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Navigating Franchising Laws in Bahrain: Legal Considerations for Establishing
and Operating Franchise Businesses

Franchising has emerged as a dynamic avenue for business expansion in Bahrain, offering entrepreneurs an opportunity to leverage established brands and proven business models. However, navigating the legal landscape governing franchise operations in Bahrain requires a nuanced understanding of local regulations and compliance requirements. From franchise agreements to intellectual property protection, various legal considerations shape the establishment and operation of franchise businesses in the Kingdom.

In this article, an essential background brief of information for prospective franchisors and franchisees seeking to enter the Bahraini market is provided. By examining key laws and regulations governing franchising, the aim is to offer clarity and guidance for stakeholders looking to capitalize on the burgeoning franchising sector in Bahrain.

Legislative Decree No. 21 of 2001 promulgating the Commercial Companies Law, as amended, governs the establishment and operation of commercial entities in Bahrain, including franchising businesses. It outlines various corporate structures, registration requirements, and corporate governance principles that may apply to franchisors and franchisees.

Bahrain has specific laws and regulations governing the registration, use, and protection of trademarks. These laws aim to safeguard the intellectual property rights of franchisors, including their brand names, logos, and other proprietary assets. Protecting intellectual property rights is crucial for franchisors to safeguard their brand identity and proprietary business methods. Franchisees must adhere to strict guidelines regarding the use of trademarks, logos, and other intellectual property assets. Bahrain provides legal frameworks for the registration and enforcement of intellectual property rights, offering franchisors avenues for recourse in case of infringement.

In addition, there are consumer protection laws in place to safeguard the rights of consumers and regulate commercial transactions. These laws include provisions related to advertising standards, product quality, pricing transparency, and dispute resolution mechanisms.

The Ministry of Industry and Commerce is the primary regulatory authority responsible for overseeing commercial activities in Bahrain. It may issue regulations, guidelines, or licensing requirements that impact franchising businesses operating within the country. The Bahrain Chamber of Commerce and Industry is a prominent business association in Bahrain that provides support and advocacy for businesses, including those involved in franchising. It may offer resources, networking opportunities, and guidance on legal and regulatory matters affecting franchisors and franchisees.

One of the fundamental legal documents in franchising is the franchise agreement. This contract outlines the rights and obligations of both the franchisor and the franchisee, including the use of trademarks, operating standards, fees, and territorial rights. In Bahrain, franchise agreements must comply with local laws and regulations, ensuring fairness and protection for all parties involved.

Despite careful planning and adherence to legal requirements, disputes may arise between franchisors and franchisees. Having robust dispute resolution mechanisms in place, such as mediation or arbitration clauses in franchise agreements, can help mitigate conflicts and protect the interests of both parties. Bahrain offers reliable legal pathways for resolving franchise-related disputes through its judicial system. In the event of disputes between franchisors and franchisees, Bahrain’s judicial system provides channels for resolving legal conflicts. This may include civil courts, which adjudicate commercial disputes according to Bahraini law.

Alternatively, franchise agreements may include provisions for alternative dispute resolution mechanisms such as arbitration or mediation. Bahrain has arbitration and mediation centers that offer neutral and private forums for resolving disputes outside of traditional court proceedings.

 As the franchising sector continues to thrive in Bahrain, entrepreneurs must prioritize a comprehensive understanding of the legal landscape governing franchise operations. By proactively addressing legal considerations such as franchise agreements, intellectual property protection, regulatory compliance, and dispute resolution mechanisms, stakeholders can mitigate risks and maximize opportunities for success in the Bahraini market. With careful navigation of franchising laws and regulations, entrepreneurs can unlock the full potential of franchising as a strategic growth strategy in Bahrain’s dynamic business environment.

Environment Law: Obligations and Prohibitions

Law No. 7 of 2022 promulgating the Environment Law (the “Environment Law”) was issued with the aim of protecting the environment from all activities and practices that pollute or degrade the environment. Preventing pollution and combating environmental deterioration in all its forms (land, air, marine and sound) are principles embodied in the provisions of the Environment Law, through which Bahrain seeks to protect biodiversity and fulfil the United Nations Sustainable Development Goals.

