Business undertakings may be established in Kuwait under several forms as the Kuwait Companies Law No 1 of 2016 (“Companies Law”), which offers a flexible and dynamic environment for international businesses to expand in the Middle East and throughout the Gulf Cooperation Council (GCC). As Kuwait does not impose corporate income tax on companies wholly owned by the Kuwaiti nationals or other GCC countries nationals, foreign non-GCC corporate nationals that own no more than 49% of the shares of the company will be subject to taxation at 15% on their net profit.

Forms of Companies

Under Kuwaiti laws, corporate entities may be formed taking any of the following legal entity forms:

• General Partnership Company.
• Limited Partnership Company.
• Partnership Limited by Shares.
• Joint Venture Company.
• Shareholding Company, closed or public.
• Limited Liability Company.
• Single Person Company.

Furthermore, a business in Kuwait may be carried out through an agency relationship between a foreign principal and/or a Kuwait-based agent, distributor or commercial representative.

Business Practice

Also, a business in Kuwait may be practised as a conventional business or as a sharia-compliant business where the articles of the company will reflect the conventional or the sharia-compliant business practice for registration purposes. The differentiation and regulation of business practice is relevant to all types of trading companies and to financial institutions that are regulated by the Kuwait Capital Markets Authority (“CMA”) for the CMA conventional or the sharia-compliant licensed entities or by the Central Bank of Kuwait (“CBK”) for conventional and sharia-compliant banks.

The Companies Law has also introduced Professional Companies, where licensed professionals such as lawyers, engineers, auditors and other practitioners can form their partnerships under the law. Lastly, the Companies Law has introduced the profit and the non-profit-seeking type of entities.

The concept of corporate governance was introduced into Kuwaiti laws by virtue of the Companies Law and its Executive Bylaws No 287 of 2016 as amended for non-listed companies in Boursa Kuwait.

As for listed companies in Boursa and CMA licensed companies, whether they are listed or unlisted companies, the CMA issued corporate governance guidelines that fall under the CMA supervision by virtue of Resolution No 72 of 2015 on the issuance of the Executive Bylaws of Law No 7 of 2010 and its amendments regarding the establishment of the CMA and regulating securities activities (“CMA Regulation”).

Module 15 of the CMA Regulation regulates the corporate governance framework, which sets forth the principles of good corporate governance; Module 10 of the CMA Regulation, which regulates the disclosure and transparency obligations of companies, avoiding conflict of interest and insider trading; and Module 11, which authorises the issuance of green, social, and sustainable bonds and sukuks and sets out the compulsory reporting obligations to the bondholders and sukukholders.

Corporate governance standards for Kuwaiti banks remain significantly regulated by the instructions issued by the CBK on 20 June 2012 and updated on 10 October 2019. These instructions are influenced by global standards set by international institutions in this regard and the continuous impact of the financial crisis on the world’s economy.

In relation to Islamic banks in Kuwait operating in accordance with the rules and regulations of sharia, Law No 30 of 2003 was issued to add a special section for Islamic banks (Section Ten) to Chapter Three of the Law No 32 of 1968 concerning “Currency, the Central Bank of Kuwait and the Organisation of Banking Business”. The mentioned section underlines that Islamic banks shall be subject to the provisions of Law No 32 of 1968 without prejudice to sharia principles unless otherwise stipulated. Article 93 of Section implemented the presence of a Sharia Supervisory Board in Islamic banks to help these banks with the application of sound corporate governance principles and standards in conformity with sharia provisions and objectives.

Listed Corporate Governance Requirements

Corporate governance requirements for companies with publicly traded shares are covered under Module 15 of the CMA and may be listed as follows:

• Construction of a balanced board composition.
• Establishment of appropriate roles and responsibilities.
• Recruitment of highly qualified candidates for members of a board of directors and executive management.
• Safeguarding the integrity of financial reporting.
• Application of sound systems of risk management and internal audit.
• Promotion of code of conduct and ethical standards.
• Ensuring timely and high-quality disclosure and transparency.
• Respect of the rights of the shareholders.
• Recognition of the roles of the stakeholders.
• Encouragement and enhancement of performance.
• Focus on the importance of corporate social responsibility.

The corporate governance rules set out in Module 15 of the CMA Regulation and the corporate governance regulations for banks primarily operate based on the principle of “comply or explain”. However, it is the CMA and the CBK direction to cause all listed and regulated entities to comply fully with the corporate governance rules without exception unless a rule does not apply in a relevant context. 

