Venture Capital Agreements in Egypt: Comprehensive Legal Guide

Egypt’s startup ecosystem is surging. In recent years venture capital inflows into Egyptian tech companies have climbed sharply – on the order of 30–40% per year – fueled by a deep pool of talent and active VC funds. Leading local VCs (e.g. A15, Algebra Ventures, Sawari) and government-backed funds (Egypt Ventures) are funding seed-to-growth rounds. Notable exits signal the maturing market: for example, the ride-sharing startup SWVL went public on Nasdaq, and Cairo-based KNGINE was acquired by Samsung. Foreign investors play a growing role, benefiting from Egypt’s liberal investment laws. In this environment, clear, enforceable venture capital (VC) agreements are vital for protecting both founders and investors. This guide explains the legal framework, common structures and clauses, and practical considerations for VC agreements in Egypt.

Legal Framework Governing Venture Capital in Egypt

Egypt’s corporate and investment laws form the backbone for VC transactions. VC funds and investors typically operate through locally-incorporated companies subject to the Companies Law (Law 159/1981) and the Capital Markets Law (Law 95/1992). Investors also benefit from Investment Law 72/2017, which guarantees “fair and just” treatment for all investors and full foreign ownership in most sectors. Egypt is a party to dozens of bilateral investment treaties and the ICSID Convention, allowing foreign investors international arbitration rights against the state.

For funds raising capital, Egyptian regulators have created formal structures: Capital Markets Law classifies VC activities as non-banking financial services, requiring a license from the Egyptian Financial Regulatory Authority (FRA) and operation as joint-stock or shareholding companies. Recent reforms even permit GP/LP fund models (Decree 113/2018) and Private Ownership Funds (for listed/unlisted VC investments) to align with global standards. In practice, many startups and investors still use simplified vehicles (e.g. LLC or ordinary holding companies) for funding, but any entity conducting VC activities must comply with FRA rules.

Other laws often intersect with VC deals. For example, the FinTech Law (Law 5/2022) mandates that fintech startups secure licensing from the FRA if they engage in regulated financial activities. Likewise, data, telecom, media and healthcare startups must comply with sectoral regulations (e.g. NTRA licensing for telecom, Ministry of Health approvals for digital health, etc.). Importantly, mandatory public order rules (such as Article 140 of the Companies Law on share transfer consent) cannot be waived by contract. The Civil Code generally governs contract enforceability, and parties have wide freedom to structure VC agreements – including choosing foreign governing law and arbitration (subject to public policy limits).

Types of Venture Capital Investments in Egypt

VC investment in Egypt typically takes equity or quasi-equity form. Common structures include:

• Equity Investments – Investors buy preferred or ordinary shares directly in the company (often via share subscription or purchase agreements). Egypt permits multiple share classes; the law recognizes preferred stock so long as its privileges (dividends, liquidation preference, extra votes) are detailed in the company’s articles. Regulators cap extra voting at 2:1 and require extraordinary approval for such rights.

• Convertible Instruments (Notes or SAFEs) – Startups often issue convertible notes or simple agreements for future equity (SAFEs) to seed investors. These are treated as debt instruments that convert into shares on defined events. Egypt’s FRA now expressly allows startups to enforce share transfers under convertible notes through an escrow mechanism (via the Misr Central Depository). A 2022 FRA decree defines a “convertible instrument” as debt repayable at the holder’s option or convertible into equity within a specified period, and lets founders nominate the depository (MCDR) to hold their shares in escrow pending conversion. While Egyptian law does not explicitly mention “SAFEs,” well-drafted SAFEs (being a form of convertible security) are generally accepted in practice.

• VC Funds and Syndicates – Egyptian VC companies (licensed as “companies operating in securities”) pool funds from institutional or private investors and invest in startups. International VC firms often invest via offshore holding companies too. Angel networks (e.g. Cairo Angels) provide early-stage capital. Government-supported vehicles like Egypt Ventures invest indirectly by backing VC funds or accelerators.

• Special Structures – Recently Egypt introduced SPACs (Special Purpose Acquisition Companies) under FRA decrees (No. 140 and 148 of 2024), allowing a listed shell to raise funds and acquire a target startup within two years. This novel structure offers an alternate exit route (via public listing) for high-growth firms.

In summary, Egyptian VCs use a mix of straight equity, preferred stock, convertible notes/SAFEs, and fund investments. All must comply with corporate registration rules (capital increases, share transfer formalities at the General Authority for Investment, GAFI) and, if applicable, securities regulations (e.g. notifying FRA of large transactions).