Since environmental protection is a collective effort, the Environment Law is applicable to all public and private entities in addition to individuals in Bahrain, with the exception of the Bahrain Defense Force, the Ministry of Interior and the National Guard.

This article will briefly outline the obligations and prohibitions stipulated under the Environment Law that may significantly impact entities and individuals.

Environmental Impact Assessment

Generally, any activity that pollutes the environment, contributes to its deterioration or causes damage to natural resources or living organisms is prohibited in Bahrain. This is monitored by the Supreme Council for Environment (“SCE”), the competent authority empowered to protect the environment and achieve sustainable development in the Kingdom.

The SCE sets the standards, specifications, foundations and controls necessary to evaluate the environmental impact of projects to ensure that all projects do not negatively impact the environment in any form. An environmental impact assessment is conducted by the SCE prior to the implementation, modification, or expansion of any project by an entity.

The said entity must submit an Environmental Impact Assessment Data Form to the SCE prior to obtaining any licenses or initiating the project, thereafter the SCE will determine whether a detailed report is required to grant the license.

Monitoring Waste

Subsequent to the environmental impact assessment conducted by the SCE, all project owners must comply with certain obligations that enable the SCE to accurately monitor the performance of project owners and their waste management. In accordance with the controls and procedures set out by the SCE, project owners must:

• conduct periodic analysis of the project’s waste;
• monitor the discharge and pollutants resulting from the project; and
• record data and submit reports to the SCE.

Reporting Incidents

The Environment Law obliges all concerned entities and individuals to immediately report any kind of pollution incident. This reporting obligation extends to entities and individuals not responsible for the incident.

In the event that an incident of pollution to the marine environment occurs, such as an oil leak, the SCE must be immediately notified with an indication of the circumstance of the accident, the type of leaked material and the measures taken to stop or limit the leak.

General Prohibitions

The prohibitions stipulated under the Environment Law concern all possible forms of pollution, some of which are listed below:

1. All marine means are prohibited from dumping garbage or discharging sewage water, oil, hazardous waste or polluting materials into the marine environment of Bahrain. International treaties ratified by Bahrain and national implementing regulations that regulate the conservation of marine life must be taken into account by the concerned entities and individuals.
2. All entities such as commercial or industrial projects are prohibited from conducting any activity that may cause pollution or deterioration of the costal or marine environment.
3. All entities are prohibited from emitting or leaking air pollutants beyond the permissible limits stipulated under the laws and regulations. Entities must be equipped with the necessary networks and units to monitor and control the air pollutants expelled, and such networks must be electronically linked and monitored by the SCE.
4. All entities and individuals alike must take the necessary precautions when carrying out excavation, construction or demolition works. The import of vehicles, machinery or engines that emit pollutants exceeding the permissible limits is also prohibited.
5. Any activity that directly or indirectly harms soil, affects its natural properties or harms the quality or quantity of vegetation leading to desertification, distortion of the natural environment or change to agricultural areas is prohibited.
6. The import, burial, storage or disposal of hazardous materials and waste are prohibited without obtaining the necessary licenses from the SCE.
7. Exceeding the permissible sound intensity is prohibited, especially with regard to projects that require the operation of machinery, equipment and vehicles that emit loud noises.

The SCE will take the necessary measures to force any violator to rectify the acts committed in violation of the Environment Law, whereby all the repair costs will be borne by the violator.

Furthermore, the violator may face imprisonment or a fine that may range from five hundred Bahraini Dinars (BHD 500) to one million Bahraini Dinars (BHD 1,000,000), and in the case of recurrence of a crime, the penalties may be doubled to their maximum limit.

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.

Compliance and Accountability of Auditors

Auditors play a vital role in ensuring the transparency and integrity of companies. Shareholders entrust auditors to safeguard their interests and accurately report the company’s financial statements and internal controls.

This article will briefly outline the obligations and rights of auditors, shedding light on the general provisions of the Commercial Companies Law No. 21 of 2001, as amended (the “CCL”) and the common ground between Bahrain Shareholding Companies (“BSC”) and Partnerships Limited by Shares (“PLS”).

