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Q: Characterestics of joint stock company?

A - Definition:

A joint stock company is defined by article 2 of the law no 159- 1981 modified by the law no 4/2018 as
follows:

"A joint stock company is a company whose capital is divided into shares of equal value: such shares
being negotiable in the manner provided for in the present law.

The liability of each shareholder is limited to the value of the shares subscribed by him. A shareholder is
not liable for the debts of the company beyond the value of the shares subscribed for by him.

The company shall have a commercial name derived from its object. The commercial name of the
company may include the name of one or more of its promoters.

B- Characteristics of the joint stock company:

The above definition indicates very clearly the main characteristics of this company. These are :

(a) Its capital is divided into equal and negotiable shares.

Shareholder is free to negotiate his shares,except if restricted by law, r statute in sometimes.

Shares are equal in nominal value, not less than 10 LE and not more than 1000LE

(b) The limited liability of the shareholder

is another characteristic of the joint stock company. It cannot suffer any exception, or limitation. A
shareholder is only liable for the amount unpaid of the value of his shares.

(c) With regard to the name of the company,

it was established during the long history of Egyptian company law, that such name should be derived
from its object and cannot in any way include the name of one of its shareholders.

The reasons were simple and logical. The joint stock company is a capital company. In its essence, it is an
association of capital and not of persons. Its credit depends on its capacity to accumulate capital, and
not on the personality of its members.

In spite of all this art 2 of the law no 159/1981 (the company law) was modified by the law no 4/2018 to
allow the founders of a joint stock to add the name of one or more of them to the commercial name of
the company, without any legal or rational justification.

(d) Number of partners and capital

At least three members – no maximum

Capital:

At least 250k.

Licensed capital:

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10 times the issued capital

Issued capital:

10% at incorporation , gets to 25% within three months, to get to 100 within 5 years

Paid capital:

The actual paid amount.

C- The Economic Functions of the Joint Stock Company.

This capacity for capital concentration is due to the specific legal characteristics of the share itself. These
characteristics are: small nominal value; negotiability; limited liability; and last but not least, the fact
that the share represent a contribution by the shareholder to the capital of the company.

First of all the share is characterized by the smallness of its nominal value.

This enables the company's promoters to collect the savings of small investors which consequently
resulted in the dispersion of capital of large companies into the hands of bigger and bigger number of
small shareholders. The small shareholder is never really interested in exercising his rights as a
shareholder within the company. He rarely attends the shareholders meetings. The final result of all this
is a gradual shift of power within the company from the majority composed of small and dispersed
shareholders, to a minority of shareholders which control the management of the company.

The second legal characteristic of the share, namely the limited liability,

is another factor which attracts the small investors to the joint stock company and reinforces the
concentration of power.

This means that if the limited liability enhances the capacity of the company for capital concentration, it
also accentuates the shift of power within the company. The small investor who knows that his liability
is limited to the value of his shares, is not usually inclined to participate actively in the internal life of the
company, leaving the whole matter into the hands of the few who control and manage the company.

The concentration of power within the company, in turn, enhance the concentration of capital. In fact,
with the increase of power of the minority which control the management of the company, comes a
shift in interest of these two groups.

The shareholders are interested more in income and capital appreciation of their investment rather
than in the company as an enterprise.

Those in control are more interested in the enterprise and its growth for a diversity of subjective and
objective reasons ranging from professional pride and naked self interest in the pursuit of power , to the
development of technology and the increase of the market share of the company, without neglecting
the huge bonuses they grant to themselves. This led to what is known as the self- financing policy,
where the company uses its own profits to finance its expansion. The ordinary shareholder does not
object to this policy , although it means the reduction of his income from the distribution of profits,

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since this reduction is usually more than compensated by the capital appreciation of his shares in the
stock exchange market.

The third characteristic is equally important.

The share represent a capital contribution. The shareholder is a member of the company, and not a
creditor. Unlike the holder of a debenture who is a creditor of the company, the shareholder is not
entitled to a fixed annual interest on his capital contribution. He is only entitled to a share in a pro rata
distribution of annual profits, and only if the general assembly decides to distribute profits, which means
only if those in control so decide.