Key Clauses in a Venture Capital Shareholder Agreement

The shareholders’ (or subscription) agreement in a VC deal customizes the parties’ rights beyond the default corporate law. Common clauses include:

• Reserved Matters / Veto Rights: Investors negotiate a list of major corporate actions requiring their consent (reserved matters). These typically cover issuing new shares (to prevent dilution), incurring debt above a limit, approving budgets/business plans, changing the core business, or altering the management/board structure. Each investor (or class) may get board seats or observers for oversight.

• Corporate Governance: The agreement often ties into the company’s Articles of Association (AoA). In Egypt, it’s common to amend the AoA to reflect VC governance terms (so they are enforceable in corporate resolutions). Alternatively, the shareholders ratify the agreement in a general meeting, making it part of company law.

• Investment and Funding Terms: Clauses specify the amount invested, share class issued, and funding schedule. If it’s a multi-tranche round, milestones or KPIs for disbursement may be defined. Typical funding documents include the term sheet, share purchase agreement (or convertible note agreement), and investor rights agreement.

• Founder Obligations: Founders generally commit to confidentiality, good faith, and operation of the business. Non-compete and non-solicitation clauses are often imposed on founders to prevent them from starting a rival venture. Egyptian courts will enforce reasonable non-competes that protect the company’s legitimate interests without unduly restricting careers.

• Liquidation Preferences and Dividends: Preferred shares often carry liquidation preference rights (payment priority on sale/liquidation) and may accrue dividends. Investors commonly secure at least a 1x liquidation preference (and sometimes more if negotiating leverage). Dividend policy (if any) and repatriation mechanics are usually set out, especially for foreign investors (as required by Investment Law).

• Tag-Along and Drag-Along Rights: To protect themselves in a sale, investors include tag-along rights (sell shares if a majority exits) and often grant drag-along rights (compel minority shareholders to sell). These clauses must be carefully drafted: Egyptian law limits enforcement of certain exit rights (courts generally award damages for breach but won’t force a sale by specific performance). Notice periods and fair valuation formulas are critical to make drag-alongs enforceable in practice.

• Anti-Dilution and Pre-Emption: Investors negotiate anti-dilution protection (e.g. weighted-average adjustments) and pre-emptive rights on new issuances to maintain ownership percentage. These are recognized as standard investor safeguards in Egypt.

• Board and Observer Rights: Investors often obtain the right to appoint a director or observer on the board (especially if they hold a sizable stake), and sometimes require protective provisions in the board charter.

• Representations & Warranties: Founders typically give standard reps and warranties on corporate authority, capitalization, IP ownership, financial statements, and compliance with laws. Breach of these can trigger indemnification obligations.

• Information and Reporting: Investors insist on ongoing access to financial and business information. This includes the right to inspect books, receive monthly/quarterly reports, and approve annual accounts. These obligations supplement legal requirements for general assemblies and audits under the Companies Law.

• Exit Mechanics: The agreement may specify exit pathways: IPO, strategic sale, buy-back options, etc. Special clauses like founders’ lock-ups or put/call options (triggered by milestone failures) are used as deadlock breakers. Notably, the FRA now requires SPACs to hold shareholder votes and provides an exit window for dissenters.

• Dispute Resolution: Almost all VC SHAs include a dispute resolution clause. By law, arbitration is favored for commercial contracts; in fact, a 2018 amendment to the Companies Law explicitly encourages arbitration and mediation. Thus, VC agreements typically mandate arbitration (often at the Cairo Regional Centre for International Commercial Arbitration or under ICC rules), though parties may also resort to Egyptian courts.

Each clause must respect Egyptian mandatory rules. For example, any share transfer clause cannot override Article 140’s unanimous consent requirement, and investors should ensure the AoA changes they want are properly approved. When in doubt, legal counsel should confirm that the agreed terms won’t conflict with public policy or statutory protections.

Investor Rights and Protections

VC investors in Egypt negotiate comprehensive protection mechanisms, mirroring global practice but adapted to local law. Typical investor safeguards include:

• Liquidation Preference: A provision ensuring investors recoup a multiple of their investment before other shareholders receive proceeds. Preferred stock rights are enforceable, subject to the limits set by company law and any AoA restrictions.

• Anti-Dilution Adjustments: In case of later share issuances at a lower valuation (“down round”), many VC deals include weighted-average or full-ratchet anti-dilution to protect investors’ equity percentage.

• Pre-Emptive / Subscription Rights: Investors usually secure rights to buy new shares in proportion to their current holding, maintaining their ownership stake in future financings. These rights are standard under Egyptian shareholder agreements.

