Egypt

The most common forms of business vehicles used by for-profit organizations under the Egyptian Companies Law and the Investment Law are joint stock companies and limited liability companies. The following are the conditions of establishment for each:

Joint Stock Companies (JSC)

• A JSC may be a closed or a listed company, where the shareholders’ liability is limited to the value of their shares in the company. It may offer its shares for public subscription, subject to obtaining the necessary corporate and regulatory approvals. The name of the JSC must its activity or object and can include the name of one or more of its shareholders.
• The number of shareholders in a JSC must be a minimum of three; there is no maximum number. No minimum Egyptian shareholding is required, except in certain specific activities, such as importation for the purpose of trading which requires 51% Egyptian shareholding, and commercial agency which requires 100% Egyptian shareholding.
• A JSC can carry out all commercial activities subject that the activities do not conflict with Egyptian public policy.
• The minimum issued capital of a JSC is EGP 250,000. However, if a JSC offers its shares to the public, the minimum issued capital required is doubled, i.e. EGP 500,000.  It is even higher for certain types of activities, such as insurance and financial services.
• A JSC is managed by a board of directors composed of at least three members elected at the general shareholders' meeting. The board elects the chairman and the managing director. There are no restrictions on foreign directors.
• The shares of a JSC, whether it is a private or public company, are traded on the Egyptian Stock Exchange, however, in-kind shares and founders’ shares in a JSC may only be traded and/or transferred after the lapse of two fiscal years from the incorporation date.
• A JSC must distribute to its employees at least 10% of the cash dividends distributed to the shareholders, subject to a maximum of the total annual salaries of the employees.

Limited Liability Companies (LLC)

• An LLC is a closed company where the liability of each of its partners is limited to the value of his shares in the company. The shares of an LLC cannot be traded on the Stock Exchange. Consequently, an LLC cannot issue bonds or other financial debentures that are offered to the public. The name of an LLC is usually derived from its object and may also include the name of one or more of its partners.
• There must be a minimum of two shareholders in an LLC and a maximum of fifty. Foreign shareholders can form the entirety of a company's shareholders, except in certain specific activities, such as importation which requires 51% Egyptian shareholding and commercial agency which requires 100% Egyptian shareholding. No minimum capital is required in an LLC. However, the capital of the LLC must be sufficient to realize the company’s objective.
• An LLC is precluded from activities in insurance, banking, savings, receiving deposits or investing funds on behalf of others. It can also carry out commercial, industrial or service activities similar to other business entities, subject only to the general limitations of public policy.
• An LLC is managed by one or more managers. All managers may be foreigners, as new amendments introduced to the law abolished the restriction requiring at least one Egyptian manager.
• The partners of an LLC may transfer their shares at any time after the incorporation of the company.
• As long as the capital of an LLC is less than EGP 250,000, there is no obligation to distribute profits to employees as profit sharing.

a. The most common form of company in this instance is a JSC.

b. LLCs and JSCs.  The Egyptian Investment Law allows companies incorporated under its umbrella to enjoy a set of incentives. Such incentives are granted to companies that invest in certain activities, some of which qualify as Social Enterprises, such as:

• Sustainable Energy, such as solar energy and wind farms.
• Education of any kind or level.
• Health, including establishment of hospitals and clinics which provide free services to at least 10% of their patients.
• Housing, including social and low-income housing projects.

No, there is no such requirement with regard to any of the for-profit organizational forms, except for employee profit-sharing.  This is a requirement for any JSC and any LLC whose capital is at least EGP 250,000 whenever it distributes dividends to its shareholders.  As for other considerations, they are permitted as long as they are approved by management (the Board in a JSC or the managers in an LLC).

Currently, there are no organizational forms specifically designed for Social Enterprises. However, it can be argued that NGOs, which are described below, are designed primarily for Social Enterprises. 

Certain Social Enterprises are permitted to be formed and operated as Nonprofits in the form of Associations and/or Civil Institutions under the Egyptian NGO Law, provided they are established in accordance with the provisions therein and have obtained a license to operate as an NGO by the Ministry of Social Solidarity. Social Enterprises that organize as Nonprofits enjoy the same tax and registration benefits as other Nonprofits and have the same burdens and restrictions, and there is no lesser reporting or faster formation process for Social Enterprise Nonprofits as compared to other Nonprofits.

Not every type of business venture may be eligible to form as a Nonprofit, as they are subject to the licensing requirements under the NGO law and, primarily, must be formed for the purpose of undertaking ‘societal development’ activities. 

Nonprofits that earn profits or exercise activities outside their licensed activities are subject to the penalties outlined in the NGO Law, ranging between EGP 100,000 to EGP 1 million.

