This chapter dose not apply to foreign capital investment in the oil sector in Libya. One should also draw attention to the term "investor" as used in the investment enterprise and applies to both individual investors, as well as to the juristic (artificial) persons, e.g. a company which engages in investment enterprise activity in libya under law no.5 of 1997 as amended.
However, as the new law no, 7 of the year 2003, which was issued as an amendment to law no,5 of the year 1997, and which has been in force since 13 June 2003, introduced the concept of shared or joint ownership of the investment enterprise between local and foreign investors. Therefore reference shall be made to the formula of joint venture, provided for under the Libyan commercial code, as an investment vehicle which enables the parties to carry on business with the required flexibility, without the need of legal formalities. In particular, the above-mentioned new law no, 7 of 2003 has not specified the legal form of partnership that may be entered into between local and foreign investors, and delegates that task to executive regulations to be issued there under, which regulations have not yet been issued.
Regardless of the legal form of the investment enterprise through which the investment activity is carried out, the responsibilities and liabilities of the manager of the said enterprise remain the same.
Summary of the general principles regarding the joint Venture Agreement under Libyan Law. In order to ascertain the rights and obligations of the parties to a joint venture, one should first shed some light on the general principles of Libyan Law applicable to the joint venture agreement:
Article 681 of the Libya commercial code (L.C.C) defines the joint venture as "a contract, not subject to the formalities of registration, as in the case of commercial companies and partnerships, where by a merchant gives to another person a specific share of the profit of his commercial undertaking or of one or more transactions, against an agreed contribution by the person to whom the share is granted."
Therefore the joint venture, as any other partnership, is an agreement between two or more parties, one of whom is engaged in commercial undertakings, whereby each of the parties must contribute a share of money or labour to an economic enterprise, for the purpose of sharing the profit or loss resulting there from.
The parties in a joint venture could be either natural persons or corporate entities, such as companies or corporations.
The basic characteristic of the joint venture is that, unlike commercial companies, it is neither subject to publicity, nor to registration formalities. Therefore the joint venture has no legal personality separate from that of the partners involved therein. It has no legal domicile, nor a separate patrimony.
In other words a joint venture has no separate legal existence in relation to third parties. However as far as its parties are concerned, the joint venture constitutes a binding agreement in the fullest sense, and is considered as an existing partnership between them, capable of creating rights and obligations for parties, which rights and obligations are applicable in terms of law.
Intrinsic Features of the Joint Venture:
1. A partnership.
The joint venture formula is usually chosen because of the confidence and trust which the partners place in one another partner to the joint venture cannot assign his share to a third party without the consent of the other partners, unless the joint venture agreement stipulates otherwise.
2. A non disclosed and covert partnership.
The joint venture has no exterior legal existence in respect of third parties, and therefore has no legal personality of its own.
However if the partners sign documents under the partnership's name, or otherwise undertake any other action similarly indicating its legal existence, such covert feature would cease to exist, and the joint venture would automatically be transformed into a de facto general partnership with uncompleted registration formalities. Consequently each of the partners will jointly and severally liable for the obligations of the partnership towards third parties.
3. Limits of the liability of the partners.
In general, the liability of each partner for the obligations of the joint venture is limited according to his respective share in the partnership.
However, this limit could be raised by agreement between the partners, provided that the partners would in on circumstance be liable for an amount equal to their total assets. In such case the joint venture would automatically be transformed into a general partnership.
On the other hand, given the fact that the joint venture is a covert partnership, the manager of such joint venture, be it a natural person or a corporate entity, and should alone be liable towards third parties for whatever undertakings such manager performs on behalf of the joint venture (Article 683 of the L.C.C).
In such circumstance, on legal relationship would exist between the other partners and the third party concerned, provided that the third party is aware of the existence of the joint venture not by virtue of any action in this respect taken by the partners.
4. The commercial nature of the joint venture.
The joint venture is considered as a commercial partnership if it is set up for a commercial objective. However, as the joint venture is a covert partnership, any partner, thereof not having the status of a merchant dose not acquire such status simply because he becomes a partner in a commercial joint venture.
5. Title to the contributions of the partners.
The basic obligation of a partner is to contribute to the capital of the partnership. However, given the fact that the joint venture has no corporate nature and no separate patrimony, it is necessary to designate the owner of the capital of the joint venture.
As a rule it is up to the partners to decide this matter. They can agree to designate the main partner of the joint venture as the owner of all the capital of the partnership. As a consequence such partner would act on their behalf, and would invest such capital in the common objective targeted by them, as set out in the joint venture agreement. He will also be responsible for the distribution of the joint venture's profits and losses among all the partners according to their respective contribution towards the capital of the joint venture.
