The Legal Foundations of the Commercial Company in Oman: An Analysis of Articles 11 and 12 of the New Commercial Companies Law

Advocate Yousuf Al Khadhoori

The commercial landscape in the Sultanate of Oman witnessed a qualitative shift with the issuance of Royal Decree No. 18/2019 promulgating the new Commercial Companies Law. This law aims to enhance the investment environment, achieve flexibility, and provide greater protection for partners and shareholders. Articles 11 and 12 of this law are cornerstones that define the legislative framework for a company’s existence, starting from the legality of its objective to its nationality and principal place of business.

Understanding these articles is not merely a procedural matter; it is an insight into the philosophy of Omani law towards the commercial entity, which rests on the principles of absolute legality and national sovereignty over locally established entities.

I. Article 11 – The Legal and Ethical Safety Valve for Companies

Article 11 is crucial for ensuring the integrity of the commercial and social public order in the Sultanate. This article establishes two main principles: the legality of the objective and the nullity of the company, and the joint liability of those who carry out its infringing actions.

1. The Mandatory Requirement of a Lawful Objective

The first paragraph stipulates:

“The objective of the company must be lawful, and every company whose objective is inconsistent with the law, public policy, or morality shall be considered null and void, and every interested person may assert its nullity, and the court may of its own accord pass a judgment to that effect.”¹

Th²is paragraph establishes three red lines that the company’s objective must not cross: the law, public policy, and morality (public decency).

Inconsistency with the Law: This involves overriding binding legislative texts, such as carrying out an activity that requires a special license without obtaining it, or practicing an activity that is legally criminalized.
Inconsistency with Public Policy: This relates to the fundamental principles upon which the society and state are based (such as security, the economy, and mandatory rules that cannot be violated by agreement).
Inconsistency with Morality: This concerns the ethical values prevalent in Omani society.

Legal Consequences of Nullity:

A judgment of nullity under Article 11 is an absolute nullity. This means:

Right to Assert Nullity: It is granted to “every interested person,” which widens the circle of those who can challenge the company’s legitimacy (partners, creditors, and even aggrieved competitors).
Court’s Sua Sponte Power: Crucially, the court “may of its own accord pass a judgment to that effect.” This confirms that the legality of the objective relates to public order, and the court does not require a request from the parties to raise this defense; it must verify the integrity of the objective before anything else.

2. Joint Liability of Acting Persons:

The second paragraph states:

“The persons who have carried out business or acted in the name of the company or to its account shall be jointly liable for the obligations arising from the business carried out or acts made by them.”

This clause provides additional protection for parties dealing with a void company or one that has violated the law. Once the company is declared null and void due to an unlawful objective, the protection afforded by the principle of separating the company’s financial liability from its partners’ is removed.

Joint Liability: Liability is not limited to the company (which is void) but extends directly to the natural persons (managers, founders, or representatives) who executed those infringing actions.
Legislative Wisdom: This ruling deters individuals from using the company’s corporate entity as a shield to conceal illegal activities or actions that violate public order.

II. Article 12 – Nationality and Legal Center of the Omani Company

Article 12 addresses the aspect of national sovereignty and the legal identity of the company, a stable rule in modern company laws:

“Any company established in the Sultanate shall be of Omani nationality and shall enjoy the privileges prescribed by this Law. It must have the Sultanate as its principal place of business and it may have one or more branches in the Sultanate or abroad.”

1. Attribution of Omani Nationality:

This paragraph establishes a crucial rule: the company’s nationality is linked to its place of establishment.

The Establishment Criterion: Upon registration in the Commercial Register in the Sultanate of Oman, the company automatically acquires Omani nationality, regardless of the nationality of the partners or shareholders (whether Omani or foreign).
Privileges: Acquiring nationality results in enjoying the privileges and rights stipulated by Omani law for national companies (such as the right to participate in government tenders and benefit from any protection or support decreed by Omani law).

2. Mandatory Principal Place of Business:

The law clearly mandates that the company’s principal place of business must be in the Sultanate.

Importance of the Principal Place: The principal place of business is the legal and actual address of the company, where its main affairs are managed, its records are kept, and it receives judicial notices. This requirement ensures the company is fully subject to Omani jurisdiction and law.
Flexibility for Branches: The law grants flexibility by allowing the establishment of company branches both within the Sultanate and abroad, which facilitates the global expansion of Omani companies without compromising their essential legal center.

III. The Interplay between the Two Articles and Their Role in Corporate Governance

Articles 11 and 12 constitute an integrated framework for corporate governance from a formative perspective:

Article	Primary Function	Impact on Governance
Article 11	Regulatory Function (Substantive)	Prevents the establishment of companies pursuing an immoral or illegal objective, protecting the market and society.
Article 12	Organizational Function (Identity)	Determines the company’s nationality and legal center, ensuring its subjection to Omani jurisdiction and sovereignty.

The combination of these two principles ensures that the commercial entity operating in the Omani market is:

Legitimate in Purpose: Does not violate the law or morality.
Subject to Sovereignty: Holds Omani nationality and is subject to the Sultanate’s oversight.

Conclusion

The new Commercial Companies Law in the Sultanate of Oman, through Articles 11 and 12, reinforces the legal foundation of companies. Article 11 ensures the integrity of the objective against any violation, threatening infringing entities with absolute nullity and joint liability for the actors. Meanwhile, Article 12 affirms the national identity of locally established companies, supporting the Omani economy and facilitating state oversight. These provisions underscore Oman’s commitment to a commercial environment characterized by integrity, clarity, and adherence to public order.

ROYAL DECREE

No. 18/2019

PROMOTING THE COMMERCIAL COMPANIES LAW

Article 15: Mastering Oman’s 7-Day Corporate Filing Deadline

Integrated Governance Secures Firm Value