Setting up a SPA in Algeria: when the joint-stock company is worth its price

Chapter 01

A SPA is not a bigger SARL

This is the most common opening mistake, and an expensive one: treating the joint-stock company as a SARL with the capital turned up. The two forms differ not by size but by the nature of the bond between the owners, and everything else follows from that.

In a SARL, the partner is chosen. A share is transferred to a third party only with the consent of a majority representing three quarters of the capital (article 571): the company is a closed door and the partners hold the key. In a SPA, the shareholder is a supplier of capital. The share is an instrument that circulates, and the capital is designed to change hands without the company having a say.

That difference explains the rest of the regime. Since a shareholder may be someone nobody chose, the law cannot rely on interpersonal trust to protect them: it substitutes organs, thresholds and controls. That is the reason for the board of directors, the meeting quorums, the related-party agreement procedure and — above all — the mandatory statutory auditor.

Chapter 02

Seven shareholders minimum, and what that actually means

Article 592 is brief: “the number of partners may not be fewer than seven”. It sets no ceiling, and it expressly exempts companies with public capital.

This is the constraint founders most underestimate, because it looks easy to satisfy. It is — on the day of incorporation: seven signatures can always be found. It becomes a problem afterwards, for three reasons nobody announces.

• The minimum must be maintained, not merely reached. A death, an exit, a buy-back that drops the company to six shareholders creates an irregularity that is not immediately visible — and is very visible on the day of a due diligence.
• Nominee shareholders are shareholders. The widespread practice is to bring in relatives holding one share each. They then have real rights: access to the documents fifteen days before the meeting (article 680), the right to vote, and the corporate action in liability against the directors (article 715 bis 24). A family fallout becomes a legal risk.
• The quorum is calculated on them. An extraordinary general meeting requires half the voting shares on first convocation (article 674). Seven shareholders who are scattered, unreachable or estranged means a statutory amendment that does not go through.

The practical conclusion is not to avoid the SPA, but to choose your seven shareholders the way you choose a partner, and to write down at incorporation what happens when one of them wants — or has — to leave.

The capital, and the date behind article 594

Article 594 sets share capital at DZD 5,000,000 at least if the company makes a public offering, and DZD 1,000,000 at least otherwise. A reduction below that must be followed, within a year, by an increase restoring it — or by conversion into another form. Failing which, any interested party may apply to the court for dissolution.

Payment follows a stricter rule than in a SARL: the capital must be fully subscribed, cash shares paid up by at least one quarter on subscription — against one fifth in a SARL — and the balance called by the board or the management board within a period that may not exceed five years from registration. Shares issued for contributions in kind are paid up in full on issue (article 596).

The funds are deposited with the notary or an authorised financial institution (article 598) and may not be withdrawn until registration in the commercial register (article 604).

Chapter 03

Incorporating a closed SPA: the real procedure

Most guides describe incorporation with a public offering — published notice, subscription forms, constitutive general meeting — and leave the impression that this is the only route. It is not, and article 605 says so expressly: where there is no public offering, articles 595, 597, 600, 601 paragraphs 2 to 4, 602 and 603 do not apply.

In other words: no notice, no subscription form, no constitutive meeting. For the overwhelming majority of Algerian SPAs, which are closed, the procedure is markedly shorter than its reputation.

Chapter 04

Board of directors or management board: a choice made in the articles

Algerian law offers two architectures, and article 642 leaves the choice to the articles. It is not cosmetic: it determines who appoints, who removes, and how often the officers report.

The classic formula: the board of directors

The two-tier formula: management board and supervisory board

It must be stipulated in the articles (article 642). The management board has three to five members, necessarily individuals, appointed by the supervisory board which designates its chair (articles 643 and 644). They are removed by the general meeting, on the supervisory board's proposal (article 645), for a term of two to six years (article 646).

The supervisory board has seven members minimum and twelve maximum (article 657) — a higher floor than the board of directors, which therefore presupposes a sufficiently broad shareholder base. It exercises permanent control over the company, may at any time carry out the checks it deems necessary (articles 654 and 655), and receives a report from the management board at least once a quarter (article 656).