But we have already mentioned that those who manage and control the company usually prefer to use
the major parts of the profits to finance the expansion of the company. The shareholder cannot object
since his right to the distribution of dividends depends on the decision of the general assembly, which
means on the decision of those who control it.

The shareholder rarely complains about the non-distribution of profits. He knows very well that the
policy of self-financing usually results in the increase of the market value of his shares. The negotiability
of the share enables him to realize such capital gain on his shares in a very short time.

This explains why the shareholders are now more interested in what is happening in the capital market
and much less in the development of the internal affairs of their company , about which they tend to
know less and less.

In fact the negotiability of the shares takes the shareholder out of his company and throws him away in
the stock exchange market, leaving the fate of the company in the hands of those who control it; those
who have the real economic power.

Q: The Joint Stock Company Securities Issued by the joint stock company
Introduction:
Shares Definition:

The interest of a shareholder in the company and is measured by a sum of money, it represent a portion
in the capital, also all shares shall be equal in value

The Nature of the share

Share means:

1- Right of shareholder in the company

2- Documentation of that right

The right of the shareholder over the share.

The shareholder is the owner of the share, he can practice all rights of the owner,

Note: all shares shall be deposited in MCDR, however, this does not affect the ownership of the shares.

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Rights carried by the Share:

A- The pecuniary rights:

1- The right to dividends.

Dividents is the right of shareholder to gain profit, however, this right is conditional

a- Company shall generate profit

b- The general assembly decides to distribute profit
c- The distribution does not prevent the company from performing its monetary obligations.

2- The right of the shareholder in a winding up of the company to the restitution of the nominal value
of his shares and to a prorata share in any existing surplus.

In case of liquidation, after the creditors of the company takes their money, the rest of money shall be
distributed on shareholders in prorate distribution,

Also the in case the company is increasing its capital, the shareholder has priority to subscribe the
shares.

B- The non-pecuniary rights:

I- The right of the shareholder to remain in the company.

The shareholder cannot be excluded from the company by a decision of the board of directors or the
general assembly of shareholders.

Exception: when the shareholder pays only a part of the nominal value of the shares subscribed by him,
and refuses to pay the remaining amount at the time fixed by the BOD, then the company sell it on
behalf of him and to his account according to Law 93/2000.

II- The right of the shareholder to take part in the management of the company .

a) The right to attend the meetings of the general assembly.

'Every shareholder is entitled to attend the general assembly of shareholders, personally or by proxy''.
Consequently, the statute of the company may not impose any restriction to this right of the
shareholder, such as holding a minimal number of shares.

However, a shareholder may be prevented from attending the general meetings as a sanction for
breaching certain dispositions of the law. This is the case where a shareholder abstain from depositing
his shares at the central deposit company in accordance with the dispositions of the law n°93/2000
concerning the central deposit and registration of stocks. In such case the shareholder shall be deprived
of his right to attend the general meetings.

b) The right to vote in the general meeting.

the right to vote is considered as one of the most important , if not the most important of all the rights
carried by the share.

Can be prevented:

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1- Sanction: ex. the shareholder in default of payment of the remaining part of the nominal value
of his shares.
2- Conflict of interest:

For instance

- the promoter who made a contribution in kind is prevented from voting in the constitutive assembly
when it meets to evaluate his contribution.

- The members of the board of directors are not allowed to participate in the vote of the general
assembly regarding the determination of their salaries or bonuses.

c) The right to obtain information related to the activities and the management of the company .

- company law provides the shareholder with the right of access to certain documents held by the
company. The statute may regulate this right, but it cannot deprive the shareholder of such right.

III- The right to negotiate the shares:

Any shareholder can negotiate his shares, and it cannot be restricted except by provisions of law.

- The obligations carried by the share :

The shareholder has one major obligation: to pay the nominal value of the shares and any premium that
may be added in case of increase of capital. And cannot be exempted of this obligation ever.

- Characteristics of the share:

1) Shares must have equal nominal value:

Nominal value of shares shall be equal, shares cannot be of different nominal value,

Shares shall not be less than 10 LE and no more than 1000LE.