Banks' Corporate Governance Requirements

The nine basic pillars pertaining to banks’ corporate governance as per the CBK instructions consist of the following:

• Role and responsibilities of the board of directors and the issues related to the board members.
• Corporate values, conflict of interests and group structure.
• Executive management. 
• Risk management and internal controls.
• Remuneration policies and systems.
• Disclosure and transparency.
• Complex corporate structures.
• Protection of shareholders’ rights.
• Protection of stakeholders’ rights.

The corporate governance rules set out in the corporate governance regulations for banks are mandatory for all banks registered in Kuwait. 

Independent Members of the Board of Directors

Pursuant to Module 15 of the CMA Regulation, at least 20% of the members of the members of the board of directors of the listed companies in Boursa Kuwait and licensed shareholding companies must be independent, provided that the number of independent members does not exceed half of the members of the board of directors.

Pursuant to the rules of corporate governance of the CBK as applicable to the banks, the number of the members of the board of directors of a bank may not be less than 11 members, of which at least four members must be independent members of the board of directors.

Related Party

According to the Companies Law, lending by companies to its members of the board of directors is subject to a special authorisation and mainly it provides that, without a special authorisation issued by the shareholders of the company, the company may not grant a loan to any member of the board of directors or the chief executive officer or their respective spouses or relatives of the second degree or their subsidiary company. Any loan granted to the contrary shall not be enforceable against the company, without prejudice to the rights of bona fide parties. This rules does not apply to banks and companies that may extend loans.

Furthermore, interested persons and their related parties cannot act and resolve upon decisions and matters of the company without restriction. For example, no person who has appointed a representative to the board of directors, the chairman or any member of the board of directors, any member of the executive management nor their respective spouses or relatives of the second degree, may have any direct or indirect interest in the contracts and acts concluded with the company or to the account of the company, except with prior authorisation of the ordinary general meeting. The board members who have interest may not vote during the meetings of the board of directors.

Under the CMA Regulations, namely Module 15, the same rule is set forth that any members of a board of directors shall inform the board of directors of the personal interest related thereto in works or agreements concluded for the company and such reporting shall be listed in the minutes. The member of interest shall not be entitled to vote on the resolution issued in this regard.

Also, the CMA Regulations have set a mechanism to assess and approve the related party transaction where the company shall assign an independent expert, such as an asset valuator or investment adviser, to report to the general assembly or the board of directors, as the case may be, on any transaction between the company and any related party or any arrangement whereby each party enters into any project or financing asset where the value of the transaction or arrangement equals 5% or more of the total assets of the company, or if the transaction or the arrangement had a material effect on the company’s financial statements, provided that such report is submitted before the transaction is approved, or the arrangement. The assigned expert must be objective and impartial in preparing the report required.

Sharia Supervisory Board

For Islamic banks, Instructions No (2/BSA/100/2003) Concerning the Rules and Conditions for the Appointment and Responsibilities of the Sharia Supervisory Board in Islamic Banks have set out the following principles or conditions for the regulation of the appointment and responsibilities of the Sharia Supervisory Board, which are the following:

