The new UAE Commercial Companies Law (Federal Law No. 2 of 2015) (“CCL”) came into effect on 1 July 2015 and we reported on the principal amendments made by the CCL in our June/July 2015 edition of Law Update.

The following is a snapshot of the key developments brought about by the CCL in relation to LLCs:

  • The pre-emption process remains the same save that in the event of a dispute as to price, the price will be determined by financial experts appointed by DED, rather than the company’s auditor.
  • As an exception to the minimum two shareholder rule for LLCs, the CCL permits an Emirati natural or legal entity to incorporate a single person LLC.
  • Ordinary shareholder resolutions shall not be valid unless passed by a majority of the partners present in person (or represented) unless the MOA provides for a higher majority (previously it was absolute majority of shareholdings present).

The CCL removed the cap on the number of managers (previously 5)

Notices to general assemblies can now be sent on 15 days notice or such shorter notice period as the shareholders agree and in addition, the CCL permits notices to be sent by whichever means of communication shareholders agree on, including email. Under the old law, notices had to be sent by registered mail.

The quorum for general assemblies has been raised to 75% of share capital from 50% previously.

The process relating to reconvening of inquorate meetings has been shortened such that inquorate general assemblies shall be reconvened within 14 days of the date of the first meeting and the quorum at the reconvened meeting shall be presence of shareholders representing 50% of the company’s share capital. In the event the second meeting is inquorate, the meeting shall be adjourned to a date that is at least 30 days after the second reconvened meeting and such third reconvened meeting shall be quorate provided one shareholder attends.

Under the CCL, shares in an LLC may be pledged and the pledge can be registered in the Commercial Register. LLCs should anticipate that lenders may now require a pledge of shares as part of their security package and both lenders and borrowers alike should review existing powers of attorney and authorisations to ensure that they cover entry into and registration of share pledges

The CCL provides that the provisions relating to joint stock companies will apply to LLCs, unless otherwise stated; however, to apply this indiscriminately is an unsound approach given the technical differences in the form of these entities and the disparate objectives for which each is usually employed

Of critical importance is that fact that if a company does not comply with the new law by 1 July 2016, it will be deemed dissolved (Article 374). This is taken to mean that an LLC will need to have made necessary amendments to its Memorandum of Association to ensure compliance to continue to exist. In addition, Article 357 provides that a fine of AED 2000 per day of delay will be imposed on any company that fails to amend its Memorandum of Association and Articles of Association to be compliant with the provisions of the Law.

The matters that may require consideration and amendment in an LLC’s memorandum of association are set out in the table below.

Click here to view table

Once consideration has been given to the amendments to be made to a company’s constitutional documents, the new memorandum and/or articles of association need to be drafted and executed by the shareholders before the notary public.

As explained above, if a company fails to make the necessary changes in order to comply with the CCL, the company will be deemed to be dissolved. Other than the obvious consequences of a dissolution, this could also potentially mean that since the company would no longer exist, the officers of the company, being the manager and/or directors, could be held personally liable for any liabilities of the company. This is in addition to the daily fine of AED 2,000 per day potentially being imposed on the company. Given these consequences and the fact that the clock is ticking, companies would be well advised to review their constitutional documents and make the necessary changes as soon as possible.

With contributions from Omer Khan, Partner, Corporate Structuring