Act of Trading in Oman - Business Law PDF

BUSINESS LAW: Act of Trading in Oman POLS4945 Prepared by Wadhah Al Hinai  COMMERCIAL ACTIVITIES AND TRADERS SECTION ONE COMMERCIAL ACTIVITIES It is important to distinguish between the commercial activities and the civilian activitie...

BUSINESS LAW: Act of Trading in Oman POLS4945 Prepared by Wadhah Al Hinai  COMMERCIAL ACTIVITIES AND TRADERS SECTION ONE COMMERCIAL ACTIVITIES It is important to distinguish between the commercial activities and the civilian activities. This is because there are legal effects built on this distinction. But what are the criteria to distinguish the commercial activities from others, and what are the legal effects which result from this distinction? In order to answer these questions, this part is divided into two sections; the first is about the concept of commercial activities and the second is about the effects of distinction between the commercial activities and the civilian activities. Concept of commercial activities There are several criteria to distinguish between the commercial activities and the civilian activities. But Art (8) of Omani Commercial Law adopted one of them. It is the speculation criterion. Speculation means achieving profit. So, if a person does an activity with intention to achieve profit, this activity is considered commercial activity and the commercial law governs it. But if that person does not aim at achieving profit, his activity is considered civilian and the Civil Law governs it. Accordingly, the criterion to distinguish the commercial activity from civilian activity is the intent to achieve profit, regardless of who does that activity. Beside this criterion, Art (9 and 10) of Omani Commercial Law mentioned some activities and rendered them commercial activities. According to Art 9, The following activities in particular shall be deemed to be commercial activities: 1. The purchase of commodities and other movable materials and non-movable materials with intent to sell them and achieve profit whether sold in their original condition or after manufacture or conversion. 2. The purchase of commodities and other movable materials and non-movable materials with intent to hire them. Or, lease them with intent to sub-leasing them. 3. The sale, rent or sub-leasing of the commodities purchased or leased in the aforementioned manner. 4. The purchase of real estate with intent to achieve profit from the sale in its original condition or after division. And the sale of real estate purchased with such intent. 5. Supply contracts. 6. Employment contracts. 7. Public and private banking transactions, money-changing activities and financial dealings. 9. Commercial papers such as bills of exchange, promissory notes and checks. (all activities such as drawing, acceptance, endorsement, guarantee, etc) 10. The establishment of commercial companies and the sale or purchase of their shares or bonds. 11. Public warehouses and pledges on property deposited therein. 12. The extraction of minerals, oils, rocks and other natural resource. 13. The various types of insurance. 14. Public sites and premises such as public playgrounds, cinemas, hotels, restaurants and auction rooms. 15. Public utility concessions such as the distribution of water, electricity, gas, postal communications, telecommunications and the like. 16. Transportation via land, sea and air. 17. Business agencies, tourism offices, import and export offices. 18. Activities related to printing, publishing, the press, broadcasting and television, news or picture transmission, advertisements and the sale of books. 19. The establishment of factories, even if related to agricultural investment, and undertaking to establish and manufacture. 20. Activities related to building and construction and to altering, renovating and demolishing buildings. In addition, According to Art 10, all activities related to maritime and air navigation shall be deemed to be commercial activities, particularly: 1. The construction of ships or aircrafts and the sale, purchase, hire, leasing or repair of them. 2. Contracts pertaining the wages and salaries of a ship's master and crew navigators of aircraft and all those employed thereon. 3. Lending and borrowing 4. Maritime and air transportation and all related processes such as the purchase or sale of the requisites thereof in terms of supplies, tools, stores, fuel, ropes, sails provisions and aircraft supply materials 5. The various types of sea and air insurance Thus, these two Articles specified precisely the commercial activities regardless of the person who does them, namely, whether he is trader or civilian. But besides these activities, there are some transactions shall be considered commercial activities. They are the activities linked with, or facilitating the activities mentioned in the previous Articles. They are called subsidiary commercial activities. The subsidiary commercial activities, generally, have a civilian nature. But they acquire the commercial character because they issue from a person who has commercial character and they relate to his commercial business. In other words, these activities are deemed to be commercial if two conditions are fulfilled. First, the activity should issue from a trader. Second, the activity should be linked with the commercial activities of that trader. According to that, if a trader works in clothes bought sofas to his shop, this transaction is considered commercial activity. This is because this transaction is done by a trader and his purpose is to improve his shop, i.e. the transaction is linked with his business. But if this trader bought the sofas to his house, this transaction is considered civilian activity. Effects of distinction between the Commercial activities and the civilian activities. There are some results come from the distinction between the commercial activities and the civilian activities. They are as follow: 1) The debtors are jointly-liable in the commercial debt. This means that the creditor in the commercial activity can ask any of the debtors about his right. He also can ask all of them together. So, if any of them bankrupted, the other debtors will pay instead of him and the creditor will not bear this bankruptcy. But in order to apply the joint-liability rule, the debt should be common among the debtors, i.e. the source of the debt should be unified for the debtors. However, the Art shows that the joint-liability is not an obligatory rule. So, the parties can agree otherwise. 