Auditors’ Obligations

The general objective of auditors is to perform an independent assessment of the company’s performance, through which the shareholders will significantly depend on their findings for decisions. Therefore, in addition to the External Auditor’s Law No. 15 of 2021, the CCL lists general reporting requirements and obligations.

Auditors of a BSC and PLS must attend general assembly meetings of the company and discuss the audit report with the shareholders. The audit report prepared must adhere to international auditing standards, and the CCL lists the main components as follows:

1. Whether the auditors obtained the information necessary to perform the audit.
2. Whether there are discrepancies between the balance sheet and the profit and loss account.
3. Whether the balance sheet and the profit and loss account were prepared in accordance with international accounting standards, or the standards approved by the authorities.
4. Whether the balance sheet and profit and loss account reflect the actual financial position of the company.
5. Whether the company maintained regular accounts.
6. Whether the company’s inventory was conducted in accordance with the recognized standards.
7. Whether the Board of Directors’ report is in conformity with the information contained in the company’s books.
8. Whether there are violations of the company’s Articles of Association or the provisions of law.

Furthermore, the auditors must provide the Ministry of Industry and Commerce (“MOIC”) with copies of the report and advise whether there are any violations or breaches of any nature.

Auditors’ Rights

The rights stipulated under the CCL empower auditors to fulfill their obligations with little to no hinderances from the company. Audit reports must be transparent regarding company violations; therefore, it is essential to authorize auditors and empower them to take action against the Board of Directors and the company’s employees if there is a lack of cooperation.

Considering the extensive obligations mentioned above, the CCL empowers auditors to access all the company’s books, registers and documents in order to fulfill their auditing duties. The auditors may ask for particular information or documentation necessary for the preparation of the audit report, whereby the CCL grants auditors the right to verify the company’s assets and liabilities.

If the company’s employees do not enable the auditors to exercise their rights under the law, the auditors may submit to the Board of Directors a report, through which the Board of Directors must facilitate the auditors’ tasks. If the Board of Directors is not cooperative, the auditors may invite the ordinary general assembly to decide on the matter.

Conflict of Interest

Auditors are appointed due to their independence and impartiality, which are crucial aspects to an accurate audit report. The CCL emphasizes the prohibition of appointing an auditor who is in conflict with the company and specifies the instances where a conflict of interest is present.

In accordance with the CCL, the appointed auditors must not be conflicted with the by holding the following positions:

1. Chairperson of the Board of Directors.
2. Member of the Board of Directors.
3. Managing Director.
4. Any administrative position.
5. Any supervisory position of the company’s accounts.

Moreover, the auditors may not be appointed if they have a relative (up to the second degree) that supervises the company’s accounts. During the auditing period, the auditors are prohibited from purchasing or selling shares of the company. This is to ensure that there is no insider trading considering that the auditor is privy to sensitive information during the audit period.

Auditors’ Liability

Due to the critical and sensitive nature of audit reports, the auditors are answerable for the accuracy of any information contained therein and may be liable to the company for damages sustained as a result of the inaccuracies of their reports. In the event there are multiple auditors who jointly participated in the inaccurate report, the auditors will be jointly liable to the company.

The statute of limitations regarding the liability of auditors is one year from the date of the general assembly meeting during which the auditor’s report was discussed. In the circumstance that the violation of the auditors was considered a criminal act, the claim against the auditors will not be heard before the judgment of the criminal case is issued.

Auditors’ liability may result in the right to compensation to shareholders and third parties as a result of non-compliance with accounting principles and standards, or professional wrongdoing.

In conclusion, to diligently examine company documents, financial statements and internal controls, an unbiased assessment is possible through the enforcement of the obligations, rights and liabilities of auditors as stipulated by law. The CCL governs auditors’ integrity, compliance and accountability to ensure that those characteristics are reflected in audit reports.

Basic Steps to Setting Up a Company in Bahrain

In Bahrain, establishing a company requires adherence to specific laws and regulations outlined by the Ministry of Industry and Commerce (MOIC) and, for banks and financial institutions, the Central Bank of Bahrain (CBB). This article outlines the fundamental steps involved in setting up a company in Bahrain, providing insights into the incorporation process, required documentation, and regulatory considerations.

