 of 1981, added by Law No. 4 of 2018, defines the one-person company as follows: “A one-person company is a company whose capital is entirely owned by one person, whether natural or legal, in a manner that does not conflict with its purposes, and does not The founder of the company is responsible for its obligations except within the limits of the capital allocated to it.

The company shall take its own name derived from its purposes or from the name of its founder. Its name shall be followed by a statement indicating that it is a one-person company with limited liability, and it shall be placed on its head office and its branches – if any – and in all its correspondence.

Second: Conditions and procedures for establishing a one-person company:

The above-mentioned law specifies the conditions, method and procedures for establishing a one-person company as follows:
1- The company’s capital, when established, should not be less than one thousand Egyptian pounds, up from fifty thousand pounds, as of 8/22/2022.
2- The capital must be paid in full upon establishing the company according to a bank certificate.
3- The company must have as its representative a legal advisor and an auditor registered in the register of accountants.
4- An application to establish the company must be submitted by its founder or his representative to the Investment Authority.
5- The company’s incorporation system must include its name, purposes, details of its founder, duration, how to manage it, the address of its main center, its branches if any, the amount of its capital, the rules for its liquidation, and any other data required by the Investment Authority.
6- If the founder of the company is a public law person, the approval of the Prime Minister or the competent minister, as the case may be, must be obtained for its establishment.
7- The company’s capital shares may not be in the form of tradable shares, nor may this company issue any type of securities, or borrow by issuing tradable securities, nor may it undertake public subscription either upon its establishment. Or when increasing its capital, carrying out insurance, banking, or savings business, receiving deposits, or investing money on behalf of others.
8- The one-person company shall be declared public and acquire legal personality as of the date of its registration in the commercial register.
10- The contracts and transactions made by the founder in the name of the company under incorporation shall apply to the company after its incorporation as long as they are necessary to establish the company.
11- The provisions of limited liability companies apply to a single person company in matters not specifically provided for.
Article 129 bis of Law No. 159 of 1981 amended by Law No. 4 of 2018 stipulates that: “As an exception to the provisions of Article (505) of the Civil Code, every natural or legal person may, within the limits of the purposes for which it was established, establish on its own.” A one-person company in accordance with the provisions of this chapter, and this company shall be limited liability.

Without prejudice to the provisions of the laws that permit some entities to establish companies on their own, in order to establish a company if its founder is a public law person, it is required to obtain the approval of the Prime Minister or the competent minister, as the case may be. The one-person company shall be registered and acquire legal personality as of the date of its registration in the commercial registry. “Unless there is a special provision in this regard, the provisions of limited liability companies contained in this law shall apply to single-person companies.”

Article 129 bis (1) of Law No. 159 of 1981, amended by Law No. 4 of 2018, stipulates that: “A one-person company shall be established upon an application submitted by its founder or his representative to the Authority, and the one-person company shall have an articles of association that include its name, purposes, and information.” Its founder, duration, how it is managed, the address of its main center, its branches, if any, the amount of its capital, the rules for its liquidation, and any other data specified by the executive regulations of this law.

The executive regulations of this law specify the minimum capital for a one-person company, and the capital must be paid in full when the company is established.

The contracts and transactions made by the founder in the name of the company under incorporation shall apply to the company after its incorporation as long as they are necessary for the establishment of the company.”

Third: The activities that a single person company is prohibited from carrying out:

The law specifies the type of activities that single-person companies are prohibited from undertaking, which are:
1 – The founder of the company is prohibited from establishing another one-person company once the company is established.
2 – Public subscription is permitted, whether upon its establishment or when its capital is increased.
3 – It is also prohibited to divide the company’s capital in the form of tradable shares.
4 – In addition, it prohibits borrowing by issuing tradable securities.
5 – Finally, the company is prohibited from practicing insurance, banking, savings, receiving deposits, or investing money on behalf of others.

It is allowed to practice all other activities within limits commensurate with the capital allocated to it and in accordance with the nature of the activity, its legitimacy, and not violating the law, public order, or public morals.

Fourth: The limited liability of the founder of a one-person company, and exceptions to this:

The rule is that the founder of a one-person company is not responsible for his private funds regarding the company’s indebtedness to others, and the liability is within the limits of the company’s assets, assets, and capital only and not from his other private funds, as Article 4 bis of the same law has established the general principle and basis regarding the limits of responsibility of the founder of a one-person company.

The one-person company stipulates that: “The founder of the company is not responsible for its obligations except within the limits of the capital allocated to it,” meaning that he is not responsible for his own funds that are not part of the capital with which he founded the one-person company.

