Law No. 06-11 of June 24, 2006, Relating to Venture Capital Companies

OFFICIAL JOURNAL OF THE ALGERIAN REPUBLIC No. 42 3 29 Joumada El Oula 1427 25 June 2006 LAWS Law No. 06-11 of 28 Joumada El Oula 1427 corresponding to 24 June 2006 relating to the venture capital company.

The President of the Republic, Having regard to the Constitution, particularly its Articles 119, 120, 122 and 126; Having regard to Ordinance No. 66-154 of 8 June 1966, as amended and supplemented, establishing the civil procedure code; Having regard to Ordinance No. 66-155 of 8 June 1966, as amended and supplemented, establishing the criminal procedure code; Having regard to Ordinance No. 66-156 of 8 June 1966, as amended and supplemented, establishing the penal code; Having regard to Ordinance No. 75-58 of 26 September 1975, as amended and supplemented, establishing the civil code; Having regard to Ordinance No. 75-59 of 26 September 1975, as amended and supplemented, establishing the commercial code; Having regard to Legislative Decree No. 93-10 of 23 May 1993, as amended and supplemented, relating to the securities exchange; Having regard to Ordinance No. 96-08 of 19 Chaabane 1416 corresponding to 10 January 1996 relating to collective investment organizations in securities (O.P.C.V.M), (S.I.C.A.V) and (F.C.P); Having regard to Law No. 01-18 of 27 Ramadhan 1422 corresponding to 12 December 2001 establishing the orientation law on the promotion of small and medium-sized enterprises; Having regard to Law No. 02-11 of 20 Chaoual 1423 corresponding to 24 December 2002 establishing the finance law for 2003; Having regard to Law No. 04-18 of 13 Dhou El Kaada 1425 corresponding to 25 December 2004 relating to the prevention and repression of the use and illicit trafficking of narcotics and psychotropic substances; Having regard to Law No. 04-21 of 17 Dhou El Kaada 1425 corresponding to 29 December 2004 establishing the finance law for 2005; Having regard to Law No. 05-01 of 27 Dhou El Hidja 1425 corresponding to 6 February 2005 relating to the prevention and fight against money laundering and the financing of terrorism; Having regard to Ordinance No. 05-06 of 18 Rajab 1426 corresponding to 23 August 2005 relating to the fight against smuggling; Having regard to Law No. 06-01 of 21 Moharram 1427 corresponding to 20 February 2006 relating to the prevention and fight against corruption; After opinion of the Council of State; After adoption by Parliament; Promulgates the law whose text follows:

CHAPTER I OBJECT, STATUS AND CAPITAL

Article 1. - This law aims to define the conditions for exercising the activity of venture capital by the venture capital company, as well as the modalities of its creation and operation.

Article 2. - The venture capital company has as its object participation in the share capital and any operation consisting of equity contributions and quasi-equity contributions in companies in creation, development, transfer or privatization.

Article 3. - The venture capital activity is exercised by the company, for its own account or for the account of third parties and according to the stage of development of the company subject to financing.

Article 4. - The intervention modalities of the venture capital company are:

• Risk capital which covers:

• "feasibility capital" or "seed capital": before the creation of the company;
• "creation capital": at the creation phase of the company.

• "development capital": development of the capacities of the company after its creation.
• "transfer capital": purchase of a company by an internal or external acquirer.
• Buyback of participations and/or shares held by another venture investor.

Article 5. - The venture capital company intervenes by means of subscription or acquisition:

• ordinary shares,
• investment certificates,
• bonds convertible into shares,
• partnership shares,
• and, in general, all other categories of securities assimilated to equity in accordance with the legislation and regulation in force. The venture capital company ensures the management of securities.

Article 6. - The venture capital company may realize, on an ancillary basis, within the framework of its object and for the account of interested companies, any related operation compatible with its object.

Article 7. - The venture capital company is constituted in the form of a joint-stock company governed by the legislation and regulation in force subject to the provisions of this law.

Article 8. - The minimum share capital is fixed by regulatory means. It is payable according to the following modalities:

• 50% on the date of the constitution of the company;
• 50% according to the provisions provided by the commercial code.

Article 9. - The share capital of the venture capital company is held by public or private investors, legal or natural persons. The modalities of holding the share capital of the venture capital company for legal or natural persons are fixed by regulatory means.

CHAPTER II EXERCISE OF THE VENTURE CAPITAL ACTIVITY

Article 10. - The exercise of the venture capital activity is subject to prior authorization issued by the Minister in charge of finance, after opinion of the Commission for the Organization and Supervision of Stock Market Operations (COSOB) and the Bank of Algeria. The application for authorization is submitted to the Minister in charge of finance by the founders of the venture capital company. The application is accompanied by the following documents:

• the shareholders' agreement,
• the draft articles of association,
• the information sheets on the founders,
• the list of shareholders holding more than 10% of the capital,
• the mode of organization and operation,
• and any other document or information required by the Minister in charge of finance.

Article 11. - The founders who are natural persons and the managers of the venture capital company must enjoy their civil rights. No one may be a founder of a venture capital company or a member of its board of directors, nor directly or through an intermediary, direct, manage or represent in any capacity a venture capital company, nor have the power of signature for such enterprises:

• if they have been convicted: a) for a felony, b) for embezzlement, extortion, theft, fraud, issuing a check without provision or breach of trust;

c) for subtraction committed by public depositaries or by extortion of funds or valuables; d) for bankruptcy; e) for infringement of the legislation and regulation on exchange; f) for forgery in writing or forgery in private writing of commerce or banking; g) for infringement of company law; h) for handling goods held as a result of these infractions; i) for any offense related to drug trafficking, smuggling, money laundering, terrorism or corruption;

• if they have been convicted by a foreign court and the judgment has become final, constituting under Algerian law a conviction for one of the crimes or misdemeanors mentioned in this article;
• if they have been declared bankrupt or if bankruptcy has been extended to them or if they have been convicted in civil liability as an organ of a bankrupt legal entity both in Algeria and abroad, and this, until they have been rehabilitated.