• Information and Inspection: Investors have a contractual right to obtain financial reports, audit documents, and business updates. This goes beyond statutory requirements (Companies Law mandates only annual accounts) to ensure transparency.

• Board Participation: Beyond formal rights on paper, investors often specify in agreements their practical governance role. For JSCs, the Companies Law requires a board of directors (with at least 3 members), and investors will negotiate seats or observer rights to influence key decisions.

• Drag-Along and Tag-Along: As noted, these facilitate exit liquidity and protect minority and majority shareholders respectively. Courts in Egypt have upheld well-crafted drag-along/tag-along clauses provided they include reasonable notice and valuation methods.

• Lock-Up Clauses: Founders and early shareholders may agree to lock-up provisions preventing sales for a set period post-investment, giving investors time to stabilize the business before dilution.

• Warrants or Options: Occasionally, deals include warrants for investors to purchase additional shares, or for founders to issue options, although equity incentive plans must comply with Companies Law and tax rules.

• Guarantees: In some cases, investors require personal or corporate guarantees on performance or repayment of loans (if the deal involves debt).

These contractual protections are, in general, enforceable under Egyptian law. However, because Egyptian courts cannot compel specific performance (only award damages), investors should include clear exit mechanisms. Obtaining judges’ support for provisions like tag-along and drag-along depends on good drafting and demonstrating that no statutory rule is violated.

Founder Obligations Under VC Agreements

Founders also assume obligations to reassure investors and safeguard the company value. Common founder commitments include:

• Good Faith and Best Efforts: Founders pledge to devote their time and best efforts to the business, and not take on side projects that conflict with the startup.

• Non-Compete and Non-Solicit: As noted above, founders often agree not to compete with the company’s business or solicit key employees/customers for a certain period after exit or termination. Egyptian law allows reasonable non-competes as long as they protect legitimate business interests and are limited in scope.

• IP and Confidentiality: Founders must confirm they own or have rights to all intellectual property used by the company, and keep trade secrets confidential. (Egypt has no general IP assignment law for employees, so founders should contractually transfer any personal know-how or IP to the company.)

• Disclosure of Liabilities: Founders are typically required to disclose any contingent liabilities (litigation, tax audits, debt) so investors can assess risk.

• Compliance Covenants: Founders must run the company in compliance with laws (e.g. labor, data protection, licensing). Breach of legal compliance covenants can be a major red flag in due diligence.

• No Action Clause: Agreements often restrict founders from taking material actions (like borrowing or selling assets) outside the ordinary course without investor consent (often overlapping with reserved matters).

If founders breach these obligations, investors usually have contractual remedies (indemnity, damages, or in some cases repurchase rights). Importantly, Egyptian law prohibits exonerating fraud or willful misconduct in shareholders’ agreements, so founders should not expect to escape liability for intentional malfeasance.

Due Diligence Requirements for VC Funding in Egypt

Before closing a VC investment, investors perform thorough legal, financial, and business due diligence. In Egypt this typically involves:

• Corporate Records Review: Checking the Commercial Registry (via GAFI) to verify the company’s incorporation documents, shareholder register, capital structure and any outstanding share pledges. All public filings (board meeting minutes, capital increases) should be verified.

• Financial Audits: Obtaining audited financial statements (mandatory for companies with auditors) and tax returns. Investors should examine accounting practices (Egypt requires books in Arabic and audit of annual accounts).

• Contractual and IP Audit: Reviewing major contracts (customer/vendor agreements, leases, IP registrations) to ensure key assets are properly owned or licensed. For tech startups, confirm software is original or licensed, and trade secrets are protected.

• Regulatory Compliance: Verifying that the company has obtained all necessary licenses (e.g. industry-specific permits, registrations with FRA or CBE if fintech/banking, approvals from Health Ministry for medical products, etc.). For sizeable transactions, checking competition clearance requirements under Law 3/2005 (if combined turnover exceeds notification thresholds).

• Disclosure Requirements: If the target is a listed company (rare for early-stage VC), Capital Market Law imposes detailed disclosure rules on share acquisitions over 5%. Private companies have no mandatory public disclosure on share transfers, but the SHA will require certain disclosures.

• Litigation and Tax Review: Searching for pending lawsuits (Egyptian courts tend to have open records once a case is filed) and tax audits. Unresolved disputes or material tax assessments can be negotiated in the deal or need contingency plans.

• Founders’ Background Checks: For foreign investors especially, confirming founders’ identities and any negative records is prudent (even though Egypt’s law treats foreign and domestic investors equally under Investment Law).

