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Top five facts that you need to know about the new UAE commercial companies law

Aug 2016

In March 2015, the UAE government introduced the new Commercial Companies Law No.2 of 2015 (the “CCL”) that sets out the new rules to be followed by companies. The new law addresses a number of factors including rules regarding company formation, internal procedures, management, liquidation, etc.  This article outlines some of the top features of the CCL and how your business can benefit from incorporating the new regulations.

1) How can I ensure that my business is in compliance with the new regulations?

The initial step to ensure that your business is in compliance with the CCL is to amend your company’s Memorandums of Association (“MOA”). While the new regulations bind Limited Liability companies and Private Joint Structure companies incorporated in Dubai mainland, those entities established in freezones are not required to comply with these laws unless that particular freezone opts into the jurisdiction, or the freezone company intends to carry on business activities outside the freezone area (with observing necessary license requirements).

2) Will the new changes affect my business? How?

The immediate answer is that the changes will probably not have an instant impact on your business operations but in reality the changes are likely to affect the internal compliance of your company.  For instance, the quorum for passing resolutions has been raised to 75%. This is just one example of the changes that might require business owners and shareholders of companies to adjust to how decisions are made.

3) How would I benefit from pledging my shares?

In accordance with the new CCL, shareholders (majority and/or minority) may now pledge their shares using internal procedures specified under the law as long as the current regulation on the ratio of UAE/foreign ownership are maintained. This may be an opportunity provided to companies to access financing by being able to offer security pledges over their shares. Pledging of shares will enable you to have access to a wider variety of funding as security of company shares will be able to be given. However, certain factors remain unclear regarding this provision as no reference is made to a concept of a certificate of share ownership which is commonly used regarding pledging of shares. It is suggested that entities will rely on the register of partners (shareholders) of the company which is maintained by the Ministry of Economy to provide a similar use to the share certificate.

4) Would the management of the company be any different according to the new CCL?

The changes to the law in relation to management provisions and managers’ obligations are other areas of the law which will benefit your business. Some of the introductions within the CCL include the non-compete provision aimed at preventing managers from undertaking competing management roles. Other introductions such as implementing a control council (consisting of 3 assigned shareholders) to assist with the management of the company can result in a consistent and controlled decision making system. Additional changes such as removing the cap on the number of appointed managers in an LLC is an opportunity for experienced and talented individuals to contribute to the growth of your business.

5) Why would my company require corporate transparency?

The regulations introduced by the CCL regarding auditing procedures have been made stricter. For example, there are now requirements for companies to maintain accounting records for a minimum of five years from the end of the financial year to which they relate. Businesses are also expected to have assigned auditors to prepare the annual financial accounts that are in line with International Accounting Standards.

Companies are advised to begin amending their MOAs to ensure compliance with the new CCL in order to start benefiting from the provisions within the new regulations. Our corporate team are happy to assist you with making these necessary amendments.

About Davidson & Co Davidson & Co is a boutique law firm established in Dubai in 2008, with lawyers and legal consultants drawn from across the globe. Providing a unique combination of corporate / commercial expertise; dispute resolution solutions; as well as private client advice, we are able to cater to the mass market and offer unparalleled legal services in the region.

For more information about our capabilities and accolades, please visit our website or contact 00971 (0)4 343 8897 and ask to speak to one of our associates.

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