This article will explain two types of commercial registrations: incorporating a company with or without a license application. These options and relevant details will be discussed, and the process can be initiated through the Sijilat portal.

Relevant Laws

• Law No. 21 of 2001, promulgating the Commercial Companies Law (CCL) and its amendments.
• Ministerial Order No. 6 of 2002, promulgating the Implementing Regulation of the Commercial Companies Law issued by Law No. 21 of 2001 and its amendments.
• Legislative Decree No. 7 of 1987, promulgating the Law of Commerce.
• Legislative Decree No. 27 of 2015 regarding the Commercial Registration Law and its amendments.
• Ministerial Order No. 126 of 2016, issuing the Implementing Regulation of Legislative Decree No. 27 of 2015 regarding Commercial Registration.

Considerations When Incorporating a Company

1. Company Type
   • What is the minimum capital required?
   • What is the proposed management structure?
   • What are the disclosure requirements?
2. Shareholders
   • How many shareholders are there, and what is their nature (corporate or individual?)
   • What are the nationalities of the shareholders?
3. Commercial Activities
   • What are the relevant commercial activities? Is only one activity required or more?
   • Are there any foreign ownership restrictions? Are there any restrictions on the company type?
   • What are the approvals, supporting documents, and special licenses required?
4. Licenses required (if any)
   • What documentation and information required for obtaining licenses?
   • What are the licensing conditions?
   • What are the applicable laws and regulations?

 Commercial Registration (CR) without License Application

Step 1: Submission of documents to the MOIC

Information:

1. 1. Proposed commercial name;
   2. capital amount
   3. total number of shares;
   4. distribution of shares amongst shareholders;
   5. new company’s director(s), email addresses, and mobile numbers (marital status, education, occupation if not a GCC national); and
   6. selected commercial activities.

•  Documents:

1. 1. Copies of passports/ identity cards of the new company’s directors;
   2. copies of passports/ identity cards of the new company’s authorised signatories; and
   3. if the shareholder(s) are:

Natural persons

1. 1. 1. A copy of each shareholder’s passport/ identity card, mobile, and email (marital status, education, occupation if not a GCC national); and
      2. A copy of the signed letter authorizing the professional body to submit the application (or notarized and ratified (where relevant if a submission is taken by a third party) Power of Attorney).

Juridical person

1. 1. 1. Copies of the ratified commercial registration and constitutional documents; and
      2. original resolution approving the setup of the new company duly ratified and notarized (if relevant).

Step 2: Security clearance approval by Nationality, Passports & Residence Affairs (NPRA)

Step 3: MOIC Approval

Step 4: Payment of application fees

Commercial Registration (CR) with License Application

Step 1: UBO & Commercial Address

• • Details of Ultimate Beneficial Owner(s) (UBO): name, mobile, email address, Tax Identification Number (TIN), Proof of TIN and UBO Declaration of each UBO;
  • copy of the signed lease agreement for the new company’s office in Bahrain;
  • copy of the address card;
  • pictures of the leased offices from the inside and outside of the address plate;
  • copy of any document showing that an Electricity and Water Authority (EWA)/ Municipality Account was opened by the new company;
  • termination letter of the previous tenant;
  • evidence that the lease agreement was registered at bh; and
  • resubmit CR WO/License Documents.

Step 2: Licensing Entity Approval

• • Submitting the documents required by licensing entities.

Step 3: Obtaining Municipality Affairs preliminary approval

Step 4: Obtaining licensing entities’ preliminary approval

Step 5: Final Municipality Affairs approval (where relevant)

Step 6: MOIC approval of Constitutional Documents

• • Submitting the draft constitutional documents of the new company.

Step 7: Notarization of Constitutional Documents

• • Know Your Customer (KYC) form;
  • original notarized authority document of any representative signatory; and
  • identity card/ passport of the signatory.

Step 8: Capital Certificate

• • Capital certificate from the bank evidencing the deposit of the new company’s share capital; and
  • notarized constitutional documents.

Step 9: Final site approval by licensing entities

Step 10: Final MOIC approval

Step 11: Payment of application fees 

Establishing a company in Bahrain involves a meticulous process governed by a set of laws and regulations. Each step requires careful attention to detail and compliance. By following the outlined steps and ensuring the submission of required documents, entrepreneurs can navigate the incorporation process smoothly, paving the way for a successful venture in Bahrain’s vibrant business landscape.