Where their business falls in the category of activity permitted for Nonprofits, it is more common for Social Enterprises to form as Nonprofits than for-profit companies. However, as licensing and establishment requirements for NGOs under Egyptian law are stringent, non-profit Social Enterprises are not prevalent in Egypt.

Yes, pursuant to the Cooperative Societies Law No. 317 of 1956, Cooperatives enjoy certain fee exemptions including (i) fee exemptions on contracts regarding their establishment; (ii) taxes currently imposed and to be imposed in the future; (iii)stamp duty taxes currently imposed and to be imposed in the future; and (iv) registration fees concerning the performance of contracts. Further, Cooperatives are granted access to and acquisition of governmental and state-owned land for the fulfillment of their objectives.

While there are no restrictions on the capital of a Cooperative, there are restrictions on the distribution of dividends, that being, each shareholder must not receive dividends in excess of 6% of the par value of their shares in the Cooperative.

If a Social Enterprise decides to form as a Nonprofit or use one of the traditional Enterprise forms, they would not be subject to any additional reporting requirements by virtue of them being a Social Enterprise.

Social Enterprises formed as non-profit organizations report primarily to the Ministry of Social Solidarity, while for-profit Social Enterprises generally report to the General Authority for Investment and Free Zones if they have been incorporated under the Egyptian Companies Law or the Egyptian Investment Law.

There is not much relevant case law or jurisprudence addressing Social Enterprises, whether Nonprofits or for-profit companies.

No, except for those working in certain fields and enjoying incentives under the Investment Law, as set forth in our response to 2b above.

Social Enterprises are not subject to specific ESG requirements under Egyptian Law. Non-profit Social Enterprises must abide by the Governance rules contained in the NGO Law, but these do not apply exclusively to Social Enterprises.

No.

a. No major investor classes are required to look at ESG issues. However, investors may be permitted to consider such factors. That said, the Egyptian Stock Exchange (the “EGX”) has been active in encouraging listed companies to take ESG issues into account and has published an ESG guide to be used by them.  However, there are no legal obligations associated with ESG.

b. Further, there are a number of private funds and large institutional investors that do consider ESG issues when making their investment decisions.

c. Generally, investors tend to consider factors (other than profit) such as political and social stability, exchange control restrictions, available workforce, and infrastructure and investment incentives offered by the State.

It should first be noted that under Egyptian law, only Non-profit Organizations may undertake non-profit activities, whereas companies established in accordance with and under the governance of the Companies Law may only undertake for-profit activities. That said, there is no prohibition on companies undertaking for-profit impact activities.

In light of the above, NGOs typically receive grants and charitable investments, where traditional investment is generally not an option, seeing as NGOs may only undertake non-profit activities. On the other hand, for- profit companies undertaking impact activities typically receive traditional investments.

For-profit impact investments have been increasing in Egypt and investors are becoming more familiar with them. Many prominent investors are forming venture capital funds that offer funding to for-profit companies that undertake impact activities.

There is no special government funding specifically available to Social Enterprises as such.

a. That said, government funding to Social Enterprises is generally scarce and there is limited government funding provided to them, seeing as the government typically provides funding in the form of loans to for-profit companies.  Said funding is mainly targeted at small and medium enterprises.

b. Further, as far as we are aware, there is no funding limited to Social Enterprises.

Not that we are aware of.

As noted above, companies are not required to disclose ESG factors, though some choose to do so.

Impact bonds are generally not prevalent in Egypt. However, the State has issued green bonds for the first time in September 2020.

With regards to non-profit Social Enterprises, the rules contained in the NGO Law apply to all NGOs and there are no differential restrictions applicable to Social Enterprises. Pursuant to the NGO Law, obtaining any foreign funds requires notifying the Ministry of Social Solidarity within thirty days of receiving the funds in the Social Enterprise’s bank account. Foreign funds can only be released upon obtaining the Ministry’s non-objection prior to releasing the funds, within sixty working days from the day of receiving the funds.

Conversely, for-profit Social Enterprises are not subject to the above restriction. However, for-profit Social Enterprises would not receive donations. Foreign capital injections are acceptable and may be against share buybacks, capital increases or investments in bonds. In all cases, such investments are not restricted; however, the investor (if they will become a shareholder of the Social Enterprise) must obtain security clearance from the competent authorities before the investment is advanced. Otherwise, the transaction and investment shall be undone.

Crowdfunding is not regulated under Egyptian law. However, it should be noted that NGOs may not raise funds from the public prior to obtaining the approval of the Ministry of Social Solidarity (“MoSS”).

Tax exemptions are available depending on the form of the Social Enterprise. With regards to NGOs, they are generally exempt from taxes and stamp duties, whether such taxes are currently imposed or will be imposed in the future, on all kinds of contracts, authorizations, written and printed forms, official records and other similar documents.  Notwithstanding the aforementioned, while NGOs are not subject to income tax filings, NGOs must withhold and remit income taxes on behalf of their employees residing in Egypt.

