The UAE has seen a large increase in the number of international companies doing business in the country in order to benefit from the very business friendly environment. With this increase there was also a need to modernise the laws regarding companies. The UAE Commercial Companies Law, enacted in 1984 but not enforced until 1991, has gone through a number of changes in the last 15 years. UAE Federal Law No. (2) of 2015 Concerning Commercial Companies came into force on 1 July 2015. All companies in the country are required to amend their memorandum to comply with the new law by July 1, 2016.

The new law aims to further develop the UAE into a global standard market and business environment. Important aspects of this objective are to raise levels of good corporate governance, the protection of shareholders and promotion of social responsibility of companies.

The law attempts to improve the existing legislation by addressing highly criticized deficiencies of the old law. The most eye-catching change is its attempt to raise the level of corporate governance of companies, in particular that of Limited Liability Companies. However, the most controversial provision, the required minimum UAE national participation, remains untouched.

 

The most useful changes adopted in the law are the following provisions:

• Allowing sole shareholder limited liability companies (LLCs) and private joint stock companies (PrJSC).
• Exempting government-owned companies from the company law if the company includes a provision in their memorandum to that effect.
• Allowing partners in LLCs to pledge their interests in LLCs.
• Allowing certain non-pre-emptive share issuances by joint stock companies (JSCs).
• Allowing founders to list their businesses while retaining 70% of the shares.

 
The new law has some important changes in the applicability of the companies law to certain companies. One of important amendment is the provision that companies that operate in certain oil, gas and power sectors in which the federal or local government (in) directly holds 25% of the shares are excluded, provided that they have included a special provision to that effect. Another important amendment is that the new law can apply to free zone companies when the free zone permits the company to operate outside the free zone. The federal authorities of the UAE will issue a resolution that will determine the conditions to register free zone companies to operate outside the free zone.

The new companies law also amends a lot of provisions concerning JSCs. Important changes concerning the JSCs are the raise of the share capital and the increase of both the minimum and maximum founder ownership percentages. Furthermore the new law now also contains provisions regarding Corporate Governance and takeovers, topics that were not covered in the previous companies law.

One provision that can potentially have big consequences for LLSs is a new article which provides that all the provisions of the new companies law concerning JSCs shall also apply to LLCs. The intention behind this or how this will work in practice remains vague, but this article potentially increases the regulatory environment for LLCs and their managers. In addition, the new law contains a new prohibition on JSCs providing financial assistance in connection with the holding of shares and bonds.

While companies incorporating in the UAE will appreciate the evolution of the Commercial Companies Law, some areas remain ambiguous. We expect the government to issue clarification or guidance in due course.
 

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