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How to open a business in Mozambique
This article aims to give a general overview about the path towards the opening of a company in Mozambique, bearing in mind the opportunities that the Mozambican Market currently offers and the challenges potential investors may have in understanding the basis and ethos of the legal regime.
First, it is fundamental to explain briefly the more common types of companies before describing more profoundly the legal formalities needed to start a business.
The legislation regulating the incorporation of a company in Mozambique is foreseen in the Mozambican Commercial Code (CCM), enacted by Decree-Law 2/2005 of December 27, which was last amended by Decree-Law 1/2018 of May 4. There are three types of unlimited liability companies (partnerships, limited partnerships and partnerships by shares) and three types of limited liability companies (capital and industry companies, private limited liability companies and public limited liability companies). The focus of this analysis will lay on this last two types of limited liability companies, the most common in Mozambique and used by investors.
Limited Liability Companies
This type of companies are the most common in Mozambique. The option of the investor for the specific type of company depends on several factors, namely, the greater or lesser simplicity of the structure and operation, the amount of capital to invest, as well as confidentiality issues regarding ownership of the share capital.
Private Limited Liability Companies (Sociedades por Quotas)
Private Limited Liability Companies are often used for smaller investments, having in many cases family structure. There are several requirements for this type of companies. They must have a minimum of two shareholders and the maximum of thirty shareholders (except in the case of a single-shareholder company, necessarily incorporated by a sole natural person).
– Share capital
The share capital is freely determined by the shareholders. Nevertheless, must be appropriate to purse the company scope. The share capital is divided into participations called “quotas” (shares), whose par value is expressed in local currency (meticais) and corresponds to their admission value on the company.
The transfer of shares requires the drafting of a written document signed by the parties and must be communicated in writing to the company and registered at the Commercial Registry Office.
The company and the shareholders (proportionally to their holdings in the company) have pre-emptive rights in case of transfer of “quotas” inter vivos, except where otherwise provided by the articles of association.
– Liability
Regarding asset liability, shareholders are jointly and severally liable for the whole of the share capital contributions. Claims of credits are limited to the assets of the company.
The law allows for the articles of association to set forth that one or more shareholders may also be liable for the company’s debts up to a certain amount. In this case, this liability may be jointly with the company or subsidiary in relation to it but must be equal for all shareholders that are under this obligation. In any case, this liability only obliges the shareholder while he is a shareholder.
– Governing bodies
Regarding governing bodies, a general meeting and a management body shall be formed. The supervisory board is optional in this form of company.
The shareholders, without no exceptions, may participate in the general meeting. Furthermore, except otherwise provided by the articles of association, resolutions are taken by simple majority.
Private limited liability companies are managed by one or more directors, who may or not be the shareholders of the company and are appointed by the shareholders to hold office for re-eligible terms of four years (unless otherwise provided by the articles of association). Directors are entitled to receive a remuneration, which shall be set by shareholders’ resolution.
When the articles of association determine that the company will have a board of directors, the same shall consist of, at least, three directors. The resolutions are taken by simple majority.
– Profit distribution
Distributable profits are distributed as determined by the shareholders. However, the articles of association may demand that a percentage no less than 25% or more than 75% of the distributable profits of each financial year shall mandatorily be allocated between the shareholders. Nonetheless, at least 20% of the yearly profits shall be retained by the company as a legal reserve, until the accumulated reserve amounts to one fifth of the share capital, without the prerogative of the articles of association establishing a higher minimum amount.
Public Limited Liability Companies (Sociedades Anónimas)
This type of companies are more suitable for larger operations, when larger investments are at stake. Although having a more complex structure than a private limited liability company, allows greater flexibility to its shareholders, such as the fact that the transfer of shares is not subject to any special form.
– Shareholders
A public limited liability company must have, at least, three shareholders, except when the law specifically establishes otherwise. These shareholders may be natural or legal persons, nationals or foreigners.
When any of the shareholders is resident or domiciled abroad, the same must communicate to the company the identity of the person that will be entitled to obtain, on such shareholders behalf, the company’s communications, as well as notices and notifications relating to administrative and judicial proceedings.
