Legislators are set to debate an amendment to the Commercial Companies Law that would require companies with foreign partners to provide a bank guarantee.
The draft legislation amends Article (264) of the law and introduces new safeguards aimed at regulating limited liability companies (LLCs) established wholly or partially by non-Bahrainis.
Under the current law, company capital is determined by partners and must be sufficient to achieve its objectives, divided into equal shares.
The original draft proposed requiring a fixed BD30,000 bank guarantee, irrevocable for the duration of the company, in cases where there is one or more foreign partners.
However, the financial and economic affairs committee amended the text to make the guarantee –
• Valid for two years from the date of establishment (instead of the entire company duration).
• Determined by ministerial decision based on capital size, business activity and purpose, rather than a fixed BD30,000.
• Subject to procedures and controls set by the Industry and Commerce Minister.
Committee chairman MP Ahmed Al Salloom said the revised legislation strikes a balance between safeguarding the national economy and maintaining Bahrain’s attractiveness as an investment destination.
“Our goal is not to close the door to foreign investment,” he said. “It is to ensure that investment entering Bahrain is genuine, sustainable and contributes real added value to the national economy.”
Mr Al Salloom explained that the proposal comes amid concerns that some foreign investors establish LLCs with minimal capital that does not reflect serious economic activity.
“There are businesses being registered with very low capital that do not benefit the economy, while competing directly with small Bahraini enterprises,” he said. “The bank guarantee acts as a filter to distinguish serious investors from speculative or short-term operations.”
He stressed that the committee’s amendment addressed concerns raised by the government and business associations.
“The two-year guarantee period is a reasonable timeframe that covers the critical early stage of a company’s operation,” he said. “Linking the guarantee value to capital and activity ensures fairness and proportionality.”
In its memorandum, the government urged reconsideration of the draft, warning that it could:
• Restrict freedom of investment guaranteed under the National Action Charter.
• Reduce Bahrain’s competitiveness in attracting foreign direct investment.
• Lead investors to opt for other company forms, such as joint-stock companies, to avoid the requirement.
• Create potential loopholes, such as foreign partners joining existing companies to circumvent the guarantee.
The government also argued that such conditions could be introduced through ministerial regulation under Article 21 of the law, without amending primary legislation.
The Bahrain Businessmen’s Association and the Foreign Investors Association both opposed the draft, warning it could harm the investment climate and contradict economic freedom principles.
Some warned that small and medium-sized enterprises (SMEs) could be disproportionately affected.
But Mr Al Salloom rejected suggestions that the amendment would deter serious investors.
“A genuine investor planning long-term operations will not be discouraged by a temporary, proportionate guarantee,” he said. “On the contrary, clear rules enhance confidence and protect fair competition.”
“Bahrain remains committed to openness and economic freedom. But openness must be accompanied by responsibility and safeguards that protect our market and national interests,” said Mr Al Salloom.
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