Further, as noted above, companies may only undertake for-profit activities.  However, such activities may be impact activities. In this regard, for-profit companies which undertake impact activities do not benefit from any tax exemptions.  However, some projects can benefit from additional tax deductions for up to seven years based on the Investment Law if their projects are in certain locations and/or in certain priority investment sectors.

No.  However, any donations made to NGOs by individuals and non-corporate donors would be deductible from the donor’s net profits, so far as they do not represent more than 10% of the donor’s revenues. With regards to corporate donors, the Egyptian Companies Law sets a 7% limit on donations. Corporations are not permitted to donate in one fiscal year more than 7% of their average net profits during the preceding five years, unless said donation is for the benefit of its employees to be used for social purposes, or is for the benefit of a governmental or public agency.

Other than what is outlined above, there are no other tax benefits uniquely available for Social Enterprises.

We are not aware of any such reciprocal recognition of tax-exempt status.

No. Egypt does not have Regulatory Sandboxes for Social Enterprises (i.e. NGOs as defined above). That said, Egypt has a Regulatory Sandbox in the Fintech field.

The government does not provide any unique support to Social Enterprises. However, the government has recently been active in launching initiatives through which it provides loans to small businesses through the Micro, Small and Medium Enterprise Development Agency. That said, the loans provided by the government under said initiatives are mainly targeted at for-profit companies and not Social Enterprises as such.

Yes. As noted above, non-profit activities are exclusively undertaken by NGOs which are established in accordance with the NGO Law. Further, NGOs are subject to different compliance requirements from traditional Enterprises (i.e. for-profit companies established in accordance with the Companies Law). For example, (i) NGOs must notify the MoSS prior to opening a back account; (ii) NGOs are required to notify the MoSS of any funding they receive; and (iii) NGOs must regularly disclose their financials to the MoSS.

The MoSS is the competent authority that oversees the activities of NGOs. On the other hand, the General Authority for Investment and Free Zones and/or the Financial Regulatory Authority are the competent authorities overseeing the activities of for-profit companies in Egypt.

No.

For corporations, it takes around two weeks from the time all documents are submitted to the authorities.  The filing fees involved are in the range of USD 1000 to USD 1500 in total.

For NGOs, the NGO Law does not indicate the timeframe and filing fees to form an Enterprise. That being said, the NGO Law requires the application for the establishment of an NGO to be submitted to the competent administrative authority, and said authority shall have 60 days to inform the applicant should any of its intended activities be non-compliant with the provisions of any law or the Egyptian Constitution. 

It is expected that the Executive Regulations of the NGO Law may contain details concerning the timing and filing fees for the establishment of an NGO.

With regards to NGOs, they have to be approved by the MOSS, as explained above.  There are no other certifications required by law in order for NGOs to be eligible for any benefits (e.g. tax exemptions) provided for under the NGO Law.

With regards to Social Enterprises formed as for-profit companies undertaking impact activities, this form of Social Enterprise is generally not granted access to any benefits unless they operate in specific fields mentioned in the Investment Law.  If that is the case, the company can be incorporated under the Investment Law (subject to the approval of the General Authority for Investment and Free Zones) and can thereby enjoy certain benefits such as reduced Government fees and customs duties.  Some sectors and projects in certain locations can benefit from additional “special incentives” in the form of additional tax deductions for up to seven years.

The startup environment has vastly improved in Egypt. The government has been launching initiatives to support micro, small and medium enterprises by providing them with the necessary funding to undertake their activities. Other private venture capital funds which provide funding to startups have also become more prevalent.

 In addition, the government has been active in digitizing incorporation services so as to simplify the procedures required to form new companies.

The activities and formation of NGOs in Egypt are closely monitored and heavily regulated in Egypt. Therefore, the establishment process is not forthcoming and usually burdensome.

On the other hand, companies undertaking for-profit impact activities are easier to incorporate and less regulated.  It is, therefore, easier for them to form and flourish in Egypt.

Generally, there are no laws in Egypt that are obstructive to the formation of Social Enterprises. However, in practice, with regards to NGOs, the process of their establishment is long and difficult.  Many applications are rejected or remain unapproved for long periods of time, without any explanation as to the reason for the rejection or the delay.

Not that we are aware of.

The NGO Law has recently been amended due to complaints about the difficulty in establishing and running NGOs in Egypt.  It remains to be seen whether such changes will have a substantial impact, as many believe the changes don’t go far enough. Most beneficial would be further changes to the NGO Law and less resistance to the acceptance of applications for the formation of NGOs in practice. 

Most beneficial would be incorporating into the relevant laws some ESG requirements to be adopted as part of general corporate governance practices.

No.