About the limited liability company

An Expert's View about Law and Compliance in Algeria

Last updated: 8 Feb 2011

The limited liability company is governed by Articles 564 to 591 of the Commercial Code. It is formed by two or more partners who shall be only liable for losses in proportion to their contributions.
The appointment of a statutory auditor is mandatory since 2007.

Corporate name

A corporate name already registered by another corporation or enterprise with the Commerce Register may not be chosen.

A certificate of non-registration (corporate name), valid for six months, must therefore be submitted upon registering the company with the Commerce Register. The corporate must inevitably be followed by the corporate form.

Corporate object

The company is free to choose its object, subject to the respect of fixed conditions in the case of activities targeted by specific regulation.

Articles of incorporation

Signed by all partners, either in person, or through an authorized agent with special power of attorney, the Articles of incorporation must be drawn up by a notarized deed.

Capital stock.
The capital stock of the LLC may not be inferior to 100.000 DZD; it is divided in equal membership shares with an equal par value of at least 1.000 DZD. The capital stock may be provided in the form of cash contributions or contributions in-kind, but not by contribution of services. Membership shares must be fully paid.

Cash contributions: The funds generated by cash contributions are deposited with a notary or a financial institution. In the case of nonresident shareholders or partners, the funds are deposited in the name of the company being formed in an Algerian bank in a pending account opened in a foreign currency.

Contributions in-kind: One or more contribution auditors are designated by judicial decision at the request of the founders or one of the founders. As part of their responsibilities, the auditors appraise the value of the contributions in-kind. Their report is attached to the Articles of incorporation.


Management.
 

Appointment
The manager or managers, who must necessarily be physicals persons, may be chosen from among the partners or third parties. They are designated in the Articles of incorporation or through a general meeting by a majority of partner representing more than half of the capital stock.
 

Dismissal
The manager can be dismissed by a decision of the partners representing more than half of the capital stock. If the dismissal is decided without just cause, it may result in redress for suffered prejudice. Moreover, the manager can be dismissed by the courts for just cause at the request of any partner.
 

Powers
1. In the relationship between partners: the powers of the managers are determined by the articles of incorporation. Unless there are statutory limitations, the manager may conduct any managerial act to further the interest of the corporation. In cases where there are several managers, the managers separately hold the power to represent the corporation, each having the right to oppose any operation before its conclusion however.
2. In The relationship with third parties: the manager is entrusted with the broadest possible powers to act on the corporation’s behalf in all circumstances, subject to the powers that the law specifically assigns to the partners. The corporation is liable for the manager’s actions even when such actions go beyond the corporate object, unless the corporation is able to prove that the third party knew that the said action went beyond the corporate object, or had to be aware that it did given the circumstances, bearing in mind that the mere publication of the articles of incorporation is not sufficient proof.
The statutory clauses limiting the powers of the managers are not valid with regard to third parties.
In cases where there are several managers, opposition by one manager to the actions of another manager is without effect with regard to third parties, unless it can be established that they were aware of it.
 

Regulated agreements
The law does not specifically prohibit agreements conclude between the corporation and the manager, but criminally punishes the manager who use corporate assets in bad faith to further personal goals or to favor another corporation in which he has a stake directly or indirectly.
If, in the aftermath of its bankruptcy, the corporation is found to have insufficient assets, the court, at the request of the trustee in bankruptcy, may decide that the corporation’s debts will be borne by the managers up to an amount determined by the court, whether or not the managers are partners or salaried employees.
To free themselves of their liability, the managers and partners involved must prove that they applied to the management of corporate affairs all the industry and diligence of a paid agent.
 

Rights of partners.

Right to information
Any partner has the right to review and obtain copies of a certain number of documents, accounting documents in particular, which he may examine with the help of an expert.

Terms and conditions for exercising voting rights.
 

By assembly: The decisions of the partners are made by an assembly, by convocation of the manager or one or more of the partners representing more than one fourth of the capital stock, fifteen days prior to the assembly.
A partner may be represented, but only by another partner or his spouse or another person.
 

By written consultation: the law authorizes the written consultation of partners if the articles of incorporation provide for it.
The annual general meeting to approve the financial statements:
Decisions are adopted by one or more partners representing more than half of the capital stock.
The report on corporate operations over the fiscal year, the inventory, the general operation account, the statement of performance and the balance sheet as prepared by the managers are submitted to the approval of the partners gathered in assembly within six month following the end of the fiscal year.
 

Extraordinary assembly:
Modifications to the articles of incorporation are decided by a majority of the partners representing three quarters of the capital stock. The decisions of the extraordinary assemblies must be preceded by a report on the situation of the corporation drawn up by an accredited expert, except in the case of a transfer of shares to a third party.
 