– Share capital
Regarding the share capital structure, please note that Commercial Law does not set a minimum capital requirement. The amount of share capital must be appropriate to carry out the corporate purposes and must be expressed in local currency. Regarding the payment of the share capital, a public limited liability company may only be integrated when the entire share capital has been subscribed and when at least 25% has been paid up.
A public limited liability company share capital must be divided into shares (acções), which may be nominative or bearer shares, represented by certificates of shares. Nominative shares may also be classified as registered or book entry shares.
The transfer of shares is not subject to any formality and depends on the type of shares issued by the company. In the case of bearer shares, the transfer involves simple delivery of the certificates to the transferee; in the case of registered nominative shares, the transfer takes effect by means of a declaration of assignment in the nominative share register book or in any instrument that may replace it; in the case of nominative shares, the transfer takes place by the depositary bank recording the transaction in its books or records to the debit of the transferor’s share account and to the credit of the transferee’s share account. The articles of association may provide for pre-emptive rights of the shareholders, as well as require the company’s consent for the transfer of shares.
– Liability
Regarding asset liability, the liability of each shareholder is limited to the value of the shares subscribed. Furthermore, claims of creditors are limited to the assets of the company.
– Governing bodies
Concerning governing bodies, the company shall be composed by a general meeting (deliberative), a board of directors (management body) and a supervisory board or statutory auditor (supervisory body).
The general meeting involves the participation of all the shareholders, and resolutions are passed by simple majority, except where the law requires qualified majorities (such as resolutions related to the merger, demerger, transformation or dissolution of the company) and in cases where the articles of association provide otherwise. Each share represents one vote, unless the articles of association determine otherwise.
The board of directors comprises an odd number of directors, who may or not be the shareholder of the company appointed in the articles of association or by resolution of the shareholders to hold office for re-eligible terms of four years (unless otherwise provided by the articles of association).
The company may have a sole director provided the share capital does not exceed MZN 500.000,00 (approximately USD 13.500,00). As a rule, the directors are entitled to a remuneration, which shall be established by shareholders’ resolution. In addition, directors’ liability should be guaranteed if that is determined by the company’s articles of association.
Among other restrictions established by law, directors may not carry on, without specific authorization by the general meeting, on their own behalf or on behalf of others, any business competing with that of the company. The violation of such a duty result in the penalty of being removed for cause and becoming liable to pay an amount equal to the value of the unlawful act or contract.
Supervision of a public limited liability company shall be entrusted to a board of auditors (comprising three or five members) or to a statutory auditor, who must be an official auditor or a firm of auditors.
– Profit distribution
Regarding mandatory profit distribution, shareholders are entitled to receive, as a mandatory dividend and on each fiscal year, the share of profits established in the articles of association or, if these are omitted, the amount determined by applying the following rules: (i) 25% of the net profit less the amounts allocated to the legal reserve; (ii) limited to the amount of the net profit of the achieved year.
Regarding legal reserve funds, please note that of the net profit for the year, 5% shall be set aside as a fund for the legal reserve, which shall not exceed 20% of the share capital.