In the absence of an agreement regulating the ownership of the contributions to the capital of the joint venture, each partner would maintain the title to his capital contribution, since the joint venture has no separate patrimony and therefore does not own such capital.
When applying the foregoing principles to the joint venture agreement that may be reached between the local investor and the foreign investor, the following points should be highlighted:
1- The motive behind entering into the joint venture is undoubtedly that of optimizing the benefit of merging the expertise, technical capabilities and financial resourced of both parties. This would typically enable the joint venture to exploit the local partner's potential and experience in Libya, his understanding of the investment climate in the chosen field of the investment enterprise in libya, the resources and infrastructure readily available to it as a national investor entitled to government support and assistance, together with the technical and other resources available to the foreign partner. This is especially the case where the role of managing the joint venture operations is assigned to the local partner, and the technical support and assistance is assumed by the foreign partner.
2- Once the partners express their intention to disclose the joint venture, the joint venture would start operating under an identifiable name, and would have a legal domicile of its own. In such a situation the joint venture would be actually transformed into a general partnership lacking registration formalities. The two parties would as a consequence be jointly and severally liable for the obligations of the joint venture, and they would be obliged to settle the debts of the joint venture, even when such debts exceed the total value of its assets. Any creditor of the joint venture would have the right to claim all amounts due to him from either party, without the need to apportion such debt between the partners according to their respective share of the contributed capital.
3- If the local partner assumes the role of joint venture operator on behalf of parties, his right and obligations in this regard would be limited to the rights and obligations of an agent in respect of his principal. This means that local partner will neither make a profit nor a loss when undertaking the management of the joint venture operations. However in return for his contribution towards the operations of the joint venture, the local partner should get a fair remuneration and should also be reimbursed for all expenses incurred whilst discharging such duties.
4- If it is the intention of the parties to benefit from the tax exemptions and other privileges available under law no 5 of the year 1997, as amended by law no 7 of the year 2003, regarding the encouragement of foreign capital investment in Libya, the draft of the joint venture agreement should be submitted to the foreign investment board (FIB) for approval. Such board has the authority to supervise the percentage contribution to the capital of the joint project, and the terms of investment to be undertaken by the parties.
However, by virtue of article 13 of law no. 5 of the year 1997 as amended, investment enterprises operating under the above-mentioned law are not subject to registration at the commercial register.
Obligations of the manger of the investment enterprise under law no, 5 of 1997 as amended:
1- The obligation not to dispose of the assets of the enterprise: The manager of the investment enterprise should not dispose of any assets imported by the enterprise for its operations including, but not limited to, machinery, equipment, apertures, spare parts and raw material, without the prior approval of the FIB, and after payment of the customs duties and other taxes for their importation. Nor shall the said imported items be used for purposes other than those for which they were licensed.
2- The obligation to maintain books and prepare a balance sheet:
The manager of the investment enterprise or any other commercial company manager, as representative of the investor, is responsible for:
a. Maintaining regular books of account and such other financial records for the enterprise;
b. The preparation of an annual balance sheet and profit and loss account audited by a chartered accountant in accordance with the terms of the commercial code, and the submission of the final statement of account and general budget of the enterprise to both the FIB, and to the tax department within the times and dates prescribed by the commercial code and the tax law;
c. The submission of quarterly reports on the activity of the enterprise to the FIB.
3- The obligation to start carrying on the enterprise within the prescribed period of time.
The manager of the investment enterprise must initiate the operations of the enterprise within six months from the date of notification of the FIB approval of the enterprise. Failure to carry out this obligation may result in the cancellation of such approval.
4- The obligation to adhere to approved feasibility studies.
The manager of the investment enterprise is responsible for carrying on the enterprise in accordance with the feasibility studies on the basis of which the permit would have been issued. It is also imperative that there be no amendments thereto unless such changes are made by virtue of a decision taken by the respective competent secretary, and upon a recommendation by the people's committee of the board, based on substantive facts exigencies.
5- The obligation to give priority when recruiting employees for the enterprise. Another obligation is to give priority to Libyan nationals over expatriates in cases where local and foreign prospective employees hold comparable qualifications.
Liabilities of the manager of the investment enterprise: If the investor violates any rule of the investment law, or the executive regulation thereof, the FIB would first warn the manger to rectify the violation committed within a specified period of time. Should the investor, or indeed its representative, fail to abide by such warning, the secretary may, upon the recommendation of the board, impose one or more of the following penalties:
1- Depriving the enterprise from some of the benefits provided for under the investment law.
2- Obliging the investor to pay double the value of the exemptions granted to the investment enterprise.
However the foreign investor may at any time make recourse to the competent court in libya to seek settlement of any dispute that might arise with the board in respect of the activity of the enterprise.
Settlement by arbitration rather then by the court can be another option, provided that an agreement in the respect is concluded between the investor and the board.
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