Buying A Business In Oman: Legal Due Diligence For Foreign Invest

Foreign investors buying a business or significant business assets in Oman should not assume that an authorised signatory has unlimited authority to complete the transaction.

Before signing or paying the purchase price, the buyer should check who owns the assets, who has authority to sell them, and whether shareholder approval is required.

A decision of the Oman Supreme Court shows why this matters.

Key Considerations

• An authorised signatory does not necessarily have authority to sell all or a substantial part of a company's assets.
• Significant asset sales may require authority under the company's constitutive documents or unanimous shareholder approval under Article 267 of the Commercial Companies Law.
• The required due diligence will depend on whether the transaction is structured as a share purchase, business purchase or asset purchase.

An Oman Supreme Court Case on the Sale of Company Assets

In Commercial Appeal No. 992/2021, decided on 31 May 2022, the dispute concerned an Omani limited liability company subject to the Foreign Capital Investment Law.

One shareholder owned 70% of the company and was authorised to manage and sign on its behalf. He entered into an agreement to sell a commercial outlet belonging to the company for OMR 56,000. The other shareholder, holding 30%, had not approved the transaction.

The company challenged the sale. The lower courts set aside the agreement, relying in part on the restrictions imposed by Article 267 of the Oman Commercial Companies Law on a manager's power to sell company assets.

The Supreme Court later overturned the appeal judgment on a separate issue concerning the legal consequences of setting aside the agreement and returned the case to the Court of Appeal.

For a foreign investor considering an acquisition in Oman, the case raises a simple but important question: Does the person signing for the seller actually have authority for this particular transaction?

Article 267 of the Oman Commercial Companies Law

Under Article 267 of the Commercial Companies Law, an LLC manager cannot sell all or a substantial part of the company's assets unless the manager is expressly authorised to do so by the company's constitutive documents or by a unanimous resolution of all shareholders.

This means that checking the company's Commercial Registration and authorised signatories may not be enough for a significant asset acquisition.

The buyer may also need to review the company's constitutive documents and shareholder approvals to confirm that the sale has been properly authorised.

What Should a Foreign Investor Check Before Buying a Business in Oman?

The scope of legal due diligence depends on how the acquisition is structured. A purchase of shares raises different issues from the purchase of a business or its assets.

For an asset acquisition, a foreign investor should at least confirm:

• Ownership: Does the Omani company own the assets it proposes to sell, and are there any rights or restrictions affecting them?
• Authority: Does the manager or authorised signatory have authority for this particular sale?
• Shareholder approval: If all or a substantial part of the company's assets are being sold, has the requirement under Article 267 been satisfied?

These checks should take place before the acquisition agreement is signed and the purchase price is paid.

Why Legal Due Diligence Matters

Legal due diligence when buying a business in Oman is not limited to checking the target company's liabilities. It should also confirm that the proposed acquisition can be validly authorised and completed.

Oman Supreme Court Commercial Appeal No. 992/2021 provides a useful example. Even where the person acting for the company was its manager, authorised signatory, and 70% shareholder, the sale still resulted in litigation concerning his authority to dispose of company assets.

For foreign investors considering a business or asset acquisition in Oman, checking corporate authority before completion is therefore an important part of legal due diligence.