Internal Control in Egyptian Family Companies: Risks and the Law
Where does internal control break down in a family company? Cash in one pair of hands, related-party deals, mixed money and verbal approvals. Egypt's Companies Law covers several.
By Audit & Assurance Department · 15 October 2026 · 8 min read
Executive summary
- In a joint stock company, a board member or manager with an interest that conflicts with the company's in a transaction put to the board must inform the board, have this recorded in the minutes and not vote (Article 97 of Companies Law 159 of 1981).
- In a joint stock company, a commutative contract put to the board for approval to which a founder (within five years of incorporation) or a board member is a party needs the general assembly's prior authorisation, or it is void (Article 99).
- In a limited liability company, a sole manager must inform the partners' assembly of every conflict between their interest and the company's in any transaction they intend to carry out (Article 122).
- Holders of at least 10% of the shares or quotas may obtain information and copies of documents on the deals the company concludes with related parties (Article 157 bis, added by Law 4 of 2018).
- The Egyptian Corporate Governance Guide names unlisted and family companies within its scope and works on comply or explain; Financial Regulatory Authority Board Decision 84 of 2016 did no more than approve its issue and publication.
Why control differs in a family company
The COSO components of internal control are set out in Internal audit and the COSO framework. In a family company the owner is often the manager, the signatory and the approver of expenses at once, so the control environment rests on one person and trust replaces written procedure. Errors then accumulate undetected, and disputes among heirs or the second generation have no document to rely on.
Four risks particular to family companies
Cash in one pair of hands. When the same person collects, pays, records and reconciles the bank statement, no one else can detect an error or a misappropriation. A situation that recurs in practice is a sole accountant who is also the cashier and prepares the bank reconciliation.
Related-party transactions. Purchases from a company owned by a family member, renting the founder's property, or salaries to relatives with no matching work. The risk is a price that ignores the company's interest, and a contract that may be void under the provisions below.
The founder's money mixed with the company's. Personal expenses paid from the company's account, or company receipts deposited in a personal one. In a joint stock company, a shareholder becomes entitled to a share of profits "as soon as the general assembly issues its decision to distribute them" (Article 44, our translation), so in our view anything withdrawn before that decision is recorded as a balance owed by the person who took it; the reserve and employee-share rules are in Legal reserve and employees' profit share. A joint stock company may not grant a cash loan to any of its board members or guarantee a loan one of them takes from a third party, save the exception for credit companies, and any contract in breach is void (Article 96).
Undocumented approvals. A verbal approval leaves nothing to review, and at the points that matter most the law requires a record in the board minutes (Article 97) or the general assembly's prior authorisation (Article 99).
What the Companies Law says about related-party transactions
Under the first paragraph of its Article 1, as replaced by Law 4 of 2018, Law 159 of 1981 governs joint stock companies, partnerships limited by shares, limited liability companies and single-member companies that have their head office in Egypt or carry on their main activity there. General and limited partnerships are not among them (see Company legal forms in Egypt). The key provision for a joint stock company is Article 99:
"No founder of the company, during the five years following its incorporation, and no member of its board of directors at any time, may be a party to any commutative contract submitted to that board for approval, unless the general assembly has authorised the transaction in advance; any contract concluded in breach of this article is void." (our translation)
| Rule | Source | Addressed to |
|---|---|---|
| Inform the board of a conflicting interest and record it in the minutes, and do not vote; the board reports the transaction to the next general assembly before it votes on resolutions | Law, Art. 97 | Board members and managers of a joint stock company |
| A commutative contract with another company in whose board or management a board member or manager takes part, or in which the company's shareholders hold the majority of capital, is void if the lesion in it exceeds one fifth of the value at the time of contracting | Law, Art. 100 | The board and managers of a joint stock company |
| Managers bear the same liability as board members; a sole manager informs the partners' assembly of every conflict of interest | Law, Art. 122 | Managers of a limited liability company |
| Holders of at least 10% may obtain information and copies of documents on the deals the company concludes with related parties; if the company refuses, they may apply to the General Authority for Investment and Free Zones, whose decision to grant access binds the company | Law, Art. 157 bis (added by Law 4 of 2018) | Shareholders and partners |