Contact us at Zu’bi and Partners to directly assist you in setting up your company in Bahrain. Our dedicated team is committed to guiding you through the entire process, ensuring compliance with all legal requirements.

Disputes With Employees Under Bahraini Labour Regulations  

Introduction: Under the Labour Law, it is crucial for employers to adhere to legal frameworks when addressing disputes with employees. This article aims to provide insights into handling various employment-related conflicts, with a specific focus on termination disputes. By understanding the legal obligations and resolution mechanisms, employers can navigate disputes effectively while upholding the rights of both parties.

1. Legal Framework for Termination Procedures: Termination of employment in Bahrain must adhere to specific procedures outlined in the Labour Law. Employers must ensure compliance with statutory requirements regarding notice periods, severance pay, and other entitlements. Failure to follow these procedures may result in legal repercussions for the employer.
2. Handling Termination Scenarios:

• Termination of Service Without Cause: Employers must provide a valid reason for terminating an employee’s service. However, if termination occurs without cause, the employee may be entitled to compensation as per the Labour Law. Employers should document the reasons for termination to defend against potential disputes.
• Termination Without a Legitimate Reason: Terminating an employee without a legitimate reason can lead to disputes and legal challenges. Employers should ensure that terminations are based on valid grounds such as poor performance, misconduct, or redundancy, as defined by the Labour Law. 
  
  Pursuant to Article 106 of the Labour Law, the employee may terminate the labour contract following the employer’s notification in any of the two following events:
  • The violation by the employer of an essential obligation specified by virtue of the law, the labour contract, or the work regulations at the establishment;
  • If the employer or his representative deceives the employee as to the working conditions or circumstances, when said, deception is so serious to the extent that otherwise the labour contract would not have been concluded.

Before sending the notice of termination of the labour contract, the employee must request, in writing, the employer to remedy the violation or deception within a time limit not exceeding thirty days from the date of submittal of the request. If said time limit elapses without any response by the employer to said request, the employee shall have, after sending the abovementioned notice, the right to terminate the labour contract.

Such termination of the labour contract shall be deemed lacking a legitimate reason by the employer if the employee’s allegations are evidenced.

• Termination by Unlawful Dismissal: Arbitrary dismissal, where an employee is terminated unfairly or without due process, is prohibited under the Labour Law. Employers must provide employees with a fair opportunity to contest the termination and present their case.

 In the context of the Labour Law, specific criteria have been outlined to determine cases of arbitrary dismissal. Article 104 of the Labour Law delineates six exclusive cases that qualify as arbitrary dismissal.

These cases are as follows:

• • The employee’s sex, color, religion, ideology, marital status, family responsibilities, or the female employee’s pregnancy, delivery of a child, or breastfeeding;
  • If the employee is affiliated with any employee trade union or participates legitimately in any of its activities in accordance with the laws and by-laws;
  • If the employee represents employees in a trade union association, has already enjoyed said capacity or seeks to do so;
  • If the employee submits a complaint or formal notice or instigates an action against the employer, unless the complaint, formal notice, or action is of a vexatious nature;
  • If the employee exercises his right to take a leave in accordance with the provisions of the Labour Law;
  • The garnishment of the employee’s entitlements with the employer.

The important question often posed is whether there is any difference regarding the compensation granted in the case of termination of service without cause or without a legitimate reason in the case of unlawful dismissal.

