Companies are legal entities established through a written agreement between two or more parties with the aim of engaging in commercial, industrial, or craft activities. The types of companies vary based on the number of partners, the nature of the capital, and the responsibility for liabilities. In this article, we will explore the advantages, disadvantages, and characteristics of each type of company.
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What is the Definition of a Company?
A company is an agreement by which two or more persons share in a project aimed at profit, where each party contributes a share of money or labor to share in the resulting profit or loss. Companies are among the most significant economic institutions in the world as they contribute to wealth generation, job creation, and economic development.
Companies as Legal Entities
A company is considered a legal personality independent of its partners (in most types), meaning it has separate financial standing, can own assets, enter into contracts, and sue or be sued in its own name. Companies are critical to the economy of any country, as they drive economic growth, create job opportunities, and boost productivity.
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Types of Companies in Egypt
In Egypt, companies are classified into several types according to Egyptian law. They are categorized based on the method of establishment, number of partners, type of capital, and liability. Below are the main types:
1. Partnership Companies
These focus on the identity of the partners and are generally built on mutual trust among them.
- General Partnership
- Definition: A company comprising two or more partners who bear unlimited liability for the company's debts.
- Advantages: Easy to establish and manage.
- Disadvantages: Full liability for debts with personal assets.
- Limited Partnership
- Definition: Composed of two types of partners:
- General Partners: Fully liable.
- Limited Partners: Liability limited to their share contributions.
- Advantages: Combines limited and unlimited liability.
- Disadvantages: Complex management.
2. Capital Companies
These focus on the capital rather than the partners' identity.
- Joint-Stock Company
- Definition: A company whose capital is divided into freely tradable shares owned by many shareholders.
- Liability: Limited to the value of shares held.
- Advantages: Capability to raise significant capital, tradable shares.
- Disadvantages: Complex establishment and management procedures.
- Limited Liability Company (LLC)
- Definition: A company with 2 to 50 partners, with liability limited to their capital shares.
- Advantages: Flexible management, partner protection.
- Disadvantages: Restrictions on increasing capital.
- Partnership Limited by Shares
- Definition: A hybrid of capital and partnership companies, with capital divided into shares.
- Liability: Limited partners bear limited liability, while general partners bear unlimited liability.
3. Sole Proprietorship
- Definition: A business owned and managed by one person.
- Liability: Owner bears full liability for all obligations and debts.
- Advantages: Easy establishment and management.
- Disadvantages: Unlimited liability.
4. Special Economic Activity Companies
- Public Sector Companies: Owned and managed by the state.
- Private Sector Companies: Owned by private individuals or investors.
- Mixed Companies: Partnerships between the public and private sectors.
5. Foreign Companies (Branches)
- Definition: Foreign companies operating in Egypt through a local branch.
- Advantages: Expanding business within the Egyptian market.
- Disadvantages: Compliance with local laws and potential adaptation challenges.
6. Small and Medium Enterprises (SMEs)
- Definition: Companies with small or medium capital targeting startups.
- Advantages: Government support and financing facilities.
Regulations Governing Companies in Egypt
Companies in Egypt are subject to the Egyptian Commercial Law, Law No. 159 of 1981 and its amendments, as well as Investment Law No. 72 of 2017.
Click here for more details on laws and amendments.
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Characteristics of Each Type of Company
1. Partnership Companies
- General Partnership
- Based on mutual trust among partners.
- Unlimited liability.
- No requirement to divide capital into shares.
- Managed by one or more partners.
- Dissolved upon the death or withdrawal of a partner unless otherwise agreed.
- Limited Partnership
- Includes general and limited partners.
- Capital division into shares not required.
- Managed exclusively by general partners.
- Continuity unaffected by the withdrawal of limited partners.
2. Capital Companies
- Joint-Stock Company: Divided into tradable shares, independent legal personality, managed by a board of directors.
- LLC: Capital divided into non-publicly tradable shares, independent legal personality, flexible management.
- Partnership Limited by Shares: A combination of unlimited and limited liability among partners.
3. Sole Proprietorship
- Owned and operated by one individual with full personal liability.
4. Foreign Companies
- Local branches operate under Egyptian laws, managed by foreign administration with local compliance.
5. SMEs
- Benefit from governmental exemptions and financial support.
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Procedures for Establishing a Company in Egypt
- Select the Company Type: Based on partners, capital, and liability.
- Define Business Activity: Some activities require additional permits.
- Prepare the Articles of Incorporation: Including company name, address, type, partners' contributions, and more.
- Choose a Name: Ensure it reflects the business and is unique.
- Open a Bank Account: Deposit the required capital.
- Register with the Commercial Registry: Provide necessary documents.
- Obtain a Tax Card: From the tax authority.
- Register for Social Insurance: For employees.
- Secure Licenses: Depending on the business activity.
- Complete Legal Procedures: Finalize all contracts and publications.
- Start Operations: Officially commence business.
M1 GROUP offers company establishment services, assisting you in selecting the right legal structure for your business.