Commercial laws in Afghanistan

By: Rahim Mirkhil Feb/26/2023

Investors, entrepreneurs, employers, and employees need to be able to rely on a transparent, effective and practical legal system in order to understand, evaluate and enforce their rights. This article mainly outlines the significant aspects of Afghanistan’s commercial laws.

Commercial contracts are the first and most significant step towards any commercial transaction as it defines the rights and obligations of the contracting parties. A businessperson generally has an open hand in concluding their deals on their own terms. All the law requires for the formation of a contract is an offer by one party, acceptance of the offer by the other party, and mutual consideration. Of course, prudent parties will agree on additional terms, such as a description of the goods or other subjects of the contract; quality of goods or services to be provided; price or fee; time and place of performance; contract termination; and dispute resolution. Contract termination is a matter that often leads to disputes. the law provides certain conditions under which a contract is deemed terminated, while the parties have the right to specify other conditions for termination. As with other aspects of the contract, it is essential that the terms, and consequences, of termination, are spelled out in detail.

BUSIUNESS FORMATION

Limited liability companies when looking to start a business or protect investments, you have several options in creating a business entity. An LLC is a share company, which means that ownership of the number of shares owned by each person. The shareholders may be either natural or legal person. The advantage of a share company is that the owners generally are not liable for the company’s debts beyond their original investment. To do business in Afghanistan, must have a business license from the Afghanistan central business registry (ACBR) of the ministry of industry and commerce. As part of the registration process, an LLC files its articles of incorporation with the ACBR, including the identities of the shareholders. Note that certain industries (e.g., private security, pharmaceuticals, telecommunications) require additional licenses or approvals from respective ministries and may be subjected to additional costs and fees.

INTELECTUAL PROPERTY

Intellectual property refers to creations of mind including, among others, artistic work, designs, various symbols, and images used in commerce. Intellectual property in Afghanistan, like other countries, is protected by laws such as the copyrights law, trademarks law and trade secret protection law. These laws are designed to enable people to secure and seek acknowledgment or financial benefit from their creations.

INSOLVENCY

Afghanistan enacted a new insolvency in 2018 with the goal of creating a transparent and fair procedure when a business fails, maximizing value to creators, and meeting international standards. A business is considered insolvent when its liabilities are greater than its assets, or when a business is unable to pay debts as they fall due. An insolvency case may be voluntary (initiated by the debtor) or involuntary (initiated by creditors). When the commercial court accepts an insolvency case, a receiver is appointed to oversee the debtor company’s affaires. The receiver, with the consent of the creditors and the court, has the option of keeping the company operating under a settlement plan or liquidating the company and selling its assets. If the company continues to operate, the receiver will negotiate payment, terms with the creditors and may seek additional funding to keep the company running. Under a liquidation, the receiver attempts to generate as much cash as possible through the sale of assets. If the company is liquidated, the insolvency law provides a clear procedure for the repayment of creditors. Consistent with international best practices, secured creditors are paid before any other category of the creditors. The policy behind the law is to encourage lenders and investors to support afghan businesses by minimizing their risk in the event of business failure.

COMMERCIAL ARBITRATION/MEDIATION

Arbitration is an alternative dispute resolution tool that aims to resolve business disputes outside the court in a fair, prompt and efficient way. Arbitration is flexible, meaning that the parties are free to determine the places where the dispute shall be heard, the number of arbitrators, the language of the proceedings, and the law applicable to the dispute. One important aspect of arbitration is the confidentiality of the proceedings and the awards made. While court hearings are public, arbitration is private; thus, the parties may litigate their dispute without publicly disclosing sensitive business information. The parties may choose arbitration at the outset by including an arbitration provision in their contract. If a contract contains an arbitration provision, a court will decline to assert jurisdiction over any subsequent dispute. Alternatively, even if a commercial contract does not contain an arbitration clause, the parties may agree on arbitration after a dispute arises. The arbitrators will issue a written decision within a short time after hearing the evidence, the decision of the arbitrators is binding and may be enforced in the afghan courts.