The answer has been clarified in Article No. 111 of the Labour Law as follows:

1. 1. If the employer terminates the indefinite-term employment contract within the first three months from the date of commencement of work, the employee is not entitled to any compensation unless the termination constitutes arbitrary dismissal pursuant to the provisions of Articles 104 and 105 of the Labour Law. In this case, the employee is entitled to compensation equivalent to one month’s salary.
   2. If the employer terminates the indefinite-term employment contract without cause or for unjustifiable reasons after the expiration of three months from the date of commencement of work, he shall compensate the employee with an amount equivalent to two days’ salary for each month of service, not less than one month’s salary and not exceeding twelve months’ salary.
   3. If the employer terminates the fixed-term employment contract without cause or for unjustifiable reasons, he shall compensate the employee with an amount equivalent to the salary for the remaining duration of the contract, unless the parties agree on a lesser compensation, provided that the agreed compensation does not amount to less than three months’ salary or the remaining duration of the contract, whichever is less.
   4. If the employer terminates the contract concluded for the completion of a specific task without cause or for unjustifiable reasons, he shall compensate the employee with an amount equivalent to the salary for the remaining and necessary period to complete the agreed-upon task, according to the nature of the work, unless the parties agree on a lesser compensation, provided that the agreed compensation does not amount to less than three months’ salary or the remaining and necessary period to complete the work, whichever is less.
   5. In the cases stipulated in paragraphs (A) and (B) above, if the termination of the contract constitutes arbitrary dismissal pursuant to the provisions of either Article 104 or 105 of the Labour Law, the employee shall be entitled to additional compensation equivalent to half of the compensation due pursuant to the provisions of above, unless the contract provides for compensation exceeding that.
   6. For the purposes of the above calculations, fractional months shall be considered as complete months

3. Subsequent Disputes Over Labour Entitlements: Disputes may arise regarding labour entitlements post-dismissal, including severance pay, end-of-service benefits, and outstanding dues. Employers should maintain clear records of employment contracts, salary payments, and any agreements related to entitlements to resolve such disputes efficiently.

 Further to Article 110 of the Labour Law:

The employer may terminate the labour contract as a result of the total or partial closure of the establishment, the downsizing of its activities, the replacement of the production system by another in a way that affects the number of the workforce, provided the contract is only terminated following the notification of the Ministry of Labour of the reason of termination thirty days before the date of notification of the employee of the termination.

The employee shall be entitled in case of termination of the labour contract for any of the reasons specified in the previous paragraph to compensation equivalent to half the compensation specified in Article 111 of the Labour Law.

Article 47 of the Labour Law:

The employee’s rights related to the end of service indemnity and the compensation for the annual leave balance specified in Article 59 as well as the compensation due in accordance with the provisions of Article 99(b) and Article 111 of the Labour Law, shall be calculated on the basis of the last basic wage of the employee in addition to the social gratuity if any. If the employee is employed by piecework or per production or receives a fixed wage plus a commission or percentage, the average wage of the employee during the last three months shall be retained in the calculation of these rights.

4. Resolution Mechanisms: Employers and employees can resolve disputes through various mechanisms, including mediation, arbitration, or litigation. These mechanisms offer alternative avenues for resolving conflicts outside of the formal court system, promoting faster and more cost-effective solutions.

• • Arbitration: Pursuant to Article 119 of the Labour Law, the Authority for Settlement of Individual Labour Disputes (the “Authority”) was formed to be in charge of the amicable settlement of any individual labour dispute submitted to it between the employee and the employer with the approval of both parties before resorting to the judiciary.

If the dispute is settled, the Authority shall draft minutes to be signed by the parties to the dispute or their representatives and the competent civil-servant, and such minutes shall have the power of an executive bond.

In accordance with the provisions of Chapter Fourteen of the Labour Law concerning collective labour relations, requests for collective labour disputes are forwarded to the Trade Union Affairs Department of the Ministry of Labour by employee groups or union organizations, who are then encouraged to mediate the issues amicably before filing a formal complaint  to the Ministry of Justice, Islamic Affairs, and Endowments’ Collective Arbitration Panel or the Collective Labour Disputes Settlement Council.

• • Litigation: Labour disputes are initially brought before the Labour Lawsuit Department of the Ministry of Labour as a requisite preliminary step prior to formal litigation. In the event that an amicable resolution proves elusive, the matter is subsequently escalated to the esteemed jurisdiction of the High Labour Court for adjudication.

The labour action shall be subject to the statute of limitation of the expiry of one year from the date of expiry of the labour contract.

Pursuant to Article 136 of the Labour Law. The above statute of limitation shall not apply to actions related to the infringement of commercial or industrial secrets or the implementation of the provisions of the labour contract aiming at ensuring the observance of these secrets.