Good due diligence also covers operational issues: labor law compliance, lease agreements, insurance coverage, and cybersecurity (Egypt has sectoral data/privacy regulations). Investors often assemble a virtual data room for the target to upload documents. Note: unlike some jurisdictions, Egypt has no specific “sale of business disclosure” regime, so any material misrepresentation can give rise to liability for fraud under general contract or even penal laws.

Valuation Methods for Startups in Egypt

Valuing early-stage companies is inherently challenging in any market, and Egypt is no exception. Investors typically use a combination of methods:

• Discounted Cash Flow (DCF): Project future cash flows and discount back to present value. This requires detailed financial modeling and reasonable growth assumptions. Volatile economic factors (inflation, FX rates) must be carefully considered.

• Comparable Transactions or Companies: Using valuation multiples (e.g. price-to-revenue or price-to-earnings) from similar startups in the region or sector. In practice, Egyptian startups often benchmark against Middle East/North Africa peers or recent local deals.

• Venture Capital Method: Widely used for early stage. It starts with an estimated exit value (based on an industry multiple of future revenues or profits) and works backward to present value at a target IRR. The FRA itself now recognizes this “venture capital valuation approach,” factoring expected exit valuations.

• Asset-based / Book Value: Rarely used for tech startups (which often have little tangible equity). More applicable to asset-heavy or revenue-generating companies.

Under recent FRA guidance, regulators emphasize transparent, methodical valuation. For example, a 2023 FRA regulation requires startups to disclose governance adherence and assesses “tangible and intangible assets” and future profitability prospects when valuing early-stage companies. In practice, investors negotiate valuation both in absolute terms and in terms of ownership percentage given. Founders may hire professional valuers, but ultimately the agreed price is a commercial deal. It’s important to document the valuation formula in the term sheet, as this affects share calculations, options, and future funding rounds.

Tax Implications of Venture Capital Deals

Taxation can influence deal structure for both investors and startups:

• Corporate Income Tax: Standard corporate tax rate is 22.5% on net profits for resident companies. Startups generally pay this rate, though very small enterprises (under EGP 20M turnover) get a stepped rate (0.4–1.5%) under Law 6/2025.

• Capital Gains / Stamp Tax: As of June 2025, Egypt eliminated the capital gains tax on stock transactions, replacing it with a low transaction stamp duty (~0.1% on buy/sell) for listed trades. For private share transfers (as often occur in VC deals), Egypt still imposes a stamp tax. Historically this was up to 0.5%, but recent reforms have cut it: trading on exchange is now stamp-tax exempt, and private share sales incur a minimal stamp fee (approx. 0.125% for non-resident investors). In short, stamp duty is negligible compared to the old 10% capital gains tax. However, care is needed: stamp stamps must be paid on the share transfer instrument, and failure attracts penalties.

• Withholding Taxes: Dividends and interest to non-residents are subject to withholding taxes. The general rate on dividends is 10% (reducible by tax treaties). If a VC fund makes an exit and distributes dividends offshore, this WHT applies. Interest on loans to Egyptian companies is taxed at 20%. Service fees and royalties paid cross-border also face WHT (often 10–20% before treaties).

• Value-Added Tax: Egypt’s standard VAT is 14%. Sales of products or services by startups may be subject to VAT if annual turnover exceeds EGP 500,000, but many startups operate below this threshold initially. Fund management fees by onshore fund managers would attract VAT.

• Corporate Tax Incentives: The Investment Law offers tax holidays, customs and sales tax exemptions for qualifying projects. For example, approved projects in priority sectors or free zones can enjoy tax breaks and duty exemptions. There are also incentives (customs/sales tax) for agricultural, industrial, and technology projects. VC funds themselves get favorable tax treatment: income is taxed only once (not at both fund and investor levels). Under the SME Law, funds investing in SMEs may receive tax incentives.

• Double Tax Treaties: Egypt has treaties with many countries. These can reduce WHT (often to 5–10%) and allow credit for foreign taxes. Investors should consult a tax advisor to optimize structure (e.g. holding via treaty jurisdictions).

Overall, founders and investors should budget for a 22.5% CIT, stamp fees, and WHT on distributions. The recent move to stamp duty on stock trades is intended to encourage investment. Proper planning (e.g. using Egyptian tax-free free zones, or crediting expat taxes) can minimize the net tax burden on VC exits.