Financial rights.
Partners of the LLC have an equal right to the dividends. The terms and conditions for the payment of the dividends voted by the general assembly are also set by the assembly, or failing that, by the manager or managers.
The payment of the dividends must be done within a maximum of nine months after the end of the fiscal year. An extension of the deadline may be granted by a court decision.
Stipulating an interest, whether fixed or not, to the benefit of the partners is prohibited however.

Terms and conditions for the transfer of membership shares.
- Substantive requirement: membership shares are registered and are freely transmissible by succession and freely transferable between partners, spouses, parents, grandparents and descendants, unless the articles of incorporation contain an approval clause.
They may only be transferred to third parties not connected to the corporation with the consent of the majority of the partners representing at least three quarters of the capital stock.
If the corporation refuses to consent to the transfer, the partners are required, within three months after the refusal, to acquire or have someone acquire the shares at a price set by an accredited expert designated either by the parties or, if the parties fail to agree, by court order issued by the president of the tribunal at the request of the most diligent party.
The corporation may also decide, with the consent of the selling partner and within the same three-month period, to reduce its capital by an amount equal to the value of the shares of the selling partner and to buy back these shares at a price determined under the terms and conditions mentioned above.
- Formal requirement: the transfer of partnership shares can only be recorded by official deed. The transfer is only valid with regard to the company or third parties after the official deed has been drawn up and approved by the company.
The transfer is subject to registration fees (2.5%) and one fifth of the sales price must be deposited with a notary for a period of approximately six week as a guarantee for taxes potentially owed by the seller to the Algerian treasury.
 

Changes to the capital stock.
 

Increases
The capital stock may be increased or reduced by common agreement at a meeting of partners under the terms and conditions required to modify the articles of incorporation.
Capital increases may be achieved through the subscription of partnership shares either in cash or in kind. The costs of increasing capital shall be amortized by the end of the fifth fiscal year following the year during which the costs were incurred at the latest.
 

Reductions
Capital reductions are authorized by an extraordinary meeting of the partners and may not violate the principle of equality between partners.
The reduction may not necessarily be motivated by losses. In all cases, it must be approved by the statutory auditor. The corporation’s creditors may then oppose the reduction, within one month after the filing of the resolution. A court ruling either rejects the objection or orders the refund of the corporation’s debts or the establishment of guarantees, if offered by the corporation and deemed sufficient.
Corporations are prohibited from buying back their own shares. However, the assembly which decided on a capital reduction not motivated by losses may authorize the manager to buy a set number of partnership shares in order to void them.
Losses of three quarters of capital stock.
Managers are required to consult partners so that they may rule on whether to dissolve the corporation or not. Il all cases, the decision of the partners is published in a newspaper authorized to publish legal announcements in the wilaya where the corporation is headquartered, filed with the clerk of the court where the said headquarters are located and registered with the commerce register.
 

Transformation of the limited liability company
 

Transformation
A company with more than 20 partners must be transformed into a joint stock company within one year, or face dissolution.
The decision to transform a limited liability company into a different type of corporation must be reached by the majority vote required for extraordinary general assemblies and must be preceded by a report from an expert, with the exception of transformations into general partnerships, which require the unanimous agreement of all partners.

Mergers and spin-offs:
Even if it is in the process of being liquidated, the LLC may be absorbed by another corporation or participate in the creation of a new corporation by way of merger.
The corporation may also contribute to existing corporations or participate in the creation of new corporations with these corporations, by way of merger or spin-off.
Finally the corporation may contribute its assets to new corporation by way of spin-off.
The operation covered by the previous article may be carried out between different types of corporations.
They are decided by each of the corporations in question, in accordance with the terms and conditions required for the modification of their articles of incorporation.
In the operation involves the creation of new corporations, each of these corporation shall be established according to the rules associated with the type of corporation that was chosen.
 

Dissolution
Except in court-ordered dissolutions (loss of three quarters of the capital stock, capital stock reductions to a level lower than the legal minimum), the dissolution of the corporation results from the end of its statutory term or from a decision of the partners.
On the other hand, neither the death of the partners, nor the concentration of all the shares of the LLC in the hands of a single person, will result in the dissolution of the corporation.
 

Auditing the limited liability company
The annual general meeting must designate, for the fiscal years, one or several statutory auditors chosen among registered members of the national professional corporation.
Generally speaking, their permanent mission consists in auditing, without meddling in the management of the corporation in any way, the books and assets of the corporation and to control the truthfulness and accuracy of corporate financial statements. They also verify the truthfulness and accuracy of the information contained in the report of the managing board and in documents addressed to partners, regarding the financial situation and the accounts of the corporation.
They certify the truthfulness and accuracy of the inventory, of the corporate financial statements and the balance sheet.
The statutory auditors make sure that the principle of equality between partners was respected.
They may, at any time of the year, conduct the verifications and controls that they deem necessary.
They may also convene an emergency general meeting.


Posted: 06 February 2011, last updated 8 February 2011

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