The Council of Representatives in the Kingdom of Bahrain is set to review, on Tuesday, a parliamentary draft law proposing amendments to the Commercial Companies Law, introducing new regulatory requirements for limited liability companies (LLCs) that include one or more foreign partners.

The proposal centers on mandating a bank guarantee in favor of the ministry concerned with commerce, as part of a broader effort to regulate foreign participation in commercial activities.

Under the draft amendment, a new provision would be added to Article 264 stipulating that where an LLC includes a foreign partner, the company must submit an irrevocable bank guarantee issued by a licensed bank in Bahrain in the amount of BHD 30,000. The guarantee would remain valid for the entire duration of the company and be made payable to the competent ministry overseeing commercial affairs.

The Financial and Economic Affairs Committee has recommended revising the first article of the draft law by removing text following the phrase “divided into equal shares in value” and inserting a new paragraph.

This addition would require companies wholly or partially owned by non-Bahraini partners to submit an irrevocable bank guarantee valid for two years from the date of incorporation. It also proposes authorizing the Minister concerned with commerce to issue a resolution specifying the procedures and controls governing the bank guarantee, including determining its value based on the company’s capital, business activity, and designated uses.

Supporters of the bill argue that it seeks to better regulate the conduct of foreign nationals engaging in commercial activities, particularly in light of instances where LLCs have been established with minimal capital that, in their view, does not generate tangible benefits for the national economy.

The requirement for a bank guarantee is intended to demonstrate the seriousness and financial commitment of foreign investors, reinforce economic efficiency, and protect Bahraini traders from unfair competition, especially in small-scale commercial sectors.

The government, however, has called for reconsideration of the proposal, warning that its adoption could impose restrictions on investment freedom and conflict with constitutional commitments to ensure free movement of capital. It noted that amending Article 264 may not be necessary, as the proposed requirement could instead be introduced through a ministerial resolution pursuant to Article 21 of the Commercial Companies Law, by incorporating the bank guarantee condition within existing regulatory requirements for LLC formation involving foreign partners.

Officials also cautioned that the draft’s current wording may not effectively prevent circumvention and could produce unintended consequences, including market imbalance, reduced business diversity, and diminished investment appeal.

The government stressed that imposing a fixed guarantee regardless of company capital may be disproportionate and called for comprehensive economic and financial studies to assess the potential impact before implementation.

The Bahrain Businessmen’s Association has expressed opposition to the draft law, describing it as discriminatory between partners and restrictive to investment freedom, potentially undermining ongoing efforts to attract foreign capital and create employment opportunities. Similarly, the Foreign Investors Association warned that the proposal represents a significant step backward from recent reforms aimed at enhancing Bahrain’s investment climate. It highlighted the risk of weakening the Kingdom’s standing in foreign direct investment indicators and prompting investors to consider alternative destinations in neighboring countries.

The association further pointed to potential legal and technical complications that may encourage smaller investors to rely on nominal local partners or adopt alternative legal structures to bypass the new requirements, thereby adversely affecting the broader investment environment, particularly in an economy where small and medium enterprises account for a substantial share of activity.