Government Incentives for VC Investors and Startups

Egypt’s government actively supports VC investment and entrepreneurship through various incentives and programs:

• Investment Law Incentives: Law 72/2017 (Investment Law) provides a “golden license” for large strategic projects, granting 100% foreign ownership in most sectors and fast-track approvals. Free zones allow 100% ownership with customs and sales tax exemptions. Approved projects can receive tax holidays (exemption or reduction of CIT for several years) and customs/Sales Tax cuts on capital imports.

• SME Law Benefits: Under Law 141/2014, micro, small and medium enterprises (SMEs) enjoy tax reductions and incentives. Importantly, VC or PE funds that invest in qualifying SMEs can get tax perks (e.g. accelerated depreciation, deductions), encouraging formalization of startup investments.

• Funding and Subsidy Programs: Government agencies partner with accelerators and investors. For instance, the Information Technology Industry Development Agency (ITIDA) runs programs (like ScaleUp with 500 Global) providing mentorship, office space, and access to investors. In 2025 the Micro, Small and Medium Enterprise Agency (MSMEDA) teamed with the Private Equity & VC Association to train fund managers and improve the ecosystem. A ministerial “Startup Charter” is under development to clarify incentives, regulatory processes, and protections for entrepreneurs and investors.

• Equity Incentives for Employees: While not a direct investor incentive, the government permits JSCs to implement Employee Stock Ownership Plans (ESOPs) for startups (three regimes exist for granting free or value shares). This helps startups attract talent, though LLCs (the more common startup form) cannot issue equity to employees and use cash bonuses or profit-sharing instead.

• Export and R&D Incentives: Programs exist to support export-oriented tech startups (e.g. duty exemptions on R&D equipment) and co-finance with international bodies (World Bank, EBRD credit lines for SMEs). These general incentives benefit high-growth startups indirectly.

For foreign VC investors, a key incentive is free repatriation of capital and profits. Egypt imposes no currency controls: after paying Egyptian taxes, foreign investors can freely convert and transfer their profits and sale proceeds.

In summary, Egypt offers a competitive incentive landscape: financial perks for approved projects, specialized startup support programs, and procedural benefits (like “one-stop-shop” licensing at GAFI). Investors and founders should leverage these (for example, through the Investment Law’s guarantees and any available tax holiday) as part of deal structuring.

Sector-Specific VC Investment Regulations

Some sectors have tailored rules affecting VC deals:

• Banking & Insurance: The Central Bank of Egypt (CBE) and the Financial Regulatory Authority (FRA) regulate foreign investment in banks and insurance companies. Historically, foreign banks had to maintain majority Egyptian ownership; recent amendments allow full acquisitions of foreign banks with CBE/FRA approval. Any stake above certain thresholds (usually 10%) typically requires regulatory clearance. VC funds rarely invest directly in banks due to these caps.

• Telecommunications & Media: Telecommunications carriers and media businesses are licensed by the National Telecom Regulatory Authority (NTRA) or Press Council. New laws permit 100% foreign ownership in telecoms, but investors must pass national security screenings. For satellite, broadcast or telecom operators, an NTRA license is required before investing. Media content companies may need a press license or security vetting if foreign-controlled.

• Agriculture and Real Estate: Foreign ownership of agricultural land is prohibited by law. In practice, farmland can only be leased long-term; VCs investing in agri-tech startups cannot acquire land through their portfolio companies. Residential real estate is open, but regulated (e.g. foreign land regs). These restrictions push certain VC-backed agritech or proptech deals to structure land use via leases or partnerships with local landlords.

• FinTech and Financial Services: The 2022 FinTech Law (No.5/2022) subjects a wide range of financial services (insurance, leasing, microfinance, consumer finance, etc.) to FRA licensing. Startups offering digital banking, payment services, crowdfunding, robo-advisory, etc., must register with the FRA and meet capital/equipment requirements. Operating without FRA approval can trigger heavy fines and penalties. Note also the Central Bank has regulatory authority over certain fintech (e.g., payment systems, crypto restrictions) via its own decrees.

• Healthcare and Pharmaceuticals: Digital health apps and medical device startups are regulated by the Ministry of Health and the Egyptian Drug Authority. Any product classified as a medical device or pharmaceutical requires prior approval and registration. Telemedicine companies may need to follow healthcare regulations. VCs should factor in potentially lengthy regulatory reviews for medtech investments.

• Energy and Utilities: Sectors like oil & gas, electricity and water are heavily regulated; foreign ownership is typically capped or requires government partnership. Energy startups (e.g. renewables) may need licenses and environmental approvals. However, alternative energy projects can qualify for Investment Law incentives if strategic.