In conclusion: As outlined in this article, strict adherence to the Labour Law’s provisions ensures that employers fulfill their legal obligations while safeguarding the rights of both parties involved. By embracing mediation, arbitration, or litigation as viable avenues for dispute resolution, employers can foster equitable and efficient mechanisms for addressing conflicts, thereby promoting a harmonious and legally compliant work environment. This proactive approach not only mitigates legal risks but also upholds the principles of fairness and justice in the employer-employee relationship, ultimately contributing to the overall stability and prosperity of businesses operating in Bahrain.

Choosing the Right Form of Business

In the Kingdom of Bahrain, any business established within the territory must be registered with the Ministry of Industry and Commerce (“MOIC”). The types of business vehicles chosen by a company determine (i) the set of regulations applicable, (ii) the business activities permissible and (iii) its freedoms or restrictions. Therefore, picking the right kind of business vehicle is critical to the future of any company.
There are 6 types of business vehicles in Bahrain, which are (i) General Partnership Company, (ii) Limited Partnership Company, (iii) Joint Venture Company (iv) Shareholding Company (v) Limited Liability Company, and (vi) Partnership Limited By Shares.
This article will briefly summarize the business vehicles in Bahrain, where certain limitations and restrictions of each vehicle will be outlined.

1. GENERAL PARTNERSHIP COMPANY

A General Partnership Company (“GPC”) has a minimum of two partners who share joint liability to the extent of their personal assets. Therefore, if a GPC files for bankruptcy, undergoes liquidation or is winding down, the court may order the repayment of debts from the partner’s personal funds.

GPCs are limited by the law in terms of naming the company, where it must consist of the names of all the partners or the name of one partner with the addition of ‘& Co.’. This restriction is mandatory and holds great significance under the law to ensure that the names of the partners are disclosed to the public and hence the extent of their liability. In the circumstance that a non-partner’s name is added to the name of a GPC with their knowledge, the non-partner is also jointly liable with the partners of the GPC.

The constitutional documents of a GPC consist of a Memorandum of Association (mandatory to all GPCs) and the Articles of Association (may be drawn up by the GPC and subsequently notarized by a Public or Private Notary). The Memorandum of Association must consist of (but is not limited to) the following:

1. The company’s name, objective, head office and branches, if any.
2. The partners’ names, domiciles, occupations and nationalities.
3. The company’s capital, a sufficient indication of the share each partner has undertaken to provide the company and their respective dates.
4. The names of the managers and authorized signatories.
5. The date of the company’s incorporation and its duration.
6. The beginning and end of its financial year.

2. LIMITED PARTNERSHIP COMPANY

A Limited Partnership Company (“LPC”), also known as Simple Commandite Company, is comparable to a GPC in terms of the provisions under the Commercial Companies Law (“CCL”). There are various provisions under the CCL applicable to GPCs and LPCs alike.

However, a significant difference between LPCs and GPCs is the limited liability to a certain type of partner. ‘Sleeping partners’ that do not undertake the management of the company and investment capital in the company are not liable for the company’s obligations to the extent of their assets; sleeping partners are only liable to the extent of their invested capital (similar to companies with limited liability as outlined below). Conversely, partners that manage the company are jointly and severally liable for the company’s obligations where their personal assets may be affected by the company’s debts, liquidation etc.

The names of all partners of an LPC, including sleeping partners, must be included in the Memorandum of Association.

3. JOINT VENTURES

A Joint Venture Company (“JVC”), also known as an Association in Participation, is a type of business vehicle that is different from other companies as it is not considered a legal person or juristic entity and is not subject to the usual publication procedures.

In general, JVCs are established when two or more entities are joined into a new entity to accomplish a specific task, where the entities agree to pool their resources to achieve their agreed upon aims.

Since a JVC is not considered an independent legal person, third parties cannot have a legal relationship with a JVC, therefore contracts and transactions cannot be concluded in the name of a JVC. The partner entities in a JVC share profits, losses, risks and liabilities with third parties in accordance with the agreement made between the partner entities. Regardless, a Memorandum of Association may be established by the partner entities.

