Key Issues in the new Commercial Registration and Licensing Proclamation

Commercial registration and licensing is one of the legal concerns subjected to frequent changes in regulatory governance – and for good reason: It is a key legal instrument in regulating and governing the private sector. In today’s ever-shifting global economy, governments should stay abreast of the needs and desires of the business community, enacting laws that promote and regulate their activities.The preamble of the proclamation – which was ratified in 2007 and has undergone revisions in 2010, 2013 and 2016 – states that the rationale for the changes stems from a desire to improve regulatory oversight of business activities.
To that end, its aim is to put in place a fair, modern and accessible system in the registration, closing loopholes in the previous legislations and working procedures; to attain societal satisfaction and ensure the contribution of the registration system to the economic changes.
Accordingly, there are new issues regulated and some issues have been further clarified and expounded upon in the new law:

Establishment of Holding Companies
The new law has defined a holding company as one that consists of two or more limited liability companies, is issued with a special registration certificate and managed by the holder.
Until now, regulating this issue was largely an issue of business policy, for there was a legal loophole in the previous laws and in the Commercial Code to govern the legal intricacies associated with the operation of holding companies. Though the problem in the Commercial Code is yet to be addressed when the amendment is finalised, the new law has addressed numerous questions: What a holding company means; the need for commercial registration; managing the liabilities of the holding company and its members for third parties; the necessity for keeping annual financial records; notification procedure to the registering authority on termination; and the terms of membership of the holding company.
The registration criteria and further details, however, will be governed by the Council of Ministers. The regulation is expected to cover what information details are required to get special certificate of registration as a holding company.

Franchise Registration
Though there are many franchise agreements as a matter of ordinary contractual transactions, the lack of a franchise law was one of the regulatory gaps in governing the agreement between the franchiser and franchisee. The new law has given recognition to this relationship subject for the criteria of registration to be detailed by regulation to be issued by the Council of Ministers.
The new law, however, has placed the crux of the relationship between the franchiser and the franchisee. Accordingly, the new law emphasises that the franchisee shall function with the same standards as the franchiser. Clients are entitled as a matter of right to get the same product and service as they would have received from the franchiser.
For the sake of conceptual clarification, the new law has defined a franchise agreement as one between the franchiser and the franchisee to undertake business activities by using the trade name of the known product or service to share the work under the leadership of the owner of the products and the service. The regulation is expected to set the details that will finally allow the country to begin a native franchising market.
Prohibition on Sole Import and Distribution
Sole import and distribution arrangements have existed for years in our commercial system. Though concrete data is not available, there are many businesses operating under the status of sole importer and distributor for one type of product. The new law, however, prohibits this because it incapacitates fair competition in the market and affects the right of consumers to get products with fair quality and price from different suppliers and distributors.
In some cases, however, the Council of Ministers may issue regulations on sectors in which sole importation or distribution may be allowed. The Ministry of Trade may also allow import and export by businesses without import or export licenses. Here, the consideration is public interest issues that may demand products in times of unexpected critical shortage of goods in the market and other similar scenarios.

Obtaining a Business License
The need for wholesale license by importers and manufacturers to sell their imported and manufactured products was a controversial issue. The new law resolves the issue, stating that they don’t need a separate business license to undertake wholesale trading of their own product regarding the retail trade of their manufactured or imported goods. However, in principle importers and manufacturers can’t be engaged in the retail trading of their products.
The Council of Ministers, however, may issue regulations to decide the exceptional conditions whereby manufacturers can sell their products in retail trading. Similarly, taking into consideration the type of the business and the national significance it has, the importer may be allowed to undertake retail trading.

5th Year • November 16 2016 – December 15 2016 • No. 45

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