• Education: Private higher education and vocational training need Ministry of Education accreditation. Edtech platforms per se are relatively free, but any content or certification may fall under education ministry oversight.

In short, any VC deal must consider sectoral licensing and foreign ownership rules. Deals targeting regulated industries should be vetted early by local counsel. On the flip side, many strategic sectors (tech, manufacturing, tourism) are open and even prioritized by incentives. Always check whether a “Golden License” (100% foreign ownership for strategic projects) or other approvals are available for a given sector.

Exit Strategies in Venture Capital Agreements

Investors expect clear exit opportunities. In Egypt, common exit routes include:

• Trade Sale / Acquisition: Selling the startup to a larger company (domestic or international) is frequent. Several Egyptian startups have been acquired by regional players (e.g. Dubizzle acquired Hatla2ee, Souq.com bought mobile payments startup Fawry, Instabug acquired by Solera). VC agreements often lock in drag-along/tag-along rights to facilitate such sales.

• Initial Public Offering (IPO): Listing on the Egyptian Exchange (EGX) or NileX (Egypt’s SME bourse) is an option for mature startups. The Capital Markets Law and EGX rules require at least a few years of financial reporting and minimum capital (e.g. LE 1 million for EGX). IPOs are relatively rare in the tech sector so far, but the market is opening up (EGX now allows tech startups and even SPACs).

• SPAC (Special Purpose Acquisition Company): A new path is emerging via SPACs. Egypt’s FRA formally defined SPACs in 2024 – a SPAC raises capital through an IPO on EGX and must acquire a target within 2 years. Shareholders of a target startup can thus merge with a SPAC and become publicly traded faster than a traditional IPO. FRA decrees require SPACs to obtain shareholder approval for any acquisition and give dissenting shareholders the right to exit within 30 days. SPACs are still very new in Egypt, but they offer a high-profile exit route for tech firms.

• Buyback or Secondary Sale: Some VC deals include put/call options allowing either the founders to buy back shares or the investors to sell their stake back to founders/management under certain conditions (deadlock, underperformance, etc.). This is more common in later-stage VC or private equity.

• Liquidation: As a last resort, if the company winds down, preferred investors have priority in receiving any remaining assets (per their liquidation preference).

Egypt’s exit environment has improved. The capital markets are modernizing (e.g. abolishing CGT), and international interest in Egyptian tech is growing. VC agreements should clearly define exit triggers and processes. For example, they may specify that if an IPO or sale does not occur by a certain date, investors can elect alternative remedies. Given that courts don’t force a share sale, having contractual clauses is crucial.

Enforceability of Venture Capital Agreements in Egypt

Egyptian law treats venture agreements as valid contracts, but enforcement depends on compliance with formalities and public policy. Key points:

• Contractual Validity: Shareholders’ agreements (SHAs) and investment contracts are enforceable under the Civil Code if they do not violate mandatory law or public order. The courts respect parties’ autonomy (“contractual primacy”) so long as terms are clear and lawful.

• Hierarchy with Company Law: Any contractual term that contradicts the Companies Law or the company’s Articles of Association risks being void. For example, if parties agreed in an SHA to allow share transfers without following Article 140’s consent requirements, a court would invalidate the transfer. As a rule, the company’s AoA prevails over the SHA unless the SHA is formally adopted into the AoA or registered as part of it.

• Remedies: Egyptian courts can award damages for breach of contract, but they generally do not order specific performance of contractual obligations. This means that rights like forcing a drag-along sale may be upheld on paper, but in practice an aggrieved party can only claim money damages if the deal doesn’t close. Therefore, many VC agreements incorporate arbitration and choice-of-law provisions to seek quicker enforcement through arbitration tribunals.

• Arbitration: Egypt is arbitration-friendly. The Arbitration Act No. 27/1994 (amended 1997) is based on the UNCITRAL Model Law, and Egypt is a signatory to the New York Convention (1959). Contracts with arbitration clauses (domestic or international) are upheld by courts, and foreign arbitral awards are generally enforced by Egyptian courts. Investors often choose arbitration at CRCICA or international forums (ICC, ICSID) to resolve disputes confidentially and efficiently.

• Foreign Governing Law: Parties can choose a foreign law to govern their agreement under Article 13 of the Civil Code, provided the choice has a real connection, isn’t for an illegal purpose, and doesn’t conflict with public policy. In practice, choice of foreign law is respected, but Egyptian courts would require proof (translated) of the foreign law if a dispute reaches litigation.

