NEWS & INSIGHTS

Venture Capital Companies are designed to invest in high-growth businesses, typically startups with significant potential but also considerable risk [1].This type of companies usually provides funding in exchange for ownership interests in the social capital, aiming to earn a return when the business grows or is sold [2].

Given its emerging and new enactment under Jordanian law, it becomes increasingly important to establish a clear and robust legal framework for Venture Capital Companies in Jordan, one that can attract investors, protect entrepreneurs, and ensure legal certainty enabling a sustainable growth for this new type of corporate ventures.

The Establishment of Venture Capital Companies under Jordanian Law

Under Jordanian law, a Venture Capital Company is a specific type of entity established to support unlisted, high-risk, high-potential companies grow by providing funding. In return, the Venture Capital Company benefits from future returns when it exits the investment [3].The law prohibits Venture Capital Companies from investing in companies that are listed on the financial market, meaning their focus must remain on startups and unlisted private businesses [4].

The company’s capital must be divided into shares, each with a value of at least one Jordanian dinar [5]. There are two categories of capital: committed (promised but not yet paid) and paid-up capital [6]. The law sets minimum investment amounts: financing partners, who invest with equity but do not participate in the company’s management, must contribute at least 50,000 JOD; managing partners, who manage the company, must contribute at least 1,000 JOD. Contributions must be in cash only (i.e., direct monetary deposits), and they can be paid in installments over three years, unless provided otherwise in the partnership agreement executed between the partners [7].

The Management of Venture Capital Companies under Jordanian Law

Managing vs. Financing Partners

The structure of a Venture Capital Company includes two types of partners: managing partners and financing partners. Managing partners handle daily operations and make decisions for the company. They are personally liable for the company’s debts, even with their own personal assets [8]. Financing partners, on the other hand, provide capital but do not take part in management, and their liability is limited to the amount they have invested [9]. The relationship between partners, their roles, voting rights, and decision-making procedures are usually set out in the partnership agreement, which is a key legal document governing the company's management and operation.

Legal Restrictions on Management and Operation of Venture Capital Companies

Jordanian law regulates and imposes limits on how a Venture Capital Company can invest. For example, it cannot invest more than 20% of its committed capital into one single company, and it cannot own more than 51% of a company it invests in during the first twelve months after the investment [10]. Such legal restrictions aim at preventing over-concentration and ensuring that Venture Capital Companies spread their risk across multiple businesses.

Such legal safeguards play an important role in maintaining market stability and promoting responsible investment practice. Notably, if a startup supported by a Venture Capital Company later becomes publicly listed, the Venture Capital Company is permitted to retain its shares, allowing it to benefit from the company’s long-term growth and potential stock market appreciation. This exception recognizes the strategic value of sustained investment in high-performing ventures and aligns with global venture capital norms.

Financial Transparency imposed as a legal obligation by Jordanian Law

Venture Capital Companies must maintain detailed financial records and submit an annual financial statement audited by a certified accountant. These documents must be available to partners and the regulatory authority [11]. The managing partners are responsible for ensuring financial transparency and for disclosing all relevant information unless it is legally protected as confidential. The managing partners carry primary responsibility for upholding these standards of financial transparency. They are obligated to disclose all information that may affect the company’s operations, investment decisions, or financial status, except for information that is by law deemed as confidential [12].

Sharing Profits and Losses

Profits and losses are shared between the partners based on what is agreed upon in the partnership agreement. If the agreement does not specify, profits and losses are distributed based on the amount of paid capital each partner has contributed.

Before any profit distribution can occur, the managing partner is obligated to perform a solvency assessment. This involves confirming that the company will remain financially sound, able to meet its obligations and operate effectively for at least 18 months following the distribution [13]. This legal safeguard is crucial in protecting investors, preserving the long-term stability of the venture capital firm, and preventing short-term profit-taking from jeopardizing the company’s ongoing investment activities.

Conclusion

Although the legal structure governing Venture Capital Companies has been in place since 11/11/2023, the Companies Control Department’s Registrar confirmed that no Venture Capital Companies have yet been registered in Jordan. This lack of registration signals that the sector is still at a formative stage, offering a rare and timely opportunity for investors, policymakers, and entrepreneurs to shape a dynamic and high-impact investment environment from the ground up. The regulatory framework already provides legal safeguards, clear rules on establishment, management, investment limits, liability, and financial transparency, designed to encourage responsible investment while ensuring market stability.

Jordan now stands at a promising turning point: with the right implementation, oversight, and potential refinement of its legal framework, it can create a robust and attractive venture capital ecosystem capable of driving innovation, job creation, and economic resilience in the years ahead, particularly in alignment with Jordan's Economic Modernization Vision.

1. Article 77 of the Companies Law No. 22 for the Year 1997 and its Amendments

2. Ibid

3. Ibid

4. Ibid

5. Article 79 (b) of the Companies Law No. 22 for the Year 1997 and its Amendments

6. Article 79 (a) of the Companies Law No. 22 for the Year 1997 and its Amendments

7. Article 79 (e) of the Companies Law No. 22 for the Year 1997 and its Amendments

8. Article 80 (a) of the Companies Law No. 22 for the Year 1997 and its Amendments

9. Ibid

10. Article 85 of the Companies Law No. 22 for the Year 1997 and its Amendments

11. Article 84 of the Companies Law No. 22 for the Year 1997 and its Amendments

12. Ibid

13. Article 80 (f) of the Companies Law No. 22 for the Year 1997 and its Amendments