Startups and SMBs in Bahrain can now issue shares to employees as well as raise funding via convertible notes after an amendment to the Bahrain Commercial Companies Law.
Employee share schemes enable companies not only to raise new capital but also retain talent and incentivise their employees. Globally, many SMEs and startups have found the ability to introduce employee share schemes essential for their resilience and growth.
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Convertible notes on the other hand are a type of loan which allows lenders to be repaid in equity rather than cash. Bahrain is the first mainland jurisdiction in the GCC to provide for the use of these debt instruments.
The change, introduced by legislative decree on September 28, 2020, is intended to improve Bahrain’s business environment.
“By granting employees the option to own or buy equity in the company, loyalty is increased, and employees are incentivised to act as owners,” said Pakiza Abdulrahman, head of Startups at the Bahrain Economic Development Board.
“Convertible notes are a debt instrument that provides startups with a simpler, cheaper and faster means of raising capital without having to establish a valuation at an early stage. By granting incentives for early investors such as discount rates, this instrument can attract a wider range of capital,” she added.
Other enhancements include allowing for the establishment of non-profit companies, enabling online voting and candidacy submissions for board appointments, further increasing the rights of minority shareholders and further strengthening corporate governance and transparency.
The amendment comes in the wake of Bahrain being named the fourth most improved economy in the world for doing business by the World Bank.
The kingdom was commended for streamlining, enhancing and digitising the judiciary system and framework for corporate disputes.
The regulations that will enforce and govern both employee share schemes and convertible notes are expected to be published by the end of the year.