4. SHAREHOLDING COMPANY

A Bahrain Shareholding Company (“BSC”) has negotiable shares whereby a number of legal or natural persons may be subscribed. Similar to WLLs, the shareholders are only liable for the company’s debts to the extent of the value of their shares. There are two types of BSCs; public and closed.

Public BSCs are companies that are listed on Bahrain Bourse, the capital market of Bahrain, and whose published shares are traded openly. Any legal or natural person may purchase or sell publicly listed shares through brokers licensed by the Central Bank of Bahrain and Bahrain Bourse (also known as trading members). On the other hand, closed BSCs are not open to the public for subscription, and shares of closed BSCs may be transferred via share purchase agreements.

Restrictions regarding BSC commercial names include the prohibition of deriving the name from a natural person unless (i) the company’s objective is patented and legally registered under the name of that person or (ii) the company acquired a business and adopts its name. Similar to a WLL, a BSC must include the phrase ‘Bahrain Shareholding Company’ following its name.

The Memorandum of Association, a preliminary constitutional document of BSCs, must be drawn with the following details:

1. The company’s name.
2. The company’s head office.
3. The objectives for which it has been incorporated.
4. The names of the promoters, provided that their number shall not be less than two, except for companies incorporated exclusively by the government.
5. The authorized and issued capital, the paid capital on incorporation and the number of shares into which the capital is divided.
6. The company’s term, if any.
7. Details about each in-kind share, and all conditions related to the contribution of such share, the name of the person contributing it and the real rights attached to such share.
8.  An approximate estimate of the expenses, wages and costs the company has paid or undertakes to pay in the course of its incorporation.

5. LIMITED LIABILITY COMPANY

A Limited Liability Company (“WLL”) is established with one or more legal or natural persons (i.e., companies or individuals). In contrast to a GPC, a WLL limits the liability to the company’s assets and each partner is liable only to the extent of his/her share in the capital. Companies previously known as ‘Single Person Company’ (“SPC”) have changed to WLL companies since the provisions governing SPCs were repealed through Resolution No. 28 of 2020 amending certain provisions of the CCL.

The restriction regarding the name of WLL companies is the addition of the phrase ‘with limited liability’ following its name. Similarly to the rationale of GPCs, this restriction ensures that the public is aware of the type of company prior to entering into transactions or agreements. In the circumstance that the phrase is not included in WLL’s contracts, invoices, notices, documents or publications, the company’s managers will be jointly liable towards third parties.

The Memorandum of Association must include (but is not limited to) the following:

1. Names, surnames and nationalities of the partners.
2. The company’s head office.
3. The company’s name and address, with the phrase ‘limited liability company’ added to it.
4. The objects for which the company was established.
5. The company’s capital and the cash or in-kind shares provided by each partner, with an accurate description of the in-kind shares and the value thereof.
6.  Conditions pertaining to assignment of shares.
7. The company’s term, if any.
8. The names of those with which the company’s administration has been entrusted, from amongst partners or non-partners, if any, and the names of the supervisory council members in the cases where such council is required by the CCL.
9. The method of distribution of profits and losses.

6. PARTNERSHIP LIMITED BY SHARES

A Partnership Limited by Shares (“PLS”), also known as Commandite By Shares Company, is similar to an LPC and BSC where it consists of two categories of partners; joint partners (liable to the extent of their personal assets) and shareholding partners (liable to the extent of their equity in the capital).
The capital of a PLS is divided into negotiable and indivisible shares, both of equal value, where shareholding partners and their shares in a PLS are subject to the same provisions of a BSC under the CCL (unless there are conflicting provisions). A PLS must assemble its joint and shareholding partners in annual and extraordinary general meetings, of which the provisions of closed BSCs apply.
The name of PLS companies must consist of one or more of the joint partners or can be derived from the company’s objectives. Similar to LPCs, if a shareholding partner’s name is added to the official name of a PLS (with his/her knowledge), then the shareholding partner will be considered a joint partner.
The form of business vehicles is a significant determinant of a company’s future. The decision to choose a type of vehicle depends greatly on the company’s objectives, business activity, and its financial capability. Moreover, the publicly available database, Sijilat, created by the Ministry of Industry and Commerce lists registered businesses in Bahrain and all business activities available