Note:

1- Nominal value is the value of share subscribed by law, market value is different it’s the value of
the share depending on its assets in stock market.
2- Nominal value is different than real value when compared to assets, when liquidation and
merger.

2) Shares are not divisible:

Share cannot be owned except by one person, the only case of coownership is the succession, in that
case, one of the heirs shall be chosen to exercise the power of the share.

3) Shares are transferable.

It can be trasnfered and negotiated without restrictions except restrictions by law,

Now the The deposited shares are now negotiated by simple transfer from the account of the seller to
the account of the buyer at the central deposit company.

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- Kinds of shares.

1) Nominal share and bearer shares:

the bearer shares do not exist any more in Egyptian commercial legal system.

All shares must take the nominal form.

(2) Cash shares and shares in kind:

A- Cash shares: These shares represent contributions in money. They are the ones which are issued
through public subscription. The subscriber must pay 10% of the nominal value of the subscribed shares,
to be increased to 25% within 3 months of the date of formation from the company.

The rest should be paid within a period not exceeding five years from the date of formation of the
company, at the dates fixed by the board of directors, and announced at least 15 days in advance.

In case the payments are not effectuated at the prescribed time, the board of directors may sell the
shares on behalf of the share holder without notice or any other legal proceeding.

The sale shall take place in accordance with the procedures established by the law no 93/2000
organizing the deposit and registration of shares at the deposit company.

b- The shares in kind

The shares in kind represent a contribution in kind which could be an immovable, or movable.

The contribution in kind should be redeemed before the formation of the company. The shares in kind
are issued at the same nominal value of the cash shares.

(3) Ordinary shares and preference shares.

Ordinary shares confer to their holders the fundamental rights of the shareholder.

The preference shares are those, which confer to their holders, over and above the fundamental rights,
additional privileges with regard to voting at the general assembly, the distribution of profits, or the
distribution of the net assets in case of liquidation of the company.

The rights, privileges, or the restrictions related to a class of shares can only be modified by a decision of
extraordinary general assembly and the approval of two thirds of the holders of such class of
preference shares.

In all cases, the issuance of preference shares or the increase of capital by preference shares require the
approval of the extraordinary general assembly by a majority of three quarters of the shares of the
company.

a- kinds of preference shares

1- priority shares:

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It gives the holder higher share of profits when distributed, if profit was not distributed because its not
enough, then when its distributed they take additional dividends,

Also grant a priority right with regard to the proceeds of liquidation in case of winding up of the
company.

2- Shares with multiple vote:

These shares grant to its holder the right to have more than one vote for each share in the general
assembly meetings.

Egyptian company law did not impose any limits to the number of votes allowed for each share, leaving
the matter in the hands of the promoters despite the extreme danger represented by this type of shares
to the interests of the ordinary shareholders.

(4) Capital shares and enjoyment shares.

The capital shares are the normal type of shares, which represent the capital of the company.

As for the enjoyment shares these are the shares, granted to the shareholder when his capital shares
are redeemed, and their nominal value is restituted back to him.

Normally shares cannot be redeemed and their value restituted back to the shareholder during the life
of the company. But companies may be forced to redeem their shares. This is the case when the object
of the company is the explotation of a public utility by a governmental concession for a fixed period of
time after the end of which the public utility should be restituted back to the government in good shape
as to enable the government to continue the explotation of the public utility. This means that by the end
of the concession, it will be impossible for the company to restitute the value of its shares to the
shareholder. There for the company will have no choice but to redeem its share gradually before the
end of the concession.

The shareholders whose shares are redeemed are givin new shares. These are the enjoyment shares.
These shares grant to their holders the right to a share in the annual distributed profits, within the limits
established by the statute.

The statute may also grant to the holders of these shares, the right to participate in the distribution of
the value of the remaining net assets, at the end of the liquidation process, after payment of the debts
of the company, and the restitution the value of the capital shares to the remaining shareholders.

According to art 35 of company law, the enjoyment shares can only be issued by the companies whose
statutes provide for the redemption of their shares before the end of their term, in case the object of
the company is the explotation of a natural resource or a public utility for a fixed period of time, and if
the object of the company is consumable by usage or by the passing of time.

