The UAE's New Companies Law Comes Into Effect
30th June 2015
The new UAE Commercial Companies Law (CCL), Federal Law No. 2 of 2015, was published in the Official Gazette on 31st March 2015, coming into force three months from the date of publication on 1st July2015. The new law replaces Federal Law No. 8 of 1984. Existing companies have 12 months in which to adjust and those not compliant by 1st July 2016 will be considered dissolved. It was subsequently announced in June 2016 that registered companies had an additional year in which to comply - failure to comply would result in fines accruing on a daily basis.
The new CCL has been eagerly anticipated for a number of years, particularly with speculation relating to increases in foreign ownership limits. Although these are not considered as part of this new law and instead are expected as part of a new Investment Law, it is still anticipated that the regulations will be relaxed in due course in specific sectors. However, the new CCL is intended to encourage entrepreneurship amongst Emiratis as well as Foreign Direct Investment (FDI) into the country.
Following is an overview of some of the key points of the new CCL:
The Department of Economic Development (DED) for the respective Emirates will continue to issue licenses for onshore companies and regulations for private companies will be in conjunction with the Ministry of Economy (MoE) and for publicly listed companies in conjunction with the Emirates Securities and Commodities Authority (ESCA) and the MoE.
All companies must keep accounting records for five years.
The accounting year will be a minimum of six months and a maximum of 18 months.
Accounts need to be prepared in line with international accounting standards.
Accounts must be audited annually.
Failure to maintain accounts will incur a minimum fine of AED50,000.
Limited Liability Companies (LLCs)
LLCs can have an unlimited number of managers - previously this was limited to a maximum of five.
Managers of LLCs must not operate any other business in competition with said company. Default will result in the manager being discharged and compensating said company.
Amendments to the Memorandum of Association (MOA) will require approval of shareholders owning at least 75% of the capital.
A single UAE National can establish an LLC - previously two Nationals were required.
General assembly meetings require 15 days notice, previously 21 days were required. To achieve quorum, shareholders owning 75% of the capital must be in attendance - previously this was 50%. If a quorum is not achieved, a second meeting must be held within 14 days of the first, at which quorum will be achieved by shareholders owning 50% of the capital. If quorum is still not achieved, a third meeting must be held within 30 days of the second and no limits are defined for quorum.
It is prohibited for MOAs to exempt officers from personal liability.
Quotas can be pledged. A partner may transfer shares in accordance with the company's MOA, via a notarized document which is subsequently registered in the commercial register of the specific Emirate's DED.
Free Zone Companies
Free zone companies are exempt from the CCL; however, there is provision that regulations will be issued which will allow for free zone companies to register to operate outside of the free zone in which they are registered.
Public Joint Stock Companies (PJSCs) and Private Joint Stock Companies (PrJSCs)
For non-government PJSCs, the minimum number of founders is reduced to five from 10.
The minimum number of shareholders in a PRJSC is reduced to two from three. However, it should be noted that there is a provision for a sole founder PrJSC.
The maximum number of shareholders is 200.
The minimum share capital for PJSC is increased from AED10 million to AED30 million; and, for a PJSC it is increased from AED2 million to AED5 million.
The maximum number of directors for a PJSC is reduced from 15 to 11. The total number of directors must be an even number; 2/3 must hold shares; and, the majority of board seats to be held by Emiratis.
The notice requirement for general meetings is reduced to 15 days from 21 days.
PJSCs are only required to float 30% when listing - previously this was set at 55%. The maximum proportion that can be floated is 70% - previously this was 80%.
Minimum period for public subscription remains at 10 days. Maximum period for public subscription is 30 business days, extendable by 10 business days - previously this was 90 business days and 30 business days, respectively.
Local underwriting of IPOs will be allowed - regulations are still to be published.
Shareholders are permitted to sell their pre-emption rights.
Provision has been made for holding companies to have a legal status. It will be necessary for this to be included within the Trade Name.
If you are unsure how the new CCL affects your existing Abu Dhabi business, we strongly advise that you seek legal consultation in order to remain compliant.
Foreign Branch and Representative Office legal forms remain largely unaffected by the new CCL.
Written by Jenny Hunt, Founding Partner & CEO
Gateway Group Of Companies, Abu Dhabi & Dubai, UAE
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