• The board of directors of each bank shall nominate the members of the Sharia Supervisory Board for the approval of their appointment by the bank shareholders general meeting. Those members should be sharia scholars of recognised efficiency and experience, especially in the area of transactions jurisprudence.
• The number of the Sharia Supervisory Board members should not be less than three. This board may not have among its members any of the members of the board of directors or the executive management of the bank, nor any shareholder of effective influence, where a shareholder of effective influence shall mean a shareholder who owns 5% or more of the capital of the bank. For the Sharia Supervisory Board meetings to be duly held, all of its members must be present in the meeting, if the number of its members does not exceed three. The Sharia Supervisory Board may ask the bank management to establish a secretariat for this board to be provided with the appropriate staff for facilitating the work of this board.
• The services of the Sharia Supervisory Board member shall end with his resignation or by a justified recommendation from the bank board of directors to be approved by the general meeting, or by the resolution of the general meeting.
• The Sharia Supervisory Board shall be responsible for providing opinion on the bank’s compliance with the sharia rules in all of its operations. To do so, the Sharia Supervisory Board shall inspect all contracts, agreements, policies and transactions of the bank with the other parties. This board has the right to unconditionally review all the records and transactions of the bank to ascertain its compliance with the rules of sharia.
• The bank management must provide this board with all data and information requested for performing its functions. Taking into account the fact that the responsibility of complying with the sharia rules rests with the management of the bank, the management must present all the contracts, operations and transactions to the Sharia Supervisory Board for providing its sharia opinion in their regard and must comply with the implementation of all fatwa (sharia legal opinion), resolutions and guidelines issued by the Sharia Supervisory Board in this connection.
• The annual report of the Sharia Supervisory Board required under the rule of Article (93) of the said law, must include the following elements:
1. The title of the report and the addressee (the shareholders).
2. The scope of the Sharia Supervisory Board work, which includes a description of the nature of work performed, including the assurance that this board has performed the appropriate examinations and procedures, and has monitored the work in the proper manner, such as inspecting the documentation and the procedures adopted in the bank through testing each type of transactions. The report shows the extent to which the board was provided with all the information and explanations deemed necessary for passing its opinion as to the consistency of the bank’s transaction with the rules of sharia.
3. The Sharia Supervisory Board’s opinion on whether the contracts, documents and transactions executed by the bank are compliant with the rules and principles of sharia. In the event this board finds that the management of the bank has breached the rules and principles of sharia, or fatwa, resolutions and directives passed by this board, it must be so stated in its report.
• Within the framework of verifying the compliance of the bank management with its responsibilities in relation to implementing the rules and principles of sharia, the task of the external auditor must include the necessary examinations to ascertain the following:
1. All the procedures followed by the bank in launching its new financial products or in modifying its existing products, include the proper steps for ensuring complete compliance with the rules and principles of sharia, including the review of such procedures by the bank management and the Sharia Supervisory Board.
2. All the products of the bank have been examined by the Sharia Supervisory Board, which has confirmed that these products are compliant with the rules and principles of sharia. In its report, the external auditor must indicate the extent of the bank management’s compliance with the fatwa (sharia legal opinion), resolutions and directives of the Sharia Supervisory Board in the transactions executed.
• The Islamic bank shall publish the fatwa (sharia legal opinion) and resolutions passed by the Sharia Supervisory Board through printing booklets or bulletins, including those fatwa and resolutions, and making them available to those who desire to read.

The Rise of ESG Investing

Environmental, social and governance are three disciplines that have their own set of standards, practices and approaches and which jointly indicate an organisation's dedication to achieving greater goods in light of today’s global issues. Without a doubt, it has become important for governments and regulators all over the world to establish ESG regulatory frameworks and introduce ESG-related disclosures in their regulations.

On 30 January 2017, the government of Kuwait mobilised a new National Development Plan known as the "New Kuwait", which aims to promotes sustainable development across seven pillars with the expectation of attracting new investors through transforming Kuwait into a financial, cultural and trade hub regionally and internationally by 2035 (the Kuwait Vision 2035). The seven pillars are aligned with the United Nations Sustainable Development Goals (SDGs). At the end of 2017, Boursa Kuwait developed an ESG reporting guide for sustainability disclosure intended for all issuers listed on Boursa Kuwait in line with the Kuwait Vision 2035.

The guide is intended to encourage market participants to understand corporate sustainability, the various ESG areas and the importance of ESG reporting. While the disclosures contained in the guide are not compulsory, large corporates in Kuwait are voluntarily committing to sustainable business practices.

Non-compulsory Disclosure Basis

Disclosure of ESG issues under the current Kuwaiti legal framework is not compulsory. However, disclosure and transparency remain a fundamental principle of good corporate governance and to which the CMA has dedicated great importance in its executive by-laws, as Module 15 on corporate governance sets forth corporate social obligations on listed companies and licensed companies, including corporate social responsibility-related disclosures. The board of directors of listed and licensed companies shall put in place a mechanism to disclose goals of social responsibility assumed by the company for its employees. Moreover, work plans of social responsibilities provided by the company shall be disclosed in accordance with the periodical reports related to the company’s activities.

Additionally, Module 11 introduced the rules for listed companies aiming at enhancing and encouraging companies to issue green, social and sustainable bonds and sukuks in accordance with the related instructions and guidance principles of the International Capital Market Association or the Climate Bonds Initiative standards or any other related international standards. The revenues of such green, social and sustainable bonds shall be used for financing or re-financing green and social projects.