• Arbitration Seats: Even if the governing law is foreign, if the arbitration seat is in Egypt, the local Arbitration Act applies. If the seat is abroad, parties must rely on international treaty enforcement (NY Convention). Egyptians must ensure procedural rules (e.g., arbitration clause formalities) are met so that courts do not void the clause.

• Public Policy: Certain matters (e.g. arbitration clauses in some tax or bankruptcy issues) may be considered non-arbitrable, but most commercial VC disputes are arbitrable. Courts have recently even enforced arbitration over some previously “public” matters (like tax disputes).

In short, a well-drafted VC agreement will be enforceable in Egypt. Disputes can be resolved either through local courts (often the commercial circuits or the Cairo Economic Court) or via arbitration. Investors routinely include both options in their exit strategies for added security. It’s crucial that the agreement and any share transfer instruments be properly notarized and registered with GAFI, as formal defects can delay enforcement.

Drafting a VC Agreement in Egypt

Crafting a VC contract in Egypt requires attention to both global practice and local law:

• Language and Translations: While parties often negotiate in English, the official language of Egyptian courts is Arabic. If litigation arises, the contract may need an official Arabic translation. Courts will treat the governing law as a “fact” to be proved, requiring an authenticated copy and Arabic translation. Best practice is to keep a bilingual (English–Arabic) version of key documents or to reference the need for Arabic translations of exhibits.

• Mandatory Clauses: For foreign investors, certain clauses are effectively mandatory under Investment Law 72/2017. For example, SHAs must include arrangements for profit repatriation (i.e. agreeing to repatriate foreign currency and register the project with the CBE within 30 days). The SHA should also confirm the investors’ right to national treatment and dispute resolution guarantees under the Investment Law. Many international investors explicitly restate in the agreement the protections of the Investment Law (no expropriation, free transfer of currency, etc.).

• Reflecting Agreements in Company Documents: Egyptian practice strongly prefers incorporating SHA terms into the AoA. Clauses concerning board composition, share transfer restrictions, vetoes and capital structure should be mirrored in the AoA so they are effective at the corporate level. GAFI has even prepared (or is preparing) model AoA templates for startups with standard VC provisions (clawbacks, reserved matters, ESOP, etc.). Failing that, companies usually hold an Extraordinary General Assembly to ratify the SHA.

• Templates and Regulator Approvals: For formal VC fund structures (POFs, CLSs), FRA requires submitting a standard Information Memorandum and articles to be approved. Even for simple startup investment, share issuance or transfer requires notarized contracts and GAFI registration. Since 2022, startups can leverage the FRA’s new rules to use the Misr Central Depository (MCDR) for registering shares under convertible instruments, bypassing older foreign-bank transfer requirements.

• Tailoring to Sectors: Drafts should account for sectoral rules (e.g. listing NTRA approval conditions if telecom, or approvals from regulators for financial services). For example, a fintech investor will want confirmation that the target has or will obtain an FRA fintech license.

• Protective Language: Egyptian law protects minority shareholders; e.g., any action prejudicing minority interests can be voided. Thus, funders often include anti-oppression clauses mirroring statutory protections (though the Companies Law already forbids decisions unfairly prejudicing minorities). Validating these agreements with local counsel ensures they’re consistent with Egyptian corporate governance rules.

• Legal Formalities: Share transfers require a notarized transfer instrument and GAFI registration. A new rule permits escrow through MCDR for convertible note conversions, simplifying enforcement of equity issuances. Stamp duties (on share transfers/contracts) and fees should be budgeted (though recent reforms have reduced them).

In practice, VC agreements in Egypt are often drafted in English by international lawyers, then translated into Arabic by local counsel for legal filings. Using Egypt-specific precedents (like the draft SHA templates from GAFI or language from successful deals) helps avoid pitfalls. Engaging local counsel is crucial to navigate these technicalities.

Do Founders Need Legal Representation in a VC Deal in Egypt?

Yes. Navigating a VC transaction in Egypt involves complex layers of corporate, securities, tax and regulatory law. Founders should engage experienced legal counsel for several reasons:

• Regulatory Compliance: Lawyers ensure all necessary approvals are obtained. Foreign founders may need security clearances or residency permits (Investment Law entitles foreign founders to a project visa). Fundraising documents often require notarization and approval from GAFI and possibly the FRA (especially if raising an onshore fund or issuing public shares). A mistake in formalities can invalidate a transaction.

• Complex Documentation: A VC deal typically involves multiple documents: term sheet, share purchase agreement, shareholder agreement, amendments to AoA, convertible note or SAFE, etc. Lawyers draft and negotiate these to reflect the parties’ deal points while complying with Egyptian law (e.g. ensuring shareholder rights don’t violate Companies Law rules, or that any repatriation clause aligns with Central Bank regulations).