2) Rules of evidence: The rules of evidence in the commercial transactions are different from those in the civilian transactions. This is because commerce is based on credit and speed. Accordingly, the parties, in commercial activities, have freedom in the issue of evidence, i.e. they can prove the transaction by any method of evidence. Meanwhile, the civilian transaction is proven only by writing if the value of the transaction exceeds a specific limit. 3)No donation in commercial activity: It is abovementioned that the purpose of the commercial activities is to achieve profit. Because of that, there is no donation in the commercial activities. Thus, if the parties of the contract overlooked to mention consideration, that does not mean they intend to make donation. Meanwhile, if they overlooked to mention the consideration in a civilian contract, that may mean that the parties intend to make donation. 4) Acquisition of the trader character: If the person practices the commercial activities, he may acquire the commercial character. If he acquires this character, then he has to do some legal obligations. For example, he has to keep commercial books, record in the commercial registrar, etc. 5) Statute of limitation: Statute of limitation means that the court will not receive any claim after passing a specific time, i.e. no legal action will be brought before the court if a specific time lapses. This time differs in commercial activities from that in civilian activities. In commercial activities, it is ten years. Meanwhile, in civilian activities, it is fifteen years.  SECTION TWO TRADER The trader is defined in Art (16) of Omani Commercial Law as “Any person who engages in commercial activities in his name, has the requisite capacity and adopts such transactions as a business will be considered a Merchant”. Thus, this Art shows that there are some requirements should be available in the person to be deemed a trader. If they are fulfilled, the person acquires the trader character and then he has to perform some obligations. They are as follow: Requirement of acquisition of a trader character: In order to study the requirements of acquisition of a trader character, we have to distinguish between the normal person and the juristic person. The normal person: The abovementioned Art shows that several conditions should be available in the normal trader. They are: First: The trader has to practice commerce in his name and for his account. That means, the person has to be independent in his work, and his work should be commercial activity, i.e. the activities which are mentioned in Art (9 and 10) of Omani Commercial Law. According to that, if the person works in a name belongs to another person, or if he works for the account of another person, he will not be considered a trader. Besides, the director of the company does not acquire the commercial character if he is not a partner in the company. This is because he works in the name of the company and for its account. But if the company is general partnership or limited partnership, he may acquire the trader character. Second: The trader has to become a professional in the commercial activities. So, professionalism is an important criterion to distinguish the trader from the non-trader. Professionalism means that the person adopts the commercial activities as a job and vocation to collect his Livelihood. Thus, any person practices the commercial activities professionally will acquire the trader character. He will acquire the trader character even if he practices other works do not relate to the trade. For example, the farmer may practice commercial activities besides farming. If he did and achieved the professionalism criterion, he will acquire the trader character. But if he practices commerce accidentally, he will not acquire the trader character. However, there are exceptions to the professionalism criterion. In these exceptions the person may acquire the trader character even if he does not practice commercial activities professionally, or vice versa. They are as follow:  1) if a person advertises that he is a trader, then he will acquire the trader character even if he does not practice commerce professionally. The law gives him the trader character in order to protect the persons who deal with him. This is because some persons may depend on the advertisement and, accordingly, deal with him as a trader. In this case, the law considers him a trader and the commercial law will be applied on him. 2) there are some persons prohibited, by virtue of special acts, from practicing commerce such as public employees, lawyers, etc. These persons may practice commercial activities by hidden ways. For example, they may use names belong to other persons. In this case, the hidden and the apparent persons acquire the trader character. 