Appointment, Retirement, Resignation, and Removal of a Director in Bahraini Companies

Appointment, Retirement, Resignation, and Removal of a Director in Bahraini Companies

This article delves into the processes surrounding appointing, retiring, resigning, and removing directors within companies operating under Bahraini law. As financial institutions are governed by the Central Bank of Bahrain (“CBB”) and the provisions of the rulebook, this article will not cover them.

The pertinent legislation governing directorship in Bahrain includes Legislative Decree No. 21 of 2001, which enacts the Commercial Companies Law (“CCL”), as amended, and Ministerial Decree No. 19 of 2022 concerning the amended Corporate Governance Code (the “Code“). The Code applies to all joint-stock companies registered under the CCL, while limited liability companies are exempt from its provisions.

Definition of a Director

A director is an individual elected to oversee a company’s daily operations along with other directors. They have authority over the management, administration, and supervision of the company’s affairs.

Director Qualifications and Requirements

In accordance with Article 173 of the CCL, a director must fulfill the following conditions:

•  Full legal capacity to act.
• Have not been convicted of a crime involving negligent or fraudulent bankruptcy, a crime affecting honor or a breach of trust, or a crime on account of his violation of the provisions of the CCL unless he has been reinstated.
• Have not been prohibited from assuming the directorship of a joint stock company pursuant to the CCL or any other law in force in Bahrain.
• With respect to the chairman and the deputy chairman, a director must not simultaneously assume such positions and the position of the most senior executive in the company.
• Any other conditions specified in a regulation applicable to the executive, non-executive, and independent directors of companies that are not licensees of the CBB as specified in a regulation issued by the competent Minister of Industry and Commerce.
• Any other conditions specified in the company’s Memorandum of Association (“MoA”).

Types of companies

This article will explore two types of companies in Bahrain: A Limited Liability Company (“WLL”) and a Bahrain Shareholding Company (“BSC”), also known as a joint stock company. A brief introduction: A WLL can be established with one or more legal or natural persons (companies or individuals). It limits liability to the company’s assets, with each partner liable only to the extent of their share in the capital unless specific circumstances apply.

Like WLLs, BSC shareholders are liable for the company’s debts only to the extent of the value of their shares. A BSC allows negotiable shares, enabling multiple legal or natural persons to subscribe. There are two categories of BSCs: public and closed. Public BSCs are listed on the Bahrain Bourse, the capital market of Bahrain, and their shares are openly traded. Closed BSCs (“B.S.C (c))” may be listed on Bahrain Bourse; however, they are not open for public subscription.

	W.L.L.	B.S.C (c)	B.S.C
	Managers / Board of Managers	Board of Directors	Board of Directors
Composition	The company can be managed by one or more managers, initially appointed by the promoters and subsequently by a general assembly resolution. The MoA may provide for the constitution of a board for the managers, and it shall specify how the said board shall operate and the majority by which its resolutions are to be passed.	Managed by a board of directors consisting of a minimum of 3 and a maximum of 15 directors. Maximum term of 3 years, renewable by the general assembly. Must include independent and non-executive directors.	Managed by a board of a minimum of 5 directors and a maximum of 15 directors as determined by its MoA and Articles of Association (“AoA”). Maximum term of 3 years, renewable by the general assembly. An audit committee shall be established through a resolution of the board of directors for closed joint stock companies listed on a securities exchange and other closed joint stock companies falling under categories designated by a resolution issued by the competent Minister of Industry and Commerce. As per the Code, public joint-stock companies must now have women’s representation.
Appointment	Appointed by the general assembly unless the MoA states otherwise.	These directors should possess relevant experience to contribute their expertise to the board. Appointment by a shareholder owning 10% or more or elected by the ordinary general assembly (subject to written acceptance of the nominated/appointed member). The chairperson and vice chairperson of the board are elected by secret ballot for a year (unless the AoA provide otherwise, i.e., period). Shareholders who are not eligible to appoint or do not choose to appoint a director may use their percentage to elect directors by cumulative voting.	The company’s management shall be undertaken by a board of directors, the formation and terms of which shall be specified by the company’s MoA.
Removal/ Termination/ Resignation	Appointment terminated by shareholder approval passed by those holding the majority of the company’s share capital unless the MoA requires a higher percentage. Resignation at a suitable time, or the director will be liable to pay compensation.	Membership termination following MoA. Ordinary general assembly may terminate membership members if shareholders representing 10% of the capital submit a request. The board must present the request to the assembly within a month, or the Ministry of Industry and Commerce will intervene. The assembly cannot discuss the removal unless it’s on the agenda, except for significant developments during the meeting. Resignation at a suitable time, or the director will be liable to pay compensation.	Membership termination following MoA. Ordinary general assembly may terminate membership members if shareholders representing 10% of the capital submit a request. The board must present the request to the assembly within a month, or the Ministry of Industry and Commerce will intervene. The assembly cannot discuss the removal unless it’s on the agenda, except for significant developments during the meeting. Resignation at a suitable time, or the director will be liable to pay compensation.
Retirement	There are no explicitly outlined mandatory retirement ages or rules for directors.

In conclusion, directors play a crucial role in managing the company’s affairs, and it is essential to ensure that they meet the requirements outlined by the law.