Module 11 also provides compulsory sustainability disclosures by the issuers of green, social or sustainable bonds or sukuk, as the issuers of such bonds or sukuks must provide the bondholders’ association and sukukholders’ association, as the case may be, with the following reports that shall be publicly made available on the issuer’s website:

• A framework document of the Green, Social, Sustainable Sukuk shall be submitted and prepared according with the related instructions and guidance principles issued by the International Capital Market Association (ICMA), or in accordance with the Climate Bonds Initiative standards or any other related international standards.
• A report must be prepared by an independent environmental and social specialist to study the framework document submitted for the Green, Social, Sustainable Sukuk that shall be issued to analyse how its proceeds or revenues shall be used and managed and to evaluate whether the project shall be deemed fit to be qualified or recognised as a green or social project.

Ongoing Initiatives

Whereas it is established that no compulsory requirements exist for companies in relation to reporting on ESG matters under Kuwaiti laws, the CMA and Boursa Kuwait are certainly set to significantly improve its ESG score with the continuous initiatives deployed by the CMA and Boursa Kuwait to develop the ESG-specific directions and disclosures of ESG metrics and reporting, and the publication of annual corporate governance reports.

Depending on the legal form or type of the company, the company’s governance structure shall consist of the following:

• Board of directors that is elected by the shareholders convened in an ordinary general assembly.
• Committees of the board of directors that are formed by the members of the board of directors, and which shall be entitled to review and set policies on certain selected matters.
• Executive management that comprises the chief executive officer and executives selected and appointed by the board of directors on the recommendation of the remuneration and nomination committee of the company.
• Assembly of shareholders who convene in ordinary and in extra-ordinary assembles to resolve upon reserved matters.
• Supervisory board that may be formed to assess the compliance of a company with its conduct standards and with sharia requirements for Islamic companies.

The board of directors or manager(s) can generally exercise all acts required for running the company in accordance with the objectives of the company while monitoring the performance of the executive management of the company. The board and the management shall have overall responsibility for the business entity, including the approval and implementation of the business’ strategic objectives and goals, corporate governance rules and values. The board may also provide an oversight of the company’s executive management while assuming full responsibility for the financial soundness of the business, fulfilment of all law requirements and protecting the legitimate rights and interests of shareholders, employees, staff and stakeholders of the company.

The board may also appoint a chief executive officer who enjoys the required and adequate technical competencies, and also the other executive managers such as the chief financial officer, an internal auditor, risk general manager and head of compliance department, while ensuring that each appointed individual shall possess all required qualifications and compatible experience. 

Having said that, the board of directors and the management are subject to restrictions on powers in respect of exercising certain acts. The acts of lending, borrowing, mortgaging, giving guarantees and sale of real estate assets are subject to shareholders' approval convened in an ordinary general assembly. Other matters relating to settlement, arbitration, donation and granting are subject to shareholders’ ordinary assembly approval. The CMA Regulations have also developed a requirement that any disposal of assets of the company that has a transaction value equal or more than 50% of the total asset value of the company shall be submitted to the shareholders’ approval convened in an ordinary general assembly.

Certain matters are strictly reserved to the shareholders' assembly of the company and may be set out as follows.

The ordinary general meeting at its annual meeting shall be able to resolve on any matters falling under its competencies and in particular the following:

• The board of directors' report on the company's activities and its financial position for the last financial year.
• The auditor's report regarding the financial statements of the company.
• Report on any violations noted by supervisory authorities and in respect of which the company has been penalised.
• The financial statements of the company.
• Proposal of the board of directors on the distribution of profits.
• Discharge of the members of the board of directors.
• Election and removal of members of the board of directors and determination of their remunerations.
• Appointment of the company's auditor and determination of his remuneration or authorisation of the board of directors to determine the remuneration.
• Appointment of the Sharia Supervisory Board for companies that operate in accordance with the provisions of sharia and hearing the report of such board.
• Report on the transactions that have been or will be carried out with related parties and identification of the relevant parties.

The extraordinary general meeting shall be competent to discuss the following matters:

• Amendment of the company contract.
• Sale of the whole project for which the company has been established or a disposition in any other way.
• The company's dissolution, merger, transformation, or division.
• Increase or decrease of the company's capital.

The formal process for making decisions vastly depends on the company’s legal form or type. Generally, decisions are carried out during a partners’ meeting or a shareholders’ meeting initiated by a notice to attend a meeting. The meetings shall be convened on the basis of an invitation of the company’s manager or by the company’s chairman.

