After several years of speculation, the new United Arab Emirates (UAE) Commercial Companies Law (Federal Law No. 2 of 2015) (the Companies Law) was promulgated in UAE Federal Official Gazette No. 577 on 31 March 2015. Most importantly for foreign investors, the restrictions on foreign ownership in the previous Commercial Companies Law (Federal Law No. 8 of 1984) remain in place; that is, UAE nationals must hold at least 51% of the share capital of a company established in the UAE. Nonetheless, the new Companies Law introduces the following key changes in relation to the regulation of companies in the UAE which will benefit foreign investors and local interests alike:
- Accounting and auditing requirements: All companies are now required to maintain for at least five years accounting records showing their transactions. Companies must prepare annual financial accounts (including balance sheets and profit and loss accounts) in accordance with the International Accounting Standards and Practices. Joint stock companies and LLCs are also required to appoint one or more auditors to audit the company’s accounts each year.
- Single shareholder: A limited liability company (LLC) can now be established by a sole legal person. Previously, an LLC required a minimum of two shareholders.
- Unlimited directors: Under the new Companies Law, there is no maximum number of directors which an LLC can have. Previously, an LLC could have up to five directors.
- Quorum requirements: The minimum quorum for a general assembly of an LLC has been increased from 50% to 75%. This amendment will benefit foreign investors who hold 49% of an LLC and ensures that a general assembly will not be quorate without the foreign investor’s presence. However, foreign investors need to be aware that the new Companies Law provides that if a quorum is not present the first time, the quorum for a subsequent meeting decreases to holders of 50% of the share capital in the LLC. This would mean that in a typical 49% foreign owned LLC, the UAE national shareholder would be able to hold a meeting and pass any resolution without the foreign shareholder’s involvement the second time a meeting is convened.
- Share pledges: A partner in an LLC may now pledge shares in a company to another partner or third party, although such pledge must be registered in the commercial register at the Department of Economic Development in the relevant Emirate. Previously, a partner was only permitted to transfer his or her shares to another partner or third party. Share pledges must be in accordance with the company’s Articles of Association. Therefore, existing companies wishing to allow their shareholders to make share pledges will need to amend their Articles of Association.
- Minimum float requirements: The minimum float requirements for companies listed on UAE exchanges has been reduced from 55% to 30% of company equity. This will be of particular interest to entities looking to establish an insurance company in the UAE, which pursuant to the UAE Insurance Law (Federal Law No. 6 of 2007) must be established either as a public joint stock company established in the UAE or a branch of a foreign insurance company.
- Holding companies: The new Companies Law allows the establishment of holding companies (either as an LLC or as a Joint Stock Company).
The new Companies Law will come into effect 3 months from the date of publication in the Official Gazette, that is, 1 July 2015. Therefore, existing companies in the UAE would be well advised to review their memorandum and articles of association and corporate governance policies and procedures to ensure compliance with the new Companies Law before 1 July 2015.