3) the persons who have simple shops and simple vocations do not acquire the trader character. Accordingly, they are not submitted to the commercial law although their commercial activities are submitted to this law. The purpose for which the legislature does not give them the trader character is to keep them away from the rules of bankruptcy. But in order to apply this exclusion, two requirements should be fulfilled; their equity capital should not exceed (10.000) OMR, and they have to depend, in their work, on their handcraft more than the equity capital. Third: The person who practices commerce has to have the commercial capacity. Therefore, his age should be more than 18 years and no mental disorder happens with him. This rule is applied on Omani citizens. Meanwhile, it is not applied on the foreigner persons. This is because the foreigner persons are prohibited from practicing commerce inside Oman unless they got permission from the competent authorities. The juristic person: The juristic person means a group of people or amount of money takes legal entity and recognized by the law. According to Omani Law, the trader character is given to three types of juristic persons. They are: a) The companies which are established by the government or by anybody belongs to the government. These companies acquire the trader character even if the government participates partly in the establishment. But in order to acquire the trader character, these companies should practice commercial activities. Otherwise, they will not acquire this character. Accordingly, when these companies acquire the trader character, they will be submitted to the rules of commercial law except the rules of bankruptcy. This is because the state is a party in these companies and, accordingly, it has ability to avoid bankruptcy. b) The commercial companies acquire the commercial character too. This is because they are established to practice commercial activities and to achieve profit. Omani Law regulates five types of commercial companies. They are: Joint-Liable Company (General Partnership), Limited Partnership, Particular Partnership Company, The Shareholding Company and the Limited Liability Company. These types will be discussed later. c) The third type which acquires the trader character is the companies which take commercial form even if they practice civilian activities, i.e. This type of companies is, primarily, established to practice civilian activities such as farming, pharmacy, etc, and, at the same time, take commercial form such as Joint-Liable Company and the like. Because they take the commercial form, they will be submitted to the rules of Commercial Law. Effect of acquiring the trader character: When the person, whether normal or juristic, practices commercial activities professionally and the abovementioned requirements exist, he acquires the commercial character. Then, the law binds that person to do some duties, they are: to keep commercial books, to bear a commercial name, to register in the commercial registry, to avoid unfair competition and to be submitted to the bankruptcy rules. 1) To keep commercial books: The commercial books mean the note books in which the trader writes his commercial transactions. They are important because they enable the trader to regulate his financial position. Namely, they will enable him to know his rights and obligations. Also, they are important for evidence, i.e. the trader or his dealer may use them to prove the transaction. The commercial books are divided into two types; the compulsory commercial books and the optional commercial books. The former type is named compulsory because the trader must keep them. Otherwise, he may be punished. This type includes the day-book, the general ledger and the book of bills and correspondences. The day-book is used for recording the daily transactions, i.e. the trader uses it to record the all transactions which happen every day and relate to his commerce. Also, the trader uses the day-book to record the monthly expenses, namely, his personal expenses. Thus, this book is useful to the trader because it helps him to govern his commercial transactions. The general ledger is used for recording information about the goods which the trader has. It is also used for recording the rights of the trader, his obligations and his balance in the bank. The third book is used to keep the bills, the correspondences, the telegrams and the all documents which relate to his commerce. Omani Commercial Law binds the trader (or his heirs) to keep the former and the second books for ten years, and the third book for five years. These periods start at the time of closing the book. The optional commercial books are called optional because the law does not bind the trader to keep them. Therefore, using these books depends on the desire of the trader, but not on the rules of the law. The optional commercial books contain non-exclusive types. This is because they are not nominated by the law. 2) To bear a commercial name: The commercial name is the name which the trader selects for himself in order to distinguish himself from other traders. Thus, when he deals with others, he uses this name. Omani Commercial Law contains some rules regulating the commercial name. While some of them relate to the normal person, others relate to the juristic person. With regard to the normal person, the law permits to the trader to select his personal name or his nickname. He also can select any invented name or any name derived from the nature of the commercial activities which he practices. But in all cases, the name which he selects should be real and not illusive. For example, if he selected a name derived from the commercial activities which he practices, this name must relate to these activities, namely not to other commercial activities. Besides, when the trader selects a name for himself, he has to record this name in the commercial registry. Then, the commercial registrar has to make sure that no previous trader selected this name. If the name is registered previously and reserved to another trader, the registrar should stop registering it. Thereby, the registration protects the name and ensures that no one uses it except its owner. If another trader uses it, its owner has right to ask for compensation. But he has to prove that he is injured. Besides the compensation, Art (92) of Intellectual Property Law No. 67 of 2008 mentions a penal punishment. It provides that any person uses an intellectual property belongs to another person should be punished by an imprisonment between three months until three years or fine between (OMR 2.000) to (OMR 10.000) or both of the sanctions. The sanction is doubled if the fault is repeated. 