Art 114 of the executive regulation of company law disposes that the redemption of shares can take
place if allowed by a disposition of the statute of the company. The value of the redeemed shares shall
be paid out of the profits, or the reserves which could be distributed.

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a- The distinction between the redemption of shares and buying by the company of its own shares:

A company may have different reasons for buying its own shares through the stock exchange market.

The company may buy its own shares in case of reduction of its capital. Needless to add that these
shares will have to be disposed of once the operation of reduction of capital is completed.

The company may also use such shares for distribution to its own employees as part of their share in the
profits of the company.The buying by the company of its own shares is strictly organized by art 48 of
company law replaced by the law no 4/2018 which states: "The company may not acquire in any way an
amount of its own shares exceeding 10% of the total issued shares.

In case the company acquires any amount of its shares within the above limit, it should notify the
authority within a period of three working days, and must dispose of these shares to third party within a
period not exceeding one year from the date of acquirement of the same, otherwise, it will have to
reduce its capital by the amount of the nominal value of these shares, in accordance with the
proceeding fixed by the executive regulation of company law.

If the company fails to reduce its capital in accordance with the above proceedings, the authority shall
take the necessary measures to reduce the capital of the company after the elapse of a period of thirty
days from the date of notification of the company.

Shall not be considered a third party, as referred to above, the affiliate and the connected companies of
the concerned company.

In all cases, these shares shall have no voting rights or rights in the distribution of dividends, and shall
not be used in the calculation of the quorum in the general assembly, until they are disposed of".

The last paragraph of art 149 of the executive regulations of company law defines the affiliate (or
subsidiary) company as follows: the company with more than 50% of its share capital or voting rights
owned by the concerned company.

The connected companies are those which are under the effective control of the company, or those
which have an agreement with the company with regard to voting in the general assembly of the
company, or in its board of directors meetings. Are also considered connected companies, those in
which the company owns a percentage of shares, or of voting rights, which grant to the company the
effective capability to influence their decisions.

- Transfer of shares.

The transfer of shares is free except if restricted by law.

(A) Legal restrictions on the transfer of shares:

Restrictions of the transfer of cash shares:

Art 46 of company law dispose that " the certificate of subscription and the shares shall not be
negotiated for more than their nominal value plus expenses, during the period preceding the
registration of the company in the register of commerce with regard the certificates of subscription , or

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during the period succeeding the registration until the publication of the financial statements for one
financial year with regard to the shares".

Any breach of the above disposition is sanctioned by the nullity of the act of transfer in accordance with
art 161 of the law.

a- the restrictions of the transfer of shares in kind:

According to art.45 of company law, the founder parts and the shares in kind cannot be negotiated
before the publication of the financial statements of the company for two years, each one of them not
less than twelve months starting from the date of the formation of the company.

However, the shares subscribed for by the promoters may be transferred from one of them to another
by means of civil assignment

B- Statuary restrictions on the transfer of shares.

The introduction of restrictive clauses of the negotiability of shares in the statutes of joint stock
companies is not a rare phenomenon.

The promoters at the time of formation of the company, or the shareholders during its life, may
introduce such clauses in order to attain different objectives.

The objective may be to prevent strangers from joining the company if it was built on the basis of
certain personal consideration,(instuitus personae), familial, national or political.

The objective may be to allow the minority in control of the company to protect such control or to
strengthen it.

There are quiet a few types of restrictive clauses, such as the clause which prohibit the transfer of shares
to foreigners, or the clause which prohibit the transfer of shares to anyone but the actual shareholders
of the company.

But the most common restrictive clauses are, on one hand the clause which requires the agreement of
the board of directors before the transfer of shares, (agreement clause) and on the other hand the
clause which grant to the company the power, in case of transfer of shares, to purchase the shares at a
fair price, or to find another shareholder ready to purchase the shares at the same fair price (The pre-
emption clause).

Usually the pre-emption clause is correlatively used with the agreement clause. In such case, if the
board of directors refuses to agree to the transfer of shares, the company must purchase the share or
find a purchaser among the shareholders.

The Board of Directors

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- The formation of the board of directors

Art 77 of company law reads: "The management of the joint stock company is assumed by a board of
directors composed of a number of members not less than three elected by the general assembly in
accordance with the method fixed by the statute for a period of three years. Exeptionally, the first
board of directors shall be appointed by the promoters for a period of five years."