Quorum and Majority for Board of Directors Meeting

Subject to the company contract stipulating a higher quorum or number of members, the meeting of the board of directors shall only be valid if attended by half of the members, provided that the number of those present shall not be less than three members. Participation via modern communication methods shall be permissible. Resolutions may be passed by way of circulation, subject to the approval of all members of the board of directors. The board of directors shall meet at least six times a year, unless the company contract stipulates a greater number of meetings.

Quorum and Majority for Ordinary General Meeting

The invitation to attend the shareholders' meeting shall include the agenda, time and venue of the meeting and shall be extended twice through announcement or by any methods of modern announcement. The second announcement shall be made after a period of not less than seven days from the date of publication of the first announcement and at least seven days before the meeting. The Ministry of Commerce and Industry (MOCI) must be notified in writing of the agenda, time and venue of the meeting at least seven days before the meeting in order for its representative to attend. Following notification of the MOCI, the meeting shall not be deemed invalid if such representative does not attend.

The annual ordinary general meeting shall be convened at the invitation of the board of directors within three months following the end of the financial year, at the place and time to be specified in the company contract. The board of directors can invite the general meeting whenever necessary. It shall invite the general meeting at the reasoned request of shareholders holding at least 10% of the capital in the company or upon the request of the auditor, within 15 days as of the date of such request. The body requesting the meeting shall prepare the agenda of the meeting.

The ordinary general meeting shall not be valid unless attended by shareholders representing more than half of the company's issued capital. If this quorum is not ascertained, an invitation to a second meeting shall be extended and the second meeting shall be valid if attended by any number of attending shareholders. Resolutions shall be passed by a majority of more than half of the attending shareholders.

Quorum and Majority for Extraordinary General Meeting

The extraordinary general meeting shall meet at the invitation of the board of directors, or upon a reasoned request of shareholders representing 15% of the company's issued capital or a request of the MOCI. The board of directors must call for the extraordinary general meeting to meet within 30 days from the date of submission of the request.

If the board of directors does not call the extraordinary general meeting during the period specified in the preceding paragraph, the Ministry shall call the meeting within a period of 15 days from the expiration of the date of the period mentioned herein.

The extraordinary general meeting shall not be valid unless attended by shareholders representing three-quarters of the company's issued capital. If this quorum is not ascertained, an invitation to a second meeting shall be extended and the second meeting shall be valid if attended by shareholders representing more than half of the issued capital. Resolutions shall be passed by a majority of more than half of the total shares of the company's issued capital.

Board Composition

The board of directors for listed companies shall have at least five members. Banks are required to have at least 11 members of the board. The board of directors shall elect by secret ballot a chairman of the board of directors and a deputy chairman. The chairman shall represent the company in its relations with any third parties and before the judiciary in addition to assuming other functions set out in the company contract. The chairman's signature shall be deemed the signature of the board of directors in regard to the dealings of the company towards any third party. The chairman shall execute the resolutions of the board of directors and shall be bound by its recommendations. The deputy chairman shall take the place of the chairman in the absence of the chairman or if the chairman is hindered in exercising his powers and functions.

Management

The company shall have one chief executive officer or more to be appointed by the board of directors from among or outside its members. The chief executive officer shall be assigned the task of managing the company. The board of directors shall determine his remuneration and his powers to sign on behalf of the company. The positions of chairman of the board of directors and chief executive officer shall not be combined.

Independent Members

The supervisory authorities may require that companies subject to their supervision shall include in the boards of directors one or more qualified and experienced independent members, to be elected by the ordinary general meeting. Their remuneration shall be determined on the basis of the principles of corporate governance. The number of independent members shall not exceed half the number of members of the board of directors. Independent members of the board of directors are not required to be shareholders in the company. Listed companies are required to have 20% of the board composition as independent members. Banks are required to have at least four independent members.

The board of directors may distribute tasks among its members in accordance with the nature of the company's operations. The board of directors may delegate to one of its members or to committees formed from among its members or third parties one or more functions or the responsibility to oversee a certain aspect of the company's activities or the task to exercise some of the powers or authorities vested in the board of directors. The responsibilities of board of directors must be clearly specified in the company's articles of association.

A chairman of the board of directors must ensure that board discussion of all major matters effectively and timely and represent the company before third parties in accordance with the company’s articles of association. The chairman will encourage all members of a board of directors to full and effective contribution to board affairs management to ensure the board is acting for the company’s interests and shall procure practical communication with shareholders and refer their opinions to the board. Also, a chairman shall encourage constructive relations and effectual participation of the board of directors and executive management with executive members, non-executive members and independent members and shall create constructive criticism concerning issues of different points of view among members of a board of directors.