• Protecting Interests: As one Algerian firm notes, startup lawyers “ensure investor terms protect the company’s long-term interests”. For founders, counsel can craft terms (vesting schedules, founder share unlocks, warranties scope) that balance investor demands with realistic commitments. They also advise on protecting the founders’ own interests (e.g. buyout mechanisms, vesting acceleration, board safeguards).

• Due Diligence Support: Legal advisors help prepare a data room, identifying any gaps or issues in corporate records that might derail funding. They coordinate with accountants and other advisors to present a complete package to investors.

• Avoiding Pitfalls: Local counsel will flag undesirable clauses (like overly broad anti-compete or information covenants that conflict with labor laws) and advise on mandatory terms (e.g. including profit repatriation mechanisms as required by Investment Law).

Given that foreign investors are increasingly active (and subject to Investment Law protections), smooth legal execution is vital. In short, founders in an Egyptian VC deal almost always engage a lawyer to draft and negotiate the contracts – this protects both their interests and ensures the transaction is valid. Without proper representation, founders risk losing control of terms or facing unforeseen compliance issues. As one advisory site notes, terms like SAFEs and convertible notes are essential documents in fundraising and require careful tailoring to “meet local expectations”.

Are SAFE Agreements Legally Recognized in Egypt?

SAFE (Simple Agreement for Future Equity) instruments are not explicitly defined in Egyptian statute, but in practice they function much like short-term convertible instruments. Because SAFEs are essentially equity commitments rather than debt, some Egyptian lawyers treat them as akin to convertible notes.

Egypt’s regulations now expressly accommodate convertible instruments: FRA rules allow enforcing share transfers under a “convertible instrument” (i.e. note) through the central depository. A SAFE, which lacks a maturity date and interest, doesn’t fit the classic debt definition, but many Egyptian agreements modify the SAFE to include a trigger (e.g. next equity round) similar to other convertibles. In any event, SAFEs must comply with general contract law (e.g. no usurious terms) and any required formalities (notarization if structured as equity issuance commitment).

Because SAFEs are novel, it’s wise to ensure they expressly provide for Arabic translations and clarify triggering events. Some investors may instead use convertible notes, which enjoy clearer regulatory recognition in Egypt. If using a SAFE, lawyers often add clauses to conform to Egyptian norms (e.g. stating the future share class and price cap/discount mechanism). In short, SAFEs aren’t forbidden, but founders should use local legal counsel to draft them so they operate effectively under Egyptian law.

(Citing: “SAFE is popular… not explicitly covered in Egyptian law, but often accepted in practice if well-drafted”.)

Can VC Agreements in Egypt Use Foreign Law and Arbitration?

Yes – with conditions. Egyptian law permits parties to choose a foreign governing law under its Civil Code (Article 13), provided the choice is relevant and not contrary to public policy. In practice, many international VC agreements cite a foreign law (e.g. Delaware, English or French law) as their governing law. Egyptian courts will recognize such choices, but may treat the chosen law as a factual issue, requiring official translations and possibly expert testimony.

Arbitration is fully enforceable in Egypt. The Egyptian Arbitration Act (Law 27/1994) is UNCITRAL-based and applies to both domestic and agreed international arbitrations. Parties can therefore insert arbitration clauses referencing domestic bodies (e.g. CRCICA) or international institutions (ICC, ICSID). Egypt is a signatory to the New York Convention (1959) and ICSID (1972), so arbitral awards – whether on contractual or investment treaty claims – are recognized and enforceable in Egyptian courts under normal grounds. Recent judicial practice shows a strong pro-arbitration stance: courts will generally uphold arbitration agreements and enforce awards barring narrow exceptions.

For foreign investors, international arbitration (e.g. UNCITRAL rules or ICSID) is often stipulated as the dispute resolution method. One practical note: if the arbitration seat is in Egypt (even if foreign law governs), the local act will govern the proceedings; if the seat is abroad, international procedures apply (but enforcement in Egypt of a foreign award is straightforward via the Convention).

In short, VC contracts in Egypt commonly use foreign laws and arbitration. The only caveat is ensuring the agreement mentions compliance with Egyptian mandatory rules (e.g. share transfer formalities). For arbitration clauses, Egyptian courts will compel arbitration if the clause is valid and the dispute falls outside limited non-arbitrable categories. Hence, GCs should draft arbitration clauses carefully (stipulating seat, rules, language) to maximize enforceability.