- The participation of the employees of the company in its management:

Art 84 of company law dispose that "the employees of the joint stock companies formed in accordance
with the rules of this law shall have a share in the management of these companies. The executive
regulation shall fix the methods, rules and conditions of participation of the employees in the
management. The statute of the company must pick one of the methods of participation in the
management referred to by the executive regulation of company law.

These methods are as follows:

1- employees elect a representatives for them in BOD, but not to exceed one third of members.

2- The second method consists in the creation by a disposition of the statute of labor shares, issued
without nominal value. These shares are not negotiable and they are offered freely to the employees of
the company, who have been serving the company for more than one year. These employees shall form
an association which elects its representatives at the general assembly and the board of directors,
within the limits established by the statute of the company.

3- The third method consists in the formation of an administrative committee constituted by a

decision of the board of directors and composed of a number of representatives of the employees
chosen in accordance with the rules established by the board of directors. The committee appoints a
president from among its members. The president has the right to attend the meetings of the board
with voting rights.It is to be noted that the powers of the committee are very limited. They consist
mainly in making recommendations to the board with regard to issues related to the welfare of the
employees.

- A juristic person maybe a member of the board of directors of a company:

In such case a natural person represent the juristic person and can be replaced at anytime after notifying
the other members in a reasonable time.

The alternate members of the board of directors:

The statute of the company may provide for the appointment of alternate members of the board of
directors, to replace the members of the board in case of absence due to emergency.

The president of the board of directors:

The board of directors must appoint a president from among its members. The president calls the
meetings of the board and presides over them. He represents the company before the courts. The
statute of the company determines the other powers of the president.

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The chief executive officer:

the board of directors may appoint one of its members as chief executive officer to carry on the
effective management of the company.The chief executive officer should work full time on his job.

The general manager:

The general manager preside over the executive corps within the company. He acts under the
supervision of the chief executive officer. Although he is not a board member, he may be invited to

the meeting of the board for consultations, without voting rights. He may be dismissed at any time by
the board.

Conditions of membership of the board of directors and membership limitation:

1) A member of the board of directors must declare in writing his acceptance of the membership of the
board. The declaration must contain his age, nationality, the names of the companies for which he
worked during the three previous years, and the kind of work he was doing.

2) The board member must have full capacity.

3) The board member must have a clean criminal record and must have a good reputation.

On the other hand there are certain restrictions and limitation imposed on the members of the board,
these are:

a) A board member of a joint stock company cannot carry out on a permanent basis any technical
or administrative job in another joint stock company without the authorization of the general assembly
of the company of which he is a board member.

b) A board member cannot without a special authorization of the general assembly, carry out, on
his behalf or on behalf of a third party, any activity similar to the activities carried out by the company.

Meetings of the board:

1- Convened by the president or majority of members if the post of the president is vacant.
2- Third of the members request the president, if he fails within 10 days, they convene it after
informing the investment authority and it will be valid if attended by the majority.
3- In any case the meeting of the board shall not be valid unless attended by the majority of its
members.
4- The minutes of the meetings of the board should be recorded in a special book, signed by the
president and the secretary of the board.

Powers of the board:

According to art. 54/1 of company law, the board of directors has all the powers necessary for the
management of the company and for carrying out the activities necessary for the realization of its
object, with the exception of those excluded by the law, and those retained by the statute for the
general assembly.

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However, the general assembly may decide to deal directly with any act of management , if the board of
directors fails to act, because the quorum could not be achieved, or because a majority could not be
reached (art. 54/2).

- The protection of third party dealing with the company in good faith:

The board is considered an agent of the company.

the company is bound by the transactions entered into by board of directors with third party in good
faith, even if the board exceeds the powers conferred upon it by the statute.

Thus the restrictions of the powers of the organs of the company, arising under the statute or from a
decision of the competent organs, can never be relied on against third party in good faith, even if these
restrictions were duly publicized.

Moreover the company is bound by the transactions concluded by the directors, even if their
nomination was not made in accordance with the law, or the statute of the company, provided that
third party acts in good faith.

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