Guarantee shares: the most overlooked constraint

Article 619 is the provision almost no competing page cites, and yet it governs whether the structure is feasible at all:

Three concrete consequences. A fifth of the capital is locked up for the duration of the term: those shares can be neither sold nor pledged. You cannot appoint as director someone who is not a substantial shareholder — the independent director with no capital, common elsewhere, does not work here. And automatic resignation is automatic: it is not decided, it is recorded, which can take the board below the legal minimum of three members without anyone intending it.

Article 620 restores free disposal of the shares to a former director simply on the AGM approving the accounts for the last year of their management. And article 621 expressly places the monitoring of these two provisions on the statutory auditors: they report any violation to the annual general meeting. It is a check we carry out systematically on engagements, and a regular source of findings.

Chapter 05

Related-party agreements and officers' remuneration

This is where the SPA departs most sharply from the SARL, and the gap is not one of degree but of nature: what the SARL leaves to the partners' vigilance, the SPA strikes with nullity.

Related-party agreements

Article 628 subjects, on pain of nullity, any agreement between the company and one of its directors — direct or indirect — to the prior authorisation of the board, following a report from the statutory auditor. The same applies to agreements between the company and another business of which a director is owner, partner, manager, director or officer. The director concerned must declare it to the board. Only agreements in the ordinary course of the company's business with its customers escape the regime.

The sanctions, in articles 629 and 630, are the harshest in Algerian company law:

• The prejudicial consequences of a disapproved agreement may be charged to the director concerned — and, where appropriate, to the other members of the board.
• An agreement entered into without prior authorisation may be annulled if it has had damaging consequences. The action is time-barred after three years from the agreement — but if the agreement was concealed, time runs only from the day it was revealed.
• The nullity may be cured by a vote of the general meeting, on a special report from the statutory auditor explaining why the procedure was not followed.

What a director may receive, and nothing else

Article 631 is exhaustive: subject to the case of an employee who becomes a director, “directors may receive from the company no remuneration, permanent or otherwise”, other than that provided for in articles 632, 633, 634 and 639. Any decision to the contrary is void.

The employment contract trap

Two very short provisions, regularly breached for want of being known:

• Article 615 — an employee shareholder may be appointed director only if their employment contract predates the appointment by at least one year and corresponds to genuine employment. Any appointment to the contrary is void — without that nullity extending to the resolutions in which they took part.
• Article 616 — “a director may not be granted an employment contract by the company after their appointment”.

The meaning of the two together is simple: you can be an employee and then become a director, never the reverse. The practice of putting a director on the payroll in order to pay them regularly — because directors' fees are not enough — is squarely unlawful. It appears in files more often than one would think, and it is raised on statutory audit engagements.

Guarantees, endorsements and sureties

Article 624 frames off-balance-sheet commitments: the board authorises the chair or the general manager to give guarantees, endorsements or sureties in the company's name, within a total amount it sets, and that authorisation may not exceed one year whatever the duration of the commitments guaranteed. A commitment exceeding the ceiling requires a specific authorisation. One exception only: guarantees given to the tax and customs authorities may be given with no limit of amount or duration.

An expired authorisation means an irregular guarantee. It is an annual control point, and reason enough for a bank to refuse to rely on an endorsement.

Chapter 06

General meetings: quorums, deadlines, information

The SPA formalises what a SARL often leaves to custom. Quorums and information deadlines are not recommendations: breaching them opens the door to annulment actions.

In both cases blank ballots are not counted where a ballot is held. And the extraordinary meeting may in no circumstances increase the shareholders' commitments, subject to duly executed share consolidations.

The two information deadlines not to miss

• Thirty days before the general meeting, the board or the management board must send or make available to shareholders the documents set out in articles 677 and 678.
• Fifteen days before the AGM, every shareholder is entitled to obtain the documents listed in article 680.

Article 683 is the sanction: if the company refuses disclosure, in whole or in part, the shareholder may go to court. A refusal opposed to a minority shareholder is the classic starting point of a shareholder dispute — and it is entirely avoidable.

