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Doing Business in Sudan

In the Sudan, a company having share capital may be incorporated as a private limited liability company or a public limited liability company. Companies are incorporated under the Companies Act of 1925, as amended from time to time.

The Act creates a distinction between a private limited liability company and a public limited liability company. The former can not apply to have its shares traded on the Khartoum Stock Exchange Market, but shares may be sold after obtaining prior consent of other shareholders. A private company does not issue share certificates, however registration of the shareholders must be recorded in the shareholders register. A private limited liability company may not engage in the business of banking, insurance and there is no obligation to hold an annual general meeting. However, both enjoy the advantage of incorporation to the effect that shareholders are not put at risk in the event of bankruptcy.

A private limited liability is not required to abide by stringent accounting rules as regards records required from a public limited liability company. It is not compulsory for a public liability company to float its shares by being traded on the Khartoum Stock Exchange Market. When forming a public liability company the required minimum capital must be paid before it can start business or borrow. This stands for the company's authorised or nominal capital. A public limited liability company can not issue shares for sale by the public prior to obtaining a certificate to commence business. The number of shares must be stated in the Memorandum of Association showing the name of the subscribers who have agreed to own shares and the number of shares each will own. Upon incorporation shares will be allotted in compliance with the Articles of Association. The Registrar must be notified within one month in the prescribed return form.

When the public limited liability company sells shares for more than their nominal value, the actual sum paid must be identified by recording the premium in a separate share premium account. In Sudan, the trend towards forming public limited liability companies is developing due to government's plan to privatise state-owned enterprises. A public limited liability has certain advantages. A public limited liability company provides investors with more confidence particularly when its shares have a public price. It also provides investors with the opportunity to raise capital and develop wealth by using its shares as collateral to secure loans or cash out few shares of their holdings. Again, a public limited liability company affords specialised management prone to secure better corporate governance. Stock price may serve as an essential test on management. The control mechanism by a separate watch out board of directors employing guidelines, policies and procedures is likely to ensure accountability prone to attain corporate economic efficiency. Perhaps of fundamental importance is that, the availability of alternatives to raise capital provides a public limited liability with opportunities of mergers and acquisitions with potential investors which is conducive to increase stock value and may answer the need for diversification by holding subsidiaries in diverse lines of business. Annual reports normally provide a statement of the financial affairs of the company and corporate strategy. Such reports facilitate a continuous evaluation of the company.

In 1992, the Sudan Government announced an economic liberalisation policy. The said policy includes, inter alia, privatisation of state owned entities operating in economic sectors such as agriculture, industry, transport, communications, tourism and energy. A number of public entities were turned into public liability companies, and others are still waiting to be turned into public limited liability companies.

From the legal point of view, the nature of a joint venture embraces different legal forms. It may take the form of a mere contractual arrangement in a structure which avoids a partnership form. In Sudan, joint operating agreements in the oil and gas industry having the government as a party and other foreign companies represent such type of a legal vehicle. Each party is entitled to sell its share of the products. This legal form serves a number of objectives, namely distribution of risk, minimising cost, providing access to domestic and international finance. Yet again, it may assist in technology transfer. Once more, a construction consortium engaged in a single project may structure a contractual arrangement where each party shoulders its own expenses with a right to an identified share arising from gross revenue. In such an arrangement each party shall be accountable for the tax consequences arising from each party's separate business. There is no tax on the formation of a contractual joint venture as no transfer of assets has taken place.

Similarly, when it comes to an end, no tax implications would arise as not transfer of assets has taken place. A joint venture may take the form of a corporate partnership where the underlying objective from creating the legal vehicle is to maintain continued business. In such a legal form the joint venture would benefit from being a limited liability company. Such a form involves tax implications to the effect that income and capital gains are attributed to the participants in their appropriate shares and not to the corporate partnership. In connection with corporate income each participant is subject to corporate tax on its share of the business profits. Perhaps, it is of vital importance to indicate that as regard tax consequence, an investment venture, in contrast to a trading venture, enjoys tax exemption as prescribed under the encouragement of investment Act of 1999. It is evident that a number of structural planning aspects arise in the selection of the appropriate joint venture vehicle.





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