Despite this, there are exceptions to the limits of this responsibility established by the law, which makes the responsibility of the founder of the company unlimited. The founder of a one-person company is liable for all of his money if he liquidates the company in bad faith, or stops its activity before the expiry of its term or the purpose of its establishment is achieved, or if he does not separate His financial liability and the financial liability of the company in violation of the provisions of the law, or if he concluded contracts or carried out transactions in the name of the company under incorporation and these contracts or transactions were not necessary to establish the company.

It is also required for the founder of a one-person copany to contract that this contract does not result in harm to the company or confuse his financial liability with the company’s financial liability, and that the contract price does not exceed the prices prevailing in the market at the time of its conclusion or the fair value in the absence of a market price, and that the contract does not result in tax avoidance.

Fifth: How to manage a one-person company and the extent of the manager’s authority:

The founder of a one-person company is responsible for all its affairs in accordance with the law, and in particular he has the following authority:
1 – Amending the company’s articles of incorporation.
2 – Dissolution and liquidation of the company in accordance with the provisions of this law and its executive regulations.
3 – Merging the company into another company, or with it, or converting it into a company of another nature.
4 – Increase or decrease the company’s capital by not less than one thousand pounds as a minimum.
5 – Appointing one or more managers for the company, determining their powers and powers, and approving their signatures. The manager or whomever the founder of the company designates from among them, if there are more than one of them, represents the company before the judiciary and others, and the manager or managers are responsible for its management before its founding owner.
6 – Removing the company director or restricting his powers.

All of this shall not be implemented nor shall it apply to third parties except from the date of registration in the commercial registry.

The manager of a one-person company other than its founder is obligated to exercise diligence in exercising his powers. The manager may not assume the management of another company, regardless of its type, if it operates in the same activity practiced by the company or one of its branches. He is also not permitted to enter into a contract with the company he is in charge of.

Managing it for his own account or for the account of others, or carrying out on behalf of others an activity of the type of activity practiced by the company.

The responsibility stipulated by the law requires the manager to take care of a careful person, and the care of an ordinary person is not sufficient, due to the extreme diligence and professionalism required by managing the company, which may prompt the founder of the company to appoint a specialized manager for it.

The law allows the founder of a one-person company to contract in person and on his own account with this company, provided that this does not represent a confusion between his financial liability and the financial liability of the company and that the contract is at a fair price. Every concerned party and the Investment Authority have the right to verify the proper implementation of this and take the necessary measures in cases of violation.

Sixth: Provisions for disposing of the company’s ownership in whole or in part:

The law obliges the founder of a one-person company, due to its special nature, to take specific procedures regarding his disposal of the company’s ownership and capital, whether the disposal is partial or complete, as follows:

1- In the event that the entire capital is disposed of by its founder to another natural or legal person, the company’s founder must amend the company’s data in the name of the new owner of the company’s capital, and his commitment to all existing obligations of the company, and announce the amendment in the commercial registry, within a period not exceeding ninety years. days from the date of the disposal, with prior notification to the Investment Authority 15 days before the date of the disposal, provided that the disposal does not prejudice the company’s obligations towards creditors or towards third parties.

If the disposition is to a legal person of public law, the approval of the Prime Minister or the competent minister, as the case may be, is required. In all cases, the disposition shall not be effective against third parties except from the date of its registration in the commercial register.

2- In the event that part of the company’s capital is disposed of to one or more people, the company is obligated to take measures to reconcile the situation according to the legal form chosen by the partners within a period not exceeding ninety days from the date of the disposal, provided that prior notification is made to the Investment Authority 15 days before the date of the disposal, and the pledge By completing the reconciliation procedures within the specified period, otherwise the company will be deemed to be under liquidation. In all cases, the disposition shall not be effective against third parties except from the date of its registration in the commercial register.

Adjusting the company’s situation in the event of a decrease in the number of partners:

The law permits joint stock companies, limited partnerships by shares, and limited liability companies, in the event that the number of founders or partners is less than the legally prescribed minimum, to initiate, within a maximum of six months, to complete this minimum. If their conditions do not improve during that period, they may transform into A one-person company unless it practices one of the activities that one-person companies are prohibited from practicing.

This provision does not apply if the remaining partners are a one-person company.

Seventh: Dissolution of the one-person company and expiration of its legal personality:

The law specifies four reasons for the dissolution of a one-person company and thus the expiration of its legal personality:
1- Losing half of its capital unless its owner decides to continue it.
2- The company shall also terminate upon the expiration of the legal personality of the legal person who owns the company.
3- Interdiction of the company owner or loss of his legal capacity
4- The death of the company owner, unless the company devolves to one heir or the heirs choose to continue it in the same legal form and reconcile its conditions within six months from the date of death.

Hence, we see that establishing a one-person company is an ideal solution for many investors inside Egypt.

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