IFC official: positive potential of decision outweighs negative
CAIRO: Minister of Investment (MOI) Mahmoud Moheiddin issued a decree Saturday lowering the minimum capital requirement for limited liability companies (LLC) from LE 50,000 to LE 1,000.
According to an MOI statement, the decision was made to encourage small and medium enterprises (SME) to structure themselves according to the government s LLC regulations, allowing them to enjoy stronger legal standing and allowing the government to keep closer track of their operations. Moheiddin s decision amends Article 67 of law No. 159 of 1981.
The decision is designed to encourage SMEs to take on the shape of LLCs with specific, legally recognized capital limits, a senior MOI official said. The governance structure of LLCs limits the liabilities of shareholders to the amount of their investments in a particular company, which facilitates smoother financing transactions and allows for the addition of new investors as current investors see fit.
Frank Sader, senior operations manager at the International Finance Corporation (IFC), the financing arm of the World Bank Group, says the MOI s decision is a positive development for small business owners who may have been previously worried about meeting large capital requirements in order to be eligible for formal government standing.
One of the biggest issues for any business is the capital requirement because that is going to be money set aside in a bank which the business cannot benefit from, Sader told The Daily Star Egypt. When you are a small business, you need all the money you can get your hands on. So this decision definitely decreases the incentive to stay informal.
One of the drawbacks of increasing LLC registration is it hinders the government s ability to prevent fraud by company founders, Sader adds. The liability of LLCs is divided proportionally among shareholders, so prosecution of collective fraud actions becomes more difficult.
Overall, Sader says MOIs decision carries larger potential to positively impact the heavily SME-reliant business community.
If it is clear to you [as a business owner] what you are doing, and if you don t need a large number of advisors in order to set up and run your business, then that is a huge positive development, Sader says.
MOI s amendment to the law allows LLCs already established under the old capital requirement to continue operations under the old terms or move to take advantage of the ministry’s decision.