The board shall be composed of sufficient members so that it can form the required number of committees derived from it and subject to governance rules requirements. The board of directors of the listed companies in Boursa Kuwait and licensed shareholding companies are recommended to form specialised independent committees such as the audit committee, risk management committee, nominations committee and remuneration committee. Upon board composition, a variety of experiences and specialised skills must be considered to enhance the efficiency of undertaking resolutions.

A shareholder, be it a natural or legal person, may appoint its representatives to the board of directors of the company in equal proportion to its shareholding. The number of appointed members of the board of directors shall be deducted from the aggregate number of members of the board of directors to be elected.

The appointed members of the board of directors shall have the same rights and duties as the elected members. The ordinary general meeting of the company may by resolution remove any one or more members of the board of directors or dissolve the board of directors and elect a new board of directors.

Conflict of interest mitigation rules laid down by the Companies Law and the CMA Regulation include, inter alia, the following:

• the majority of board members must be non-executive members;
• the board must include independent members who must have qualifications, experiences and technical skills that are consistent with the company’s activity. An independent member must not (i) hold 5% or more of the company’s shares; (ii) have a first-degree relation with any board member or executive management member in the company or any other company of the same group or the relevant main parties; (iii) be a board member in any company of the same group; (iv) be an employee in the company or any company in the same group or of any of the stakeholders; and (v) be an employee for corporate entities who own controlling shares in the company.

Also, it is important to note that the chairman and the members of the board of directors may not participate in the board of directors of two competing companies, may not participate in any activity that would compete with the company, or trade for their own account or the account of third parties in a field that is traded in by the company. In the event of violation of these rules and if not approved by the ordinary general meeting, the company shall be entitled to claim compensation or to consider the activities exercised by the member for his own account to have been exercised to the account of the company. Furthermore, no person who has appointed a representative to the board of directors, the chairman or any member of the board of directors, any member of the executive management nor their respective spouses or relatives of the second degree, may have any direct or indirect interest in the contracts and acts concluded with the company or to the account of the company, except with prior authorisation of the ordinary general meeting.

Please refer to 3.2 Decisions Made by Particular Bodies and 4.2 Roles of Board Members.

In accordance with Module 15 of the CMA, the board of directors of the company shall be held accountable towards the shareholders of the company.

When discharging their duties, directors are required to take into account the interest of the company, other board members, the shareholders, and other stakeholders and the entire company group.

Breach of Managing Duties and Responsibilities

The members of the board of directors are responsible towards the company, its shareholders and any third party for any acts of fraud or misuse of power, for any violations of the law and the company contract and any management errors.

In the event the breach of the directors’ duties is related to managing duties and responsibilities, the shareholders of the company shall enforce such breach by way of a general meeting (to which the members of the board of directors may not participate in the voting) discharging the directors of their responsibility for their management or in decisions that pertain to a special benefit for them or their spouses or relatives of the first degree or relating to any dispute between them and the company.

The shareholders of the company may be further entitled to vote to remove directors from the board before their terms expire.

The liability of the board of directors mentioned above shall either be personal, pertaining to an individual member, or joint among all members of the board of directors. In the latter case, the members shall be jointly liable for compensation, unless a certain group of them has raised an objection against the resolution that has led to such liability and such objection was recorded in the minutes of the general meeting of the company.

Liability Claim Against the Members of the Board of Directors

The company shall be entitled to file a liability lawsuit against members of the board of directors, because of any errors resulting in any damages to the company. If the company is in the process of liquidation, the liquidator shall be responsible to file the lawsuit.

Any shareholder shall be entitled to personally file a liability claim on behalf of the company, in case the company fails to file such a claim. In this case, the company shall be made party to the claim in order to obtain a judgment of compensation in its favour. Furthermore, a shareholder may file his personal claim of compensation, if the error has caused him damages. Any stipulation in the company contract to the contrary shall be null and void.

Limitation of Claims Against Members of the Board of Directors

The liability claim shall lapse five years as of the date of the general meeting passing the resolution of discharging the board of directors of its responsibility or establishing an error. However, if the act attributed to the members of the board of directors constitutes a criminal offence, the lawsuit shall not lapse unless the criminal lawsuit lapses.

Claim of Invalidity and Challenge of Resolutions of the Extraordinary General Meeting

Each shareholder may file a claim on the invalidity of any resolution of the board of directors, ordinary general meeting or extraordinary general meeting that is in violation of the law or the company contract or if its aimed at destabilising the interests of the company with respect to the breach of all corporate governance requirements.

