September 27 2004
The probation period of the new Angolan Company Law has come to an end. As the law has now been in force for a few months, it is possible to draw some conclusions as to the effectiveness of this new important investment vehicle and its capacity to respond to investors' needs.
The incorporation of limited liability joint venture companies is a commonly used vehicle for foreign investors to organize their business in Angola. In most cases foreign investors are associated with local partners, who have in-depth knowledge of the Angolan market. This type of business relationship involves a substantial amount of investment from the foreign entrepreneur, who will naturally be concerned to protect his investment.
Angola is undergoing major economic development, and with the enactment of the new Company Law, foreign investors have gained a number of benefits relating to the flexibility of structuring joint venture companies. The new law appears to have provided a suitable response to several issues which are usually raised during the process of setting up a company.
Prior to the enactment of the new Company Law, foreign investors were confronted with conflicting statutory provisions on the minimum share capital required to incorporate a company. They can now rely on very clear provisions which state the minimum amount required to incorporate a company, which varies depending on the type of company involved.
A careful investigation often precedes the choice of a local partner. For this reason, the transfer of shares of the chosen local partner and the restrictions thereto are considered highly significant. Under the new Company Law, the transfer of shares can be addressed in the bylaws and can be subject to the consent of the company and its shareholders, and/or the company's right of first refusal. However, the exercise of a right of first refusal is subject to specific limitations, breach of which will result in an ineffective share transfer, leaving the transferee unable to exercise its corporate rights. These mechanisms provide investors with a considerable degree of control over their partners.
A foreign investor's decision to set up a joint venture company with a local partner is normally based on certain features that the local partner exhibits. Where these features cease to exist, the foreign investor may decide either to leave the joint venture company or to force the local partner to withdraw from the company. This matter is typically addressed in the bylaws. The new Company Law deals with the issue under the regimes of exclusion and release of shareholders, as well as compulsory cancellation of a share. Under this new regime, the shareholder may be excluded or has the right to release himself from the company if certain statutory circumstances occur. The shareholders may also list in the bylaws a number of events which entitle the company to exclude a shareholder or which allow a shareholder to withdraw from the company. These circumstances are commonly instances where a shareholder adopts behaviour which seriously affects the company's existence or operation.
The management of a company is a priority issue and must be carefully regulated in the bylaws. In most cases the management structure adopted is a collective body whose members - the directors - are appointed by the shareholders. It is usually known as the board of directors or management committee. Often, a general manager is also given powers to handle day-to-day affairs. This organizational model of management is set out in the new Company Law as the model for joint stock companies. However, the most common joint venture companies in Angola are not joint stock companies, but rather companies whose liability is limited by quotas. This type of company is typically managed by individual directors without the need to create a board of directors. However, it is arguable that it is also possible to organize the management through a board of directors should the shareholders prefer this.
The distribution of dividends is a crucial issue. In most cases the foreign investor will provide the joint venture company with know-how, technology and skilled technicians. For this reason, the foreign investor will naturally target the lion's share of the profits resulting from the company's activity. In cases where local regulations require that the majority of the company's share capital be held by a local partner, the parties can agree on a different basis for the allocation of dividends than that which would result from the share capital distribution. In most cases this provision is included in the shareholders agreement. However, under Angolan law, such agreements do not bind the company and are not enforceable against it. Therefore, the shareholders may alternatively regulate the different distribution of dividends in the bylaws, thus making it enforceable against the company.
The relevance of other issues from a practical standpoint has been highlighted during the first few months in which the new Company Law has been in force. Many others are expected to follow. Nonetheless, first impressions suggest that foreign investors willing to set up a business in Angola will now find a legal environment that meets their expectations and needs.
For further information on this topic please contact Alberto Galhardo Simões at Miranda Correia, Amendoeira & Associados' Lisbon office by telephone (+351 21 781 4800) or by fax (+351 21 781 4802) or by email (Alberto.GalhardoSimoes@mirandalawfirm.com).
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Alberto Galhardo Simões