3) To register in the commercial registry: The law binds the trader to register in the commercial registry because the registration is considered an instrument of publication for the data which relate to the trader such as his name, his trademark (if he has), his commercial logo and the disposals which relate to his shop. Accordingly, when the data is registered, it becomes protected by the law as abovementioned. In addition, registration of the data in the commercial registry is useful for the persons who deal with the trader. This is because they can see the data which relates to him and reassure about his financial position. The duty of registration is regulated by Commercial Registry Law No. 3 of 1974 which specifies the data which should be registered. Art (7 and 9) of this law mentions the data. They are: The personal name and the nickname of the trader, the name which he selects to practice commerce, date and place of birth, etc. Art (16) of Commercial Registry Law binds the registrar to make sure of the authenticity of the mentioned data when it is submitted to him. If he finds that there is something wrong in the data, he can reject the registration. Art (18) of the same law imposed fine between (OMR 500) until (OMR 1000) or imprisonment between one month to six months or the both sanctions on the trader who introduces, intentionally, incorrect data to the registrar. The same Art imposed fine between (OMR 100) until (OMR 1000) on the trader who does not register during one month in the commercial registrar office. 4) To avoid unfair competition The unfair competition means any activity contradicts with the principles of commerce. Accordingly, the fraud, the cheating, introducing incorrect information about the commodity and the like are considered unfair competition. Also, using a commercial name, a trademark belongs to another trader is considered unfair completion.  The unfair competition is based on three elements. They are: the mistake, injury (damage) and the cause which links between them.  If the trader does not avoid this competition, he has to compensate the injured person.  Also, he may sometime be punished by virtue of Art (93) of Intellectual Property Law No. 67 of 2008 which is aforementioned. 5) Subjection to bankruptcy rules: Bankruptcy is a legal system applied on the traders only. It is applied on them if they become unable to pay their debt. This system is characterized by hardness and cruelty. Therefore, the law keeps the civilian persons away from this system. However, another system called “insolvency” is applied on them. This system is characterized by flexibility and it is less hardness than the bankruptcy. In order to apply the bankruptcy rules, there are some requirements should be fulfilled. They are: The person should acquire the trader character The trader should be unable to pay his debts The court has to declare that the trader is bankrupted. If one of these requirements is not fulfilled, the bankruptcy is not applied. Besides, there are requirements should be available in the debts. They are: 1. Commerciality of trader’s debts. 2. Monetary nature of debt. Only the obligation of payment justifies the declaration of bankruptcy in case of cessation. 3. debt should be final. So, it should not be conditional. It also should not be an object of dispute, and the dispute should be serious. 4. the amount of debt should be fixed. 5. debt should be current. Approval of Foreign Investments General Principles Non-Omanis may only conduct business in Oman through a locally registered entity. In practice, this means that non-Omanis must either establish a presence in Oman or conduct their business through a local commercial agent in order to invest in Oman. Establishing a Presence in Oman Oman’s Foreign Capital Investment Law RD 50/2019 (the FCIL) came into force and effect in January 2020, and its impact has been to significantly relax Oman’s foreign ownership restrictions. Oman’s Ministry of Commerce, Industry and Investment Promotion (the MOCIIP) has issued, pursuant to Ministerial Decision 209/2020, a list of activities that remain subject to foreign ownership restrictions (the restricted activities list). The restricted activities list includes activities such as automotive repair, translation/interpretation services and labour recruitment offices; it may be updated from time to time by a decision of the Minister of the MOCIIP. There are certain industry sectors that do not appear on the restricted activities list, despite historically requiring a higher level of local ownership. Oman’s engineering law, for instance, requires engineering consultancy offices to have a minimum of 35% local ownership. The MOCIIP is expected to continue to apply any such industry sector restrictions. Even prior to the introduction of the FCIL, foreigners establishing a presence in Oman’s “free zones” or “special economic zones”, or under the US–Oman free trade agreement or certain reciprocal arrangements implemented within the GCC, were able to take advantage of less onerous foreign ownership restrictions. However, the restricted activities list also applies to non-Omanis establishing a presence under these routes. Conducting Business Through a Local Commercial Agent Any arrangement under which a foreigner conducts its business through a local commercial agent must be registered with the MOCIIP. Commercial agents