Bahrain becomes first in Gulf to ratify common law for LLPs

(MOHAMMED AL-SHAIKH/AFP/Getty Images)

Companies in Bahrain can now operate as limited partnerships even if they are based outside free zones, under new legislation that came into force this week.

The Investment Limited Partnership Law was passed by Bahrain’s parliament last August and published in the Official Gazette, but it only took effect this week.

The legislation allows investors to establish limited partnerships (LLP) across the whole of the kingdom, as opposed to only in dedicated free zones.

Bahrain is the first country in the Gulf to introduce such a law. It is expected to provide a fillip to Bahrain’s financial sector at a time when the country is depending on its expanding non-oil sector to spur economic growth.

A statement from national investment agency the Bahrain Economic Development Board (EDB) said the law permits new financing structures that complement existing ones avaialble in the kingdom.

In particular, it is expected to support growth in real estate funds, private equity funds, venture capital and technology funds, start-ups, shariah-compliant funds, and captive insurance.

Permitted activities under the new law include include collective investment undertakings, private investment undertakings, securitisation and insurance captives.

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The flexibility to develop tailored investment terms is expected to be welcomed by investors as a more cost-effective option than in other GCC economies, which currently only permit this through established free zones.

EDB CEO Khalid Al Rumaihi said: “We see great potential in the GCC for investors looking for strong returns – and the development of the local funds industry can play an important role in facilitating that investment.”

An LLP is a company in which its partners are responsible for the company debts and liabilities only to the extent of their shareholding in the capital.

The new legislation allows for both new LLPs to be incorporated, and existing partnerships to convert to an LLP.

Brian Howard, partner at law firm Trowers & Hamlins, added: “The law, as well as other recent laws in Bahrain including the protected cell companies and trusts laws, open the door to many new lines of business and investment structures not previously available.

“They also bring Bahrain’s structuring options in line with the best international examples from common law jurisdictions such as London, New York and Singapore, so financial firms in Bahrain will be able to operate within a familiar legal framework.”

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