June 5th, 2023 Legal Updates

Practical Legal Issues of Acquiring a Private School Business in Kuwait

Acquiring a private school business in Kuwait can be an intricate endeavor, fraught with challenges and practical considerations that extend beyond the legal framework outlined by laws and the regulators. While the laws and regulations governing the ownership and operation of private schools provide a foundational framework that an acquiror of the business must look at, there are several additional factors, which have practical legal sides to them, that aspiring owners must take into account. Understanding these practical considerations and their legal implications is crucial for navigating the complexities of establishing and managing a successful educational institution.

This article will address at a high-level the practical issues with legal implications that must be considered and devise proper means of dealing with such issues as part of the endeavour to acquire a private school business in Kuwait to avoid any legal implications and ensure that the value of the transaction does not plummet after completion.

  1. Multi-Disciplined Licenses and Effects on Transactions: In Kuwait, the licensing regime for private schools business is multi-disciplined, where each aspect of the business, such as the license to operate, the license to lease a vacant governmental school, or an approval for subleasing facilities within the school’s building is subject to a separate license or approval of its own. While this matter seems purely legal, we must note that the practical issue lies in tracking and organising the required licenses and approvals. It is rather challenging to keep track of all licenses required and approvals especially with the micro-approval scale for certain actions that fall within the everyday operations in the school business (such as entrusting third-party operators with operating certain school facilities). Additionally, a multinational private school business in Kuwait could be a rather limiting ambition. This comes from the fact that change of control of a school-operating entity cannot extend to a foreign-owned UBO capital as it is a known issue that results in revocation of the license. This was explored in many regulations and internal circulations by the Ministry of Education that explicitly state that an owner (a UBO) of a private school must be of Kuwaiti nationality. We note that the restricted foreign ownership does not extend to GCC nationals and legal entities.
  2. Foreign Ownership and Trust Structures: As examined earlier, foreign ownership of private schools business remains a major challenge that many international education operators are still to overcome in Kuwait. Such a restriction has been historically cured by combining the exception of GCC nationals to the restrictions on Kuwaiti-only capital and use of trust structures to allow foreign owners beneficial and legal ownership over the target business. However, a practical conundrum lies in the fact that arrangements are not tested across various industries, leading to various results. Also, a trust structure is more or less a circumvention from the companies law, which is not recommended as it presents more practical risks. Additionally, a private school operator should also consider the recent UBO disclosure obligations imposed on Kuwaiti business as per the Ministerial Resolution No. 4 of 2023 Regarding the Procedures for Identifying Actual Beneficiaries as amended by Ministerial Resolution No. 41 of 2023 (the “UBO Resolution”) issued by the Minister of Commerce and Industry. Under the UBO Resolution, a Kuwaiti entity must disclose details of their UBO to the UBO Registrar at the Ministry of Commerce and Industry for any license obtaining or renewal. This disclosure requirement is yet to show whether trust structures could contribute to the foreign ownership restrictions when disclosed. In all cases, its recommended that a properly defined transaction structure be devised and agreed upon to avoid the collapse of the transaction prior to its commencement.
  3. Scattered Sponsorship and Residencies: A very specific issue, the private schools business is subject to a cascading two-factor issue. The first factor is, like any business in Kuwait, a private school operator must open and maintain an updated employment file with the Public Authority of Manpower (“PAM”). This file serves as the sole official reflection of the employees’ status of any given business and the regularisation thereof. This file if found subject to any irregularities may result in fining by the PAM. Alas, this is where the second factor kicks in, where meeting the Kuwaitization percentage becomes required for fixing such irregularities. Meeting the kuwaitization percentage could prove difficult if a private school is employing a high number of foreigners without keeping an organised PAM file. One practical aspect of this issue comes from the non-regularisation of residencies of foreigners, where some foreigners may proceed to operate in Kuwait on sponsorships outside these of the school, which creates a compliance paradox that is proven to be time consuming and risky. It is recommended that an acquiror proceeds with a transaction only with the comfort that the regularisation process has already been commenced by the current owners of the school in question.
  4. Data Privacy & Cybersecurity: A relatively broad, yet crucial, issue when it comes to daily operations of a private school is data privacy. Generally, the data privacy issues manifest in collection of data by private schools. A private school acquiror should always observe the proper rules engagement with tech contractors as well as the means and measurements of collecting data from their students and their parents and guardians in compliance with Law No. 42 of 2021 Pertaining to Data Privacy Protection Regulation (“Data Privacy Law”). In all cases, the acquiror must ensure that the collected data is stored locally, and to the extent there is any cross-border collecting or storage or processing of such data, there are appropriate measures in place in respect of the collection, storage and/or processing of such data and all necessary consent from parents and guardian (or any other subjects) has been obtained. We note that in Kuwait, much like any other well-developed jurisdictions in that area, has strict consequential take on violations to Data Privacy Law, which could hinder the ability of the school to gain its clients’ trust.

In conclusion, while adhering to prima facie legal requirements outlined by various regulators is imperative when acquiring a private school business in Kuwait, numerous practical considerations must also be taken into account, even if they eventually hold mere legal implications. By understanding and addressing these practical considerations and turning their implications to those of legal questions, aspiring owners can lay a strong foundation for their private schools, and continue to develop the ever important educational landscape.

Authors: Yousef Al Amly, Partner, Khaled Al Khashab, Associate, and Salma Yasser Farouq, Associate.

For further information, please contact Alex Saleh (alex.saleh@glaco.com) and Yousef Al Amly (y.alamly@glaco.com).


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