Article 12. - The managers of the venture capital company must meet the criteria of competence and professionalism. These criteria are defined by decree of the Minister in charge of finance.

Article 13. - The changes that occur at the level of the holders of the capital, the managers of the venture capital company and the persons members of the bodies depending on it must meet the same conditions and/or criteria provided for in Articles 10, 11 and 12 above and be subject to prior agreement of the Minister in charge of finance.

Article 14. - The conditions for granting the authorization to exercise the venture capital activity as well as those related to its withdrawal are specified by regulatory means. The authorization to operate is issued within a maximum delay of sixty (60) days from the date of filing the application. The refusal to grant the authorization must be motivated and notified to the applicant within a maximum delay of thirty (30) days from the date of expiration of the grant of the authorization. In case of refusal of authorization, express or tacit, the applicant retains all rights of appeal provided for by the legislation in force.

Article 15. - The withdrawal of the authorization to operate is pronounced by the Minister in charge of finance:

• at the request of the venture capital company,
• on special report of the statutory auditor for serious breach of the legislation,
• on report of the COSOB and/or the Ministry in charge of finance if the company no longer meets the conditions specified by this law.

Article 16. - In case of withdrawal of authorization, the venture capital company must cease its activities immediately and its dissolution is pronounced in accordance with the provisions provided for in Article 715 bis 18 of the commercial code, as amended and supplemented.

CHAPTER III RULES FOR TAKING PARTICIPATION AND BORROWING BY VENTURE CAPITAL COMPANIES

Article 17. - The venture capital company may not use more than fifteen percent (15%) of its capital and reserves in equity participation in a single company.

Article 18. - The venture capital company may not hold shares representing more than forty-nine percent (49%) of the capital of a single company.

Article 19. - The venture capital company may not intervene in participation in a company on the basis of a shareholders' agreement which specifies, in particular, the duration of the participation in the investment and the conditions for the exit of the venture capital company.

Article 20. - The venture capital company may not proceed to borrowings beyond the limit of ten percent (10%) of its net equity. The borrowings thus contracted cannot serve to finance participations.

CHAPTER IV FINANCIAL RESOURCES OF VENTURE CAPITAL COMPANIES

Article 21. - The resources of the venture capital company are constituted:

1. by share capital, reserves and other equity funds,
2. by quasi-equity funds which include:

• resources entrusted by third parties to be invested in venture capital operations;

• public funds entrusted by the State to be invested in venture capital operations concerning productive investments in goods and services realized by small and medium-sized enterprises;

3. by donations.

Article 22. - The quasi-equity funds referred to in Article 21 above are managed within the framework of an agreement passed, as the case may be:

• between the venture capital company responsible for realizing and managing the participations and the investment funds that collect the resources intended to finance participations;
• between the venture capital company and the State.

Article 23. - The agreement concluded between the venture capital company and the State aims to fix the level of commitment and the modalities of intervention which revolve around the following principles:

• the funds allocated to venture capital have as their object the taking of participation in small and medium-sized enterprises and the strengthening of their equity;
• the taking of participation is carried out by subscription of shares or equivalent titles;
• at the agreed maturity, the venture capital company carries out its exit from the participation by:

• the priority transfer of shares to the shareholders of the company or to other shareholders,
• any other form of exit.

CHAPTER V CONTROL

Article 24. - The venture capital company is subject to the control of the Commission for the Organization and Supervision of Stock Market Operations (COSOB), which ensures the conformity of the company's activity with the legislative and regulatory provisions in force. The COSOB exercises, vis-à-vis venture capital companies, the missions and powers entrusted to it by the Legislative Decree No. 93-10 of 23 May 1993, cited above.

Article 25. - Within the framework of its activity, the venture capital company is subject to the legislation and regulation in force and in particular to the provisions of Articles 58 to 60 of Legislative Decree No. 93-10 of 23 May 1993, cited above.

Article 26. - The venture capital company transmits to the Ministry in charge of finance and to the Commission for the Organization and Supervision of Stock Market Operations:

• a semi-annual activity report accompanied by a portfolio statement,
• the accounting and financial documents at the end of the fiscal year required,
• the reports of the statutory auditors and any other document deemed necessary for the exercise of control.

CHAPTER VI TAX STATUS OF THE VENTURE CAPITAL COMPANY

Article 27. - The venture capital company is not subject to corporate income tax (CIT) for revenues coming from:

• dividends;
• investment income;
• proceeds and capital gains from the sale of shares and partnership shares. The venture capital company is subject to the reduced tax rate of 5% for corporate income tax (CIT). The venture capital company intervening in the form of risk capital benefits from the exemption from corporate income tax, for a period of five (5) years, from the start of its activity. The modalities for the application of this article are specified by regulatory means.

Article 28. - The venture capital company is subject to a fixed registration duty of five hundred dinars (500 DA), and twenty dinars (20 DA) per page for any act of constitution, increase or reduction of capital and transfer of securities.

Article 29. - Benefits from the tax advantages defined by this law, the venture capital company that commits not to withdraw the funds invested in the companies for a duration of five (5) years from 1 January of the year following the date of the taking of participation.

Article 30. - This law will be published in the Official Journal of the Algerian Democratic and Popular Republic. Done at Algiers on 28 Joumada El Oula 1427 corresponding to 24 June 2006. Abdelaziz BOUTEFLIKA.