New Commercial Code Spells Major Change for Businesses - International Law Office

Mozambique's most eagerly awaited legislative reform of modern times is finally underway with the enactment and entry into force of the new Commercial Code. After many years of indecision and setbacks, the government has finally approved a statute which replaces most of the Commercial Code 1888, the Limited Liability Companies by Quotas Law 1901 and other pre and post-independence company and commercial legislation.

The new code was approved by the Council of Ministers in Decree Law 2/2005 on December 27 2005 and came into force on June 26 2006. It is seen as a fundamental tool for attracting private investment and providing the private sector with modern legislative instruments consistent with trends in international trade. One of the government's aims was to consolidate in a single statute the many commercial and corporate instruments available to and relied on by local businesses and foreign investors seeking to operate in the country.

The new code is diverse in scope. Its major sections cover:

• commercial activities;

• companies;

• general commercial contracts and standard contract clauses;

• special commercial contracts, including:
  
  
  • sale and purchase agreements;

  • supply agreements;

  • service contracts;

  • agency agreements;

  • transportation agreements; and

  • unincorporated joint ventures (ie, associations and consortia);
  
  
• credit instruments;

• bills of exchange and promissory notes; and

• cheques.

The section on companies is critically important for anyone doing or seeking to do business in Mozambique. It represents a major development in comparison with the regulatory framework which previously governed Mozambican companies. In addition to merging all existing corporate legislation into a single statute, the new code introduces a number of concepts which until now were either unknown in Mozambican law or the subject of enthusiastic debate. The more significant developments relate to:

• clear and detailed bookkeeping requirements;

• the requirement to establish local commercial representation for foreign companies seeking to carry out commercial activities in the country for over a year;

• the recognition of the concept of 'piercing the corporate veil' in specified cases;

• limitations on the provision of security for third-party debts;

• incorporation and other corporate operations by private deed - notarial deeds are no longer mandatory for a number of transactions;

• the reduction of the number of shareholders needed to incorporate and maintain in good standing a joint stock corporation from 10 to three;

• the admissibility of shareholder agreements;

• the obligation to establish an audit committee or appoint a sole auditor for certain companies;

• detailed rules on directors' liability;

• mandatory minutes books for corporate bodies and a new mandatory book to record encumbrances, charges and guarantees, to be available to all interested parties at the company's offices;

• provisions on the framework applicable to shareholder loans;

• the introduction of single shareholder limited liability companies by quotas; and

• public offerings.

Existing companies will have to make great efforts to become fully compliant with the new regulatory framework. Mozambican businesses will require a transition period of several years in which to assimilate not only the new obligations in the code, but also, more importantly, the potential advantages arising from it. Mozambique has taken a vital step forward from the 19th century in terms of its commercial and company legislation.

For further information on this topic please contact Diogo Xavier da Cunha at Miranda, Correia, Amendoeira & Associados' Lisbon office by telephone (+351 21 781 4800) or by fax (+351 21 781 4802) or by email (diogo.cunha@mirandalawfirm.com).