Such invalidity claims shall be time-barred two months from the date of the resolution of the general meeting or the date on which the shareholder gained knowledge of the resolution of the board of directors.

The company contract shall set out the manner of determining the remunerations of the chairman and the members of the board of directors. The aggregate of such remunerations may not exceed 10% of the net profits after any depreciation and reserves and distributing profit dividends of at least 5% of the company's capital to shareholders or any greater percentage, as may be stipulated by the company contract.

However, an annual remuneration of KWD6,000 may be distributed to the chairman and each member of the board of directors as of the date of incorporation of the company until it realises sufficient profits that allow the company to pay the remunerations. 

Regarding Module 15 of the CMA, the company shall set an apparent remuneration policy including determination of board chairman and members of a board of directors remunerations. Independent members of a board of directors may be excluded from the referred maximum remuneration rate pursuant to the resolution of the ordinary general assembly.

As per Module 15 of the CMA, an annual governance report must be prepared that includes the total remunerations given to members of a board of directors to be submitted to the CMA.

The relationship between a company and its shareholders is rooted in a similar form of mutualism. The rules and requirements governing the relationship between the company and its shareholders is based on cooperation, transparency and direct communication between the management members of the company and its shareholders.

Whereby the boards of directors are responsible for the governance of their companies, the shareholders' role in the governance of the company is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.

Shareholders may mainly participate in the management of the company by way of electing its board of directors or executive management, as the shareholders’ role mainly resides in the enforcement of the resolutions made by the general meeting of the company. Moreover, shareholders must refrain from committing any acts that are detrimental to the company's financial or moral interests and compensating any damages resulting from such acts, and to follow the rules and procedures established in respect of the trading in shares.

Under Module 15 of the CMA Regulations, the roles of the shareholders in the management of the company may be manifested through the following:

• List the ownership value of their shared investment in the company records.
• Dispose of shares, including registration and transfer of ownership.
• Receive the decided share in dividends.
• Receive a share in company assets in case of liquidation.
• Have access to data and information of the company activity and operational and investment strategy regularly and easily.
• Participate in meetings of the shareholders’ general assembly and vote on the resolutions thereof.
• Elect members of a board of directors.
• Control performance of the company, in general, and the board of directors, in particular.
• Approving any sale and purchase transactions or disposal in any way of the company’s assets, if this transaction is 50% or more of the total amount of the company’s assets.

Shareholders shall hold annual meetings convened at the invitation of the board of directors within three months following the end of the financial year, at the place and time to be specified in the company contract.

The board of directors can invite the general meeting whenever necessary. It shall invite the general meeting at the reasoned request of shareholders holding at least 10% of the capital in the company or upon the request of the auditor, within 15 days as of the date of such request. The body requesting the meeting shall prepare the agenda of the meeting.

Under Module 15 of the CMA Regulation, the shareholders’ general assembly shall be held upon the invitation of the board of directors within the set dates in the time and place set out in the company contract and the invitation for the general assembly. In addition, the board of directors may call the general assembly to meet based on a reasoned request by shareholders owning not less than 10% of the company capital or a request by the auditor within 15 days as of the date of such request. The items of the shareholders’ agenda shall include the company’s governance report and the audit committee report, in addition to allowing the shareholders to review all data set out in the disclosure record of the board of directors and executive management members of the company. The shareholders shall exercise their right to of voting in the shareholders’ general assembly equally, as they shall vote as principal or by proxy upon being provided with all the standards that govern the voting process and rights.

Under the Companies Law, any shareholder shall be entitled to personally file a liability claim on behalf of the company. Furthermore, a shareholder may file his personal claim of compensation if the error has caused him damages.

The Rights of the Stakeholders and Shareholders of Listed Companies

Under Module 15, the shareholders of the company shall hold the company’s members of board of directors accountable and file tort cases if they fail to meet roles entrusted thereto and to present to the general assembly meeting any breaches monitored by the regulatory bodies of the company and any penalties issued due to such breaches and led to (financial/non-financial) penalties against the company.

The company shall further develop policies that include rules and measures to ensure protection and acknowledgment of the rights of stakeholders and allow them to have access to compensations, in case of any breach of the rights in respect of dealing with the members of the board of directors.