The annual AGM and its deadline

The ordinary general meeting is held at least once a year, within six months of the year-end (article 676). The period may be extended by order of the competent court on the board's application — and that order is not open to any appeal. The board presents the income statement tables, the summary documents and the balance sheet; the statutory auditors report on the discharge of the mission set out in article 715 bis 4.

Allocating the result

Article 722 defines distributable profit: net profit for the year, plus retained earnings, less the legal reserve transfer, less the share of profits due to the workforce and less prior losses. That last line often surprises foreign investors: it is in the text.

Tax: the form changes nothing

A SPA is taxed neither more nor less than a SARL: the regime follows the activity, not the form. The pro-rata split of turnover where several activities are carried on applies in the same way (article 150 CIDTA).

Chapter 07

In a SPA, the statutory auditor is not optional

This is the structural difference from the SARL, and it deserves to be stated plainly. In a SARL the obligation arises on crossing a threshold — capital, turnover or headcount — and is therefore debated each year. In a SPA there is no threshold.

A mission defined by the text, broader than people assume

The same article 715 bis 4 sets out a permanent mission, “excluding any interference in management”:

• to verify the company's books and assets;
• to check the regularity and fairness of the company accounts;
• to check the fairness of the information given in the report of the board or management board and in the documents sent to shareholders on the financial position and the accounts;
• to certify the regularity and fairness of the inventory, the company accounts and the balance sheet;
• to satisfy themselves that equality between shareholders has been respected.

Two powers follow, often unknown to officers: the statutory auditor may carry out at any time of the year such checks as they see fit, and they may convene the general meeting themselves in an emergency.

What happens if the meeting fails to appoint one

Nothing stops, and that is exactly the problem: the irregularity settles in. Failing appointment by the meeting, or in the event of impediment or refusal, the appointment is made by order of the president of the court of the registered office, on the application of the board or management board — or of any interested party, a minority shareholder for instance (article 715 bis 4, final paragraph). Article 715 bis 7 likewise allows any shareholder to apply to the court for that appointment if the meeting omitted it.

Term, renewal, incompatibilities

The incompatibilities in article 715 bis 6 are broad and should be checked before proposing a name to the meeting: relatives and relatives by marriage up to the fourth degree of the directors and of the members of the management or supervisory board; those officers and their spouses in companies linked at one tenth of the capital; the spouses of persons paid by those officers for permanent work; anyone who has received remuneration from the company in another capacity, for five years after ceasing those duties; and any former director or member of the management or supervisory board, for the same five years.

The alert procedure

Article 715 bis 11 sets out a three-step escalation that officers do well to know before they meet it:

Two further duties are not negotiable: the statutory auditor reports to the next general meeting the irregularities and inaccuracies found, and discloses to the public prosecutor any criminal acts that come to their knowledge (article 715 bis 13). Their civil liability runs to the company and to third parties for faults and negligence in the exercise of their duties (article 715 bis 14).

Chapter 08

So, SPA or not? Five situations that settle it

Everything above describes a cost: seven shareholders to gather and to keep, three directors holding a locked-up fifth of the capital between them, meetings with quorums, agreements to authorise before signing them, a statutory auditor from year one. The question is therefore not whether the SPA is “better”. It is whether your project needs what that cost buys.

The five situations where a SPA is justified

The three situations where it is not justified

• A business with two or three owners that will not open its capital. The seven shareholders will be nominees, with the real rights that gives them, and you will pay every obligation without collecting any benefit.
• A project whose useful capital is below the legal minimum. Locking up DZD 1,000,000 to satisfy article 594 when the real need is far lower means funding a constraint rather than a business.
• A company that intends to run without sharing information. The thirty- and fifteen-day deadlines, the disclosure action in article 683, the quarterly report to the supervisory board, the auditor convened to every meeting: the SPA is built to be transparent towards its shareholders. Anyone who does not want that will be uncomfortable in it.

Chapter 09

Six pitfalls we meet on engagements

They are invisible at incorporation. They surface at the first inspection, the first due diligence, or the moment a minority shareholder decides to read the articles.