must be duly licensed by the MOCIIP. Procedure and Sanctions in the Event of Non- compliance Companies, partnerships, branches and representative offices must be registered with the MOCIIP. Where the entity being established is owned in whole or part by non-Omanis, the application for registration will need to be processed through the investment services centre of the MOCIIP. MOCIIP registration is required before any of these types of entities can commence operations. Contractual joint ventures are the exception to this general rule: although they are treated as legal entities formed under the Commercial Companies Law RD 18/2019 (CCL 2019), they do not require registration with the MOCIIP. However, at least one of the parties to the contractual joint venture will need to have an appropriately licensed presence in Oman. A foreigner who undertakes investment activity in Oman other than in compliance with the FCIL may be fined between OMR20,000 and OMR150,000, as may an Omani who participates with a foreigner in an investment project other than in accordance with the FCIL. Commitments Required From Foreign Investors The FCIL’s executive regulations were issued in June 2020 and amended further in March 2022. The FCIL’s executive regulations set out the types of investment project that may apply for preferential treatment (eg, projects established in Oman’s less developed regions), and the financial and non- financial conditions that must be satisfied in order for an investment project to qualify for such treatment. Right to Appeal There is no formal procedure to challenge a decision by the MOCIIP to reject a foreign investment (eg, where the MOCIIP declines to issue the necessary licence or declines to approve the necessary registration). If an investor believes that an application has been unreasonably rejected, the first response should be to open a dialogue through the appropriate channels at the MOCIIP. It is prudent to appoint local counsel with an understanding of the MOCIIP’s structures, practices and ethos to assist with these discussions. If that approach is not successful, then an investor is able to challenge any such decision in court. Oman’s legal system operates in accordance with the rule of law. Employment Law Nature of Applicable Regulations The employer/employee relationship in Oman is regulated by the Labour Law RD 53/2023 (as amended – the Labour Law). In Oman, regulations are issued from time to time by the Ministry of Labour to further regulate particular aspects of the employment relationship. The Labour Law prescribes an employee’s minimum benefits and entitlements, such as maximum working hours, annual leave entitlements and sick leave entitlements. The employment contract may include benefits and entitlements that exceed these minimum requirements. Characteristics of Employment Contracts The Labour Law requires a contract of employment to be in writing; it must be in Arabic and must be translated into a language that both employer and employee can understand, where applicable. A contract of employment must include certain specified information, and may be for a fixed term or an unlimited term. Working Time The worker may not work for more than 8 actual working hours per day, with a maximum of 40 actual working hours per week provided that they are interspersed, not including an hour for rest per day and eating, and the period of continuous work may not exceed 6 hours. The Ramadan are 6 hours per maximum working hours in the month of day, or 30 thirty working hours per week, for Muslim workers. The employer shall place in a conspicuous place in his establishment a schedule of working hours and daily and weekly rest times. Termination of Employment Contracts (a) Poor performance Employers have the right to terminate an employee for poor performance, provided the employee has been notified of the required areas of improvement in writing but has failed to improve their performance within six months of that notification. If terminating an Omani national for poor performance, the employer may only recruit another Omani as the replacement. (b) Discriminatory reasons The termination of an employee's employment as a direct result of their gender, origin, colour, language, religion, disability, social status, labour union affiliation or activities, pregnancy, childbirth or breastfeeding for a working woman will be considered an arbitrary dismissal. (c) Disciplinary reason A failure by an employer to follow its disciplinary procedure when terminating an employee for a disciplinary reason will be considered as an arbitrary dismissal. (d) Victimisation Dismissing an employee because they have raised a complaint or a claim against the employer will be considered as an arbitrary dismissal unless the complaint is proved to be malicious. (e) Constructive dismissal due to failure to pay wages Employees have the right to terminate their employment without notice should the employer fail to pay the employee’s salary for two consecutive months. (f) Redundancy The concept of termination by way of redundancy under certain circumstances has been included in the Law, although there is a set process that needs to be followed to ensure such a termination is not considered arbitrary. This includes the requirement for approval of the termination by a special committee prior to it taking place. Alternatives to redundancy, such as reduction in working hours and salaries, are also options that the special committee will consider and may apply. (g) Omanisation It is permitted for the employment of non-Omanis to be terminated if the termination relates to the company's Omanisation requirements and involves hiring an Omani replacement for the same role. (h) Time off for job searches An employee who has been served with notice of termination is entitled to 10 paid hours per week to search for a new job.