Piercing the ‘Corporate Veil’ — Qatar
In its Spring newsletter, CONSULEGIS International Litigation & Arbitration Specialist Group presented an abbreviated overview of 23 jurisdictions’ legal views on the topic of when courts may disregard a corporate entity to make owners of the entity personally liable for the debts of the entity—what is commonly thought of as “piercing the corporate veil”.
Among the contributors to writing on the topic are five legal advisors from Horizons addressing six countries’ legal points of view, including China, Korea (DPRK), Mongolia, Qatar, Russia and Pakistan. In this post, we offer the entry on Qatar.
Mohammed Lodi | Legal | Horizons Qatar
To assess when Courts, or the law in general, may disregard the corporate structure of a limited liability company (hereinafter “LLC”) and find its owners personally liable, we draw on relevant provisions of the Commercial Companies Law No. 11 of 2015 (the “Companies Law”) and other relevant provisions of the laws of the State of Qatar as may be applicable.
We should note that all Qatar laws, rules, regulations, decisions and decrees are in Arabic, with there being no official translation into any other language. Accordingly, all references to the same contained herein are based on unofficial English translations which we have in our possession.
In short, the LLC is a corporate structure provided for under the Companies Law, which limits the liability of its owners to that of their capital share amount, pursuant to Article 228 of the Companies Law. Thus, owners are protected from additional liability and are shielded from anything above their portion of the share capital that they have invested in the company.
With this said, the law does provide instances in which this general rule may be overlooked. Specifically, Article 298 provides that where the losses of the LLC reach half of the company’s capital amount, the managers shall submit, within 30 days of this loss, the issue of covering the capital or dissolution of the company to the partners. If the managers neglect to do so, then the owners and/or the managers shall be jointly liable for the liabilities of the LLC due to their negligence in this regard.
Considering this further, some examples of the implications of this provision and the judicial implementation of such liability would come by way of situations, including but not limited to, where a debtor of the LLC brings suit against the LLC for non-payment of a certain debt or otherwise during an audit/investigation into the accounts of the LLC.
We note that the application of such provision has not been tested to a large degree before the Courts, and there is not much guidance by way of past precedence in this regard.
To conclude, the above concept is a sort of “piercing of the veil” of an LLC with regard to the owners’ liability, which comes by way of a certain act, or rather failure to act, on the part of the managers. The law is clear with regard to the trigger of such liability. However, as mentioned hereinabove, this disregard of the limitation of liability of an LLC has been relatively untested before the Courts, yet we note that such risk remains when the provisions of Article 198 are not adhered to.
Mohammed Lodi is Horizons Qatar desk head. If you would like to talk with a specialist about corporate liability in Qatar or other countries, email us and we’ll have a Horizons professional contact you.