| An annual detailed statement made available to shareholders, including transactions in which a board member or managing partner has an interest conflicting with the company's | Executive Regulations, Art. 220 (item 6) | The board or the managing partner(s) of joint stock companies and partnerships limited by shares |
Governance in an unlisted family company
The binding governance rules covered in Internal audit and the COSO framework are sectoral: banks, specified non-bank financial companies, insurers and listed companies. A family company outside those sectors is named in the Egyptian Corporate Governance Guide, whose issue the Financial Regulatory Authority's board approved by Decision 84 of 26 July 2016. Its scope reads (section 1/5):
"Without prejudice to all legislation and regulatory instructions governing the work of all companies in the Arab Republic of Egypt, these rules apply to companies with and without securities listed on the exchange, banking and non-bank financial institutions, and industrial, commercial and service companies regardless of their size and the nature of their activity, whether family companies or publicly owned." (our translation)
Decision 84 does no more than approve the Guide's issue and provide for its publication and promotion. Subject to the binding force of laws and regulatory instructions, the Guide works on comply or explain: a company explains and discloses any rule it does not apply (section 1/6), and the Guide describes the principle as one that "paves the way for making the rules mandatory" (our translation). For related-party transactions it calls for the general assembly's prior approval without a vote by the interested party. In our view this reaches further than Article 99, because it names major shareholders, insiders and related companies.
The statutory auditor's role
Which companies must appoint an auditor is covered in Statutory audit in Egypt. In joint stock companies and partnerships limited by shares, shareholders must have access, at least five days before the ordinary general assembly, to a statement from the auditors that the company has not granted a cash loan to any board member or managing partner, nor guaranteed a loan for any of them (Article 219 of the Executive Regulations).
Egyptian Standard on Auditing 315 (quoted in our translation) requires the auditor to "understand the internal control relevant to the audit" (paragraph 41) and to communicate promptly to those charged with governance and to management, at the appropriate level of responsibility, the "significant weaknesses in the design or implementation of internal control" that the auditor may discover (paragraph 120). The opinion is on the financial statements (Standard 700, paragraph 4). In our view, the audit is no substitute for controls designed by management. These are the standards of Minister of Investment Decree 166 of 2008; they are replaced by the standards of Prime Minister's Decree 3725 of 2025 for financial statements whose financial year begins on or after 1 January 2027 (see New Egyptian auditing standards).
Simple controls for a small company
- Segregation of duties: whoever approves a payment does not record or reconcile it; where staff numbers do not allow this, the owner or another partner reviews the bank statement and the entries each month.
- Dual signatures on payments above a limit set in writing by the board or the partners' assembly.
- A company bank account with no personal expenses, and any amount paid to a partner booked to that partner's account and settled.
- A monthly close, as in Monthly accounting close, and a bank reconciliation prepared by someone other than the cashier, as in Bank reconciliation.
- A written authority matrix approved by the board or the partners' assembly.
What this requires
- Keep a register of related parties (founders, board members or managers, their relatives and their companies), updated yearly and checked before every contract.
- In a joint stock company, put commutative contracts with founders in the first five years and with board members to the general assembly before signing, and record the disclosure and abstention in the board minutes.
- In joint stock companies and partnerships limited by shares, include transactions involving a conflict of interest in the annual detailed statement (Article 220 of the Executive Regulations).
- Review debit balances owed by board members or managing partners, and their origin, before the financial statements are prepared; in joint stock companies and partnerships limited by shares, the auditor's statement to the assembly covers cash loans to them.
- Follow up the weaknesses the auditor reports and record what was done about each.
The firm's Audit & Assurance Department assesses internal control in family companies, maps related-party transactions and the authorisations and disclosures they require, and designs controls that fit the size of the business.
Nehal Saied, Partner
Chartered Accountant, Ministry of Finance, Egypt
Member, Egyptian Tax Society
Member, Egyptian Society for Public Finance and Taxation
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Disclaimer: This bulletin is prepared for general information on the legislation in force at the date of its publication. It does not constitute a professional opinion or tax or legal advice on any particular matter, and it should not be relied upon in place of advice based on an examination of the circumstances of each case. Nassef & Partners International accepts no responsibility for any action taken, or refrained from, in reliance on its contents. The positions stated remain subject to subsequent legislation and decisions.