Legal Formalities
No matter the type of company chosen, the process of registering a company in Mozambique must obey with several formalities. There are around fifteen steps in the path towards the incorporation of the company:
- Obtaining the certificate for the company’s name reservation at the Legal Entities Registration Office, that requires the form and a photocopy of identification document of the applicant;
- Obtaining documentation regarding the company`s representative of the shareholders acquired at the shareholders and representatives’ company, that requires for individuals a photocopy of valid passport (in case of foreigners’ non-residents), the indication of the name of the spouse and the wedding arrangements
(for shareholders with civilian rule of marriage) and power of attorney with notarized signatures. For Legal Persons it is needed a photocopy of the deed of constitution, a photocopy of the Commercial registry certificate, photocopy of tax card and minutes (or certified copy) containing the deliberation of the competent organ of the company approving the incorporation of Mozambican company. This deliberation shall include: (i) the type of company to be incorporated, (ii) the name of the person who will sign on behalf of the company, (iii) the value of the share capital;
- Drafting the Articles of Association to be prepared by lawyers adapted to the specific scope and operation of the company;
- Opening a bank account in the name of the Company to be incorporated and depositing its share capital at any commercial bank authorized to operate in Mozambique, that generally requires: a copy of identification documents of the shareholders and members of the Board of Directors, power of attorney referred above, certificate of company’s name reservation and filling forms;
- Public deed relating to the incorporation of the Company or contract of the company’s incorporation signed by private document (only possible if the capital share does not include non-financial contributions) at the Notarial Office, needing the drafting of the articles of association of the company, the identification documents of the shareholders or their representatives, in which case it will be necessary the Power of Attorney, and the certificate of the company’s name registration;
- Commercial Registry at the relevant Commercial registry office, requiring the certificate of public deed granted by the Notary or private contract signed by the shareholders, the articles of association in digital format, the identification documents of the members of the Board of Directors and the respective form;
- Official Publication of the Company incorporation and respective Articles of Association in the Official Journal/Gazette (Boletim da República), at the National Printing Office, requiring the certificate of the public deed of incorporation of the company or contract of incorporation and the articles of association in digital format.
- Registration of the Shareholders and the Company with the Tax Authorities, obtaining its taxpayer number (NUIT) at the Tax Office, requiring the respective form, a photocopy of valid passport (regarding company representatives) and the Commercial Registry Certificate;
- Opening the shareholder resolution minute book and the Director resolution minutes book (for companies limited by shares), to be prepared by lawyers;
- Issuance of the share certificates (for companies limited by shares);
- Shares Registration;
- Obtaining the relevant trade license (Commercial Services Provision License) at the Trade and Commercial Ministry Desk, requiring the application addressed to the governor, Public Deed of incorporation of the company/contract of incorporation of the company/articles of association or official publication of the company incorporation, the Commercial Registry Certificate, the identification documents of the shareholders, NUIT, lease agreement/title of property, descriptive memory and topographic plan;
- Deliver the declaration of commencement of activity at the Tax Office, requiring the respective form, license and Commercial Registry Certificate;
- Registering the company and the employees for employment purposes at the Employment Directorate;
- Registering the company and employees for social security purposes at the Employment Directorate, requiring the respective form, the license, the declaration of commencement of activity, the Commercial Registry Certificate, the official publication in the National Printing Office and a certified copy of the identification taxpayer card;
The process length is determined by the region where the company is being incorporated, due to some of the steps being done at provincial level entities. Mozambique is divided in 10 regions: Maputo, Cabo Delgado, Gaza, Tete, Niassa, Inhambane, Manica, Zambezia, Sofala and Nampula. For instance, in Maputo City it is possible to cut some steps short due to the existence of a one-stop shop, which also has registry representatives in the vicinities. The national average duration of the incorporation process is 35 days. The quicker process is found in Maputo City (averaging 17 days) and the slower in Nampula (averaging 40 days). The average of the other provinces is the following: 34 days (Niassa), 35 days (Inhambane), 36 days (Gaza and Zambezia), 38 days (Cabo Delgado and Manica) and 39 days (Tete and Sofala)[1].
Regarding the costs, it fluctuates between provinces, being the cheaper 68.4% of income per capita in Cabo Delgado to 132.8% in Zambezia. The average cost per province are 75.7% (Tete), 77.8% (Gaza), 120.5% (Maputo City), 124.0% (Manica) 124.4% (Niassa), 124.5% (Inhambane), 130.9% (Nampula) and 132.6% (Sofala). The average national Mozambican cost is 112.2% of income per capita[2], being the income per capita around USD 498, corresponding to approximately MZN 32 950 (2018 figures) [3]. The average total cost of the incorporation is near USD 607,75 (around MZN 40.000) being the publication of the articles of association in the Official Gazette the most expensive step costing USD 397 (MZN 24.375) on average.
[1] Source: Doing Business Database 2019.
[2] Source: Doing Business Database 2019.
[3] Source: World Bank.
