AGENCY LAWS OF KUWAIT
The basic premise for carrying out business in Kuwait is identified in the Articles 23 and 24 of the Kuwaiti Commercial Code. Article 23 provides that non-Kuwaitis can not engage in the commercial activities in Kuwait without having a Kuwaiti partner whose equity holding is at least 51%. Article 24 provides that a foreign company can not establish a branch in Kuwait and it may not engage in business activities in Kuwait except through a Kuwaiti agent.
The following ways define how a foreign individual or entity may enter the market and carry out business in Kuwait:
• Establishing a company
• Concluding a joint venture agreement
• Appointing a Kuwaiti commercial agent
• Appointing a commercial representative
For all Commercial activities, business licenses are issued by the Ministry of Commerce & Industry (MCI) to Kuwaiti nationals only, Kuwaiti Companies and in some cases to GCC nationals and Companies. All licenses require periodical renewal, normally every two years.Commercial Agency:
Only Kuwaiti individuals or firms are eligible to functioning as commercial agents in Kuwait, while foreign individuals or firms, other than GCC nationals, are not allowed to carry on commercial activities in the country except through an agent. All arrangements between a foreign entity and its local agent are governed by Articles 260 to296 of the Commercial Code.
A commercial agent can not engage in a non-commercial activity without a specific agreement, even he is an absolute agent of the principal. The consideration of an agency agreement shall be remuneration, payable only at the conclusion of the transaction. The agent is liable for any damage, incurred to the principal by the contravention of his instructions. The agent shall be held responsible for the damage caused to the things he keeps on principal’s behalf, unless the reason for damage is beyond his control such as natural calamity, vise major etc. At the same time the agent is not liable to insure such things without the specific instruction of the principal. In case he observes any damage to the things in transit, he shall take appropriate actions to protect and dispose such things to minimize loss to the principal. The agent shall furnish the periodical report on the progress of the agency performance with relevant statement of accounts to the principal. In case any false information or statements were found, the principal may reject such transactions and the agent will not be entitled for remuneration for the same. The agent shall have privilege over the goods/things consigned, delivered or deposited with him by the principal and remain in his possession, to secure his remuneration and other amounts due to him, except the legal expenses and the Government dues. The address of the agent shall be treated as the principal’s for the purpose of serving notices of official affairs and legal actions.
The code defines the general rules governing different types of commercial agencies.
1. Contract Agency: A contract agency is a contract, by which a person undertakes to continuously encourage and negotiate the conclusion of transaction in a specific territory independently and on his own cost, for the benefit of principal for remuneration. Principal can appoint more than one agency in a territory with same activity but the agent cannot be an agent of different companies with same activity in the territory.
The agency contract must be written and it shall specify the details of the agency limit, the remuneration, term, the territory, and relevant trademarks. If the agent should establish showrooms, workshops, or warehouse facilities, the contract must be valid for a period not less than five years.
The contract agent shall be eligible for remuneration for the transactions duly concluded by him or the principal himself too. The agent shall undertake to preserve the right of the principal at any cost.
The principal may not terminate / abstain from renew the agency contract without a fault from the part of agent; otherwise he shall be liable to pay compensation to the agent. Any agreement contradictory to this provision will be void-ab-intio. Likewise the principal shall be eligible to be compensated in case an agent abandons the contract during the term without reasonable cause.
Moreover in case the principal substitutes the contract agent with a new agent, the new agent shall jointly be held responsible with principal to compensate the former agent.
2. Distributorship Agency: A local agent may act as the distributor of the principal’s product in a defined territory and in return for a percentage of the profit as per Article (286) of the Kuwaiti Commercial Code. If the Agent is the sole distributor in the whole country, distributorships are governed by the same general rules as contracts agencies.
3. Commission Agency: The commission agent shall undertake to carry out the business activity in his own name on behalf of the principal in consideration of remuneration, which is not subject to the estimation of the judge. The agent shall not disclose the principal’s name without authorization.
If the commission agent sells the goods for a price less than the purchase price or the price fixed by the principal, the principal can reject the transaction by giving immediate notification of rejection to the agent.
In case the agent, for selling, grant a respite for payment or allow payment by installments without authorization, the principal can claim the immediate full payment from the agent, unless the situation and usage require so. Likewise the agent sells for immediate payment against the principal’s instruction to sell for a term; the principal cannot require the agent for immediate payment, provided the agent shall pay the price on the basis of sale of a term.
The commission agent may not institute himself as a second party in a transaction without prior authorization; otherwise he will not be eligible for remuneration for the same transaction. The agent shall be directly liable to the third party with whom he concludes a contract and vise versa.
If the commission agent for selling is declared bankrupt before the realization of payment from the buyer, the principal may request the buyer to pay him directly and in case of a commission agent for buying is declared bankrupt before the delivery of the things purchased, the principal may request the seller to deliver the things directly to him.
A commission agent instituting himself as a guarantor shall be eligible for a special remuneration.
To open a branch in Kuwait, a foreign entity must enter as Principal in an agency agreement with a Kuwaiti agent. Under such an arrangement, the agent is merely the foreign entity’s legal representative in the country and does little more than take care of licensing formalities, obtain visas for the principal’s executives and employees, and represent the principal officially. The agent will expect a fee for his sponsorship and the use of his licenses.
An agency agreement is not enforceable under Kuwaiti law unless it has been registered in the Commercial Agencies Register at the Ministry of Commerce and Industry (MCI). Application for registration must be made within two months of the agency being created. Before applying to the MCI, the agreement must be registered with the Kuwait Chamber of Commerce and Industry (KCCI).
The application for registration can only be made by the Kuwaiti agent. It must be made in two original copies of the official MCI form and must be accompanied by
- An original copy of the agency agreement
- A translation of the agreement into Arabic
- A copy of the agent’s commercial licenses
- A copy of the agent’s nationality document or registration in the Commercial registry
- A certificate of registration from the KCCI
If the agency agreement was executed overseas, the original must be attested at the principal’s location by an official authority and the Kuwaiti consulate. Where it was executed in Kuwait, it must be notarized by a Kuwaiti Notary Public.
Upon registration, the MCI gives the agent a signed and stamped copy of the application, and advertises the registration in the official gazette. Amendments to the agreement must also be registered and when an agency terminates it must be removed from the register. The register may be searched by the names of agents, the names of principals and the trade names of goods.
Review and comments by the Law Firm of Labeed Abdal.
Please feel to contact us for further queries and clarifications.
The Law Firm of Labeed Abdal, Kuwait.
Scope of services our law firm can be offered --
For an entrepreneur seeks an agent in Kuwait.
Drafting and finalization of agency agreements.
Assistance in registration of agency agreements.
Periodic audit and advice on legal requirements.
Negotiation with third party in legal issues.
Represent Principal in relevant offices of Ministries and
other authorities as required.
Assistance in arbitration/litigation in case of necessity.
Overall legal supervision, support and assistance on
business activities to ensure the absolute protection of
client’s interest in Kuwait.