In brief: shareholder rights and powers in Oman

The rights and equitable treatment of shareholders and employees

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

The shareholders of public joint stock companies (SAOGs) and closed joint stock companies (SAOCs) have the power to appoint or remove directors. The appointment of directors is done by way of a direct secret ballot at a general shareholders’ meeting. There are three types of shareholders' general meeting where an appointment or removal of a specific director or the board can be done, they are:

• constitutive general meeting – if the company is under formation;

• annual general meeting (AGM) – this is required to be held within 90 days of the financial year end of the company; and
• ordinary general meeting (OGM) – if there is a vacancy in the board and there is a requirement to appoint or remove a director prior to the date of holding the next AGM.

Decisions of the above shareholders’ meetings are not considered valid unless the general meeting is attended by shareholders representing at least half of the share capital of the company. However, a second shareholder meeting can be held within seven days from the date of the first meeting and the decisions of the second meeting are deemed valid no matter the number of shareholders who attend. The decisions of the above shareholders’ meetings require the approval of a simple majority of the votes cast at such meeting.

Additionally, it is worth noting that the board can appoint directors on a temporary basis until the convening of the next shareholders’ meeting if the articles of association of the company permits them to do so.

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

The shareholders are the ultimate decision-making body of the company and are required to take a decision in respect of the matters listed below. They are also permitted to take decisions outside of those matters if they so wish. The decisions of the shareholders are binding on the company and there is no concept of non-binding shareholder vote in Oman.

Decisions reserved to the shareholders under the Commercial Companies Law (CCL) are in relation to the following matters:

• merging the company with another;
• altering the rights attached to a class of shares;
• increasing authorised share capital;
• reducing share capital;
• amending the articles of association;
• converting the form of the company;
• liquidating the company;
• disposing of fixed assets or any part with a minimum value of 25 per cent of the total assets;
• approving a shareholder or a director utilising the company’s assets for their own benefit or, directly or indirectly, enter into any agreement with the company for their own account (other than usual contracts that the company enters into with its customers in the ordinary course of business);
• appointing or removing directors;
• distributing profits;
• appointing auditors;
• approving accounts; and
• authorising the board to perform acts on behalf of the company that the directors are not otherwise permitted to do, namely:

• making donations (except in small and customary amounts);
• mortgaging or pledging the company’s assets (except to secure debts in the ordinary course of the company’s business); and
• guaranteeing debts of third parties (except guarantees made in the ordinary course of business pursuant to the company’s objects).

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

All shares generally enjoy equal and inherent rights. These rights include the right to receiving dividends, subscribing to new shares, disposing of shares, obtaining copies of the financial statements, accessing the shareholders’ log, attending and voting at general meetings and applying for the suspension or invalidation of a decision made by the shareholders at a general meeting or by the board. However, the articles of association of the company may grant certain privileges to certain shares with respect to voting and distribution of profits or the proceeds of liquidation, provided that the shares of the same class have equal rights. Such rights may only be amended by way of an extraordinary general meeting, including the approval of two-thirds of the shareholders of the relevant class. Additionally, and as a matter of practice, shareholders’ agreements may contain provisions that may place certain conditions on voting rights on the shareholders. 

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

Shareholder decisions are made by way of a general meeting and each shareholder has the right to attend and vote at general meetings of the company. It is not possible to pass shareholder resolutions of SAOG and SAOCs by way of circular or written resolutions.

General meetings convened by an SAOG must be held virtually using the Muscat Clearing and Depository Company SAOC (MCD) online general meeting platform. It is also permissible for SAOG companies to hold hybrid general meetings (virtually and physically). Shareholders must ensure that their profile at the MCD is up to date in order for them to access, participate and vote on the agenda of the general meetings. On the other hand, SAOC companies have the discretion to hold their general meetings either virtually through the MCD system, by way of a physical meeting or a hybrid.

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

The shareholders have the power to request the board to convene a general meeting provided that the request is submitted by shareholders representing at least 10 per cent of the share capital of the company. The shareholders also have the power to request the board to include certain items to be included in the general meeting agenda provided that the proposal is submitted by shareholders representing at least 5 per cent of the share capital of the company at least 20 days prior to the general meeting.

There is no requirement under Oman law for the board to circulate the statements by dissident shareholders.

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

Controlling shareholders do not owe duties to the company or to non-controlling shareholders. However, if one or more shareholders owning at least 5 per cent of the total issued capital are of the opinion that the company's affairs are being conducted in a manner detrimental to the interest of the shareholder(s), or if the company intends to act or fails to act on a matter that will cause damage to the shareholder, then the shareholder has the right under the CCL to submit an application to the governing authority (the Ministry of Commerce, Industry and Investment Promotion or the Capital Market Authority, as the case may be). The governing authority or the shareholder itself is then entitled to refer the matter to the court on an urgent basis.

Can shareholders ever be held responsible for the acts or omissions of the company?

As is the case in many legal jurisdictions around the world, an Oman company has its own legal personality and identity separate to that of its directors, shareholders and affiliate companies. A shareholder’s liability is usually limited to the amount paid up on the shares it holds in the company and, generally speaking, shareholders of companies are not liable for the debts and liabilities of those companies.

Disregarding the separate legal personality of a company in order to fix shareholders with liability for the unlawful acts of the company (often described as piercing the corporate veil) is relatively rare in practice.

There are certain prescribed situations under the CCL where liability can be imposed on shareholders despite the limited liability afforded to a SAOG and SAOC. For example:

• a shareholder that enters into a contract with the company or uses the assets of the company for its benefit without first obtaining the approval of the holders of a majority of the shares at an OGM will be held liable to the company and any third party for any damages caused;
• the founding shareholders of a company can be held liable for any damages caused to the company or third parties as a consequence of such shareholders acting negligently during the establishment of the company; and
• the founding shareholders of a company can be held jointly liable for any damages caused to third parties as a consequence of the dissolution of the company due to not following the correct incorporation procedures.

Therefore, shareholders, when making decisions, do not need to worry about the same potential liabilities that directors or members of the executive management do, and can therefore act in the interest of themselves (subject to the above).