Under Module 10 of the CMA Regulations, listed companies shall disclose, on a yearly basis, any major shareholders whose ownership reach 5% or more of the company capital in each of the following cases:

• When a shareholder of the company owns 5% or more of the company’s capital.
• Any change to percentage of ownership of any shareholder whose ownership reaches 5% or more of the company’s capital.
• Decline in the ownership of any shareholder below 5% of the company’s capital.

A person, its subsidiary companies and the companies over which it has effective control shall be deemed as a group acting as an “interested person” if its collective ownership of shares reaches 5% or more of a listed company’s capital. The interested person shall be liable to disclose such collective ownership, its details and any change occurring to it that exceeds 0.5% of the listed company’s capital, even if the change is made by one of its subsidiary companies or companies in which it has effective control on owning 5% or more in the same listed company.

The company shall have a financial year of not less than 12 months.

The board of directors shall prepare an annual report for the financial year that has ended and the executive regulations shall provide for further details in this regard. Additionally, listed companies shall have their financial reports reviewed quarterly and submitted to the CMA within 45 days from the end of the quarter and annual audited financial statements within three months from the end of the financial year.

Listed companies shall submit a quarterly report to the CMA to include all the transactions in the company’s shares for the period concerned in the report, and which shall be accompanied by a statement of the balance of treasury shares (a company’s shares that the issuing company repurchases or buys back or otherwise makes use of), duly ratified by the Clearing Agency. Meanwhile, an Islamic bank shall publish the fatwa (sharia legal opinion) and resolutions passed by the Sharia Supervisory Board through printing booklets or bulletins including those fatwa and resolutions and making them available to those who desire to read.

Kuwaiti companies are required to submit their annual audited financial statements within three months from the end of the financial year to the MOCI that administer the companies’ register in Kuwait. Also, any and all amendments to the articles of the company and the update in company’s information, including the licence and including the update to the shareholders list and board of directors and authorised signatories, are regularly updated with the companies’ register.

Companies are required to appoint external auditors in connection with its financial statements by virtue of annual ordinary general assembly, based on a proposal by the board of directors of the company. The company’s internal audit committee shall provide the board of directors with its recommendations concerning the appointment, re-appointment or replacement of the external auditors, and identifying their remunerations, in addition to reviewing the external auditors' appointment letters and ensuring their independence. The internal audit committee shall also follow up on the work of the external auditors and review the external auditors observations concerning the company's financial statements, and follow up on its status.

The annual ordinary general assembly shall appoint the company's external auditor according to board of directors' proposals, provided the following is taken into consideration:

• The nomination of the external auditor should be based on the audit committee recommendation submitted to the board of directors.
• The auditor should be listed in the CMA's external auditors register, ie fulfilling all the required provisions stated in the CMA's resolution concerning the mechanism of listing external auditors.
• To ensure the independence of the external auditor from the company and its board of directors and ensure no services other than services related to the audit functions are provided to the company, which may affect the auditors' neutrality or independence.
• The auditor should be permitted to discuss his opinions with the audit committee, prior to the submission of the annual financials to the board of directors for taking a decision in this regard.
• The external auditor shall be granted permission to attend the meetings of the general assembly, and to present his report to the shareholders, clearly stating any encountered obstacles or interferences during the audit process. The external auditor should also inform the CMA of any material violations or obstacles, and their details.

Risk Committee

The board of directors of a company shall form a committee called the risk management committee, in which the number of members shall not be less than three. The head of such committee shall be a non-executive member of a board of directors. The chairman of the board of directors shall not be a member in such committee. The board of directors shall specify the term of membership in the committee and the working system thereof.

Audit Committee

Existence of an audit committee shall be considered a main feature indicating application of good governance. As such, the committee shall incorporate the culture of liability inside the company through ensuring the soundness and integrity of financial reporting of the company, in addition to sufficiency and effectiveness of the conditions of internal audit systems applied in such a company. Accordingly, the board of directors shall form an audit committee consistent with the nature of the company activity and having full independence, in addition to the necessity of provision of human personnel of specialised experience at the committee, in order to perform their duties.

• The board of directors shall form an audit committee, in which the number of members shall not be less than three, provided that at least one of members shall be independent. The board chairman or executive members of a board of directors shall not be members in such committee.
• The committee shall include at least a member of educational qualification and/or practical experience in the accounting and financial fields and such committee shall be entitled to outsource external expertise, based on the approval by the board of directors.
• The board of directors shall specify the membership term of the committee members and mechanisms of its operation.