03 April 2016
The United Arab Emirates' new Commercial Companies Law, which came into effect in June 2015, introduces some fundamental provisions that must be observed carefully by existing companies and investors in the Gulf Arab state.

All commercial companies operating in the UAE are required to adjust their positions in compliance with the new law's provisions within a maximum period of one year from the effective date, and there are almost two months left for existing companies to comply. Any company that fails to achieve that may be considered as dissolved.

The new law eliminated two of the seven forms of commercial companies that may be registered in the UAE, namely joint venture companies and share commandite companies. Any company that does not adopt one of the remaining five forms will be null and void and the parties contracting in the name of such companies will be personally and jointly liable for any and all of the liabilities deriving from such contracting.

The main provisions relating to limited liability companies (LLCs) in the old law of 1984 are maintained, but the new law makes several positive changes which can be summarized as follows:

a)      An LLC can be incorporated in the UAE now by one natural Emirati shareholder;

b)      The pledge of an LLC's shares is now expressly permitted under the New Law;

c)       A shareholder intending to sell his shares in an LLC is obliged to disclose the name of the intended purchaser of the shares, as well as the terms of the purchase to the other shareholders;

d)      The shareholders can now nominate managers for an LLC without any limitations;

e)      The statutory required notice period for general meetings has been reduced to only fifteen days; and

f)       The statutory quorum required for general meetings has been increased from 50% to 75%.

The new law has also made key changes to the provisions affecting joint stock companies (JSCs), including the following:

a)      The minimum founding partners required for private JSCs have been reduced from three to two and from ten to five for public JSCs;

b)      The minimum and the maximum limits for the subscription of the founders of a public have been increased to 30% and 70% respectively;

c)       The Securities and Commodities Authority in the UAE has been given the right to issue a resolution to regulate the mechanism of subscription in new shares on the basis of book building;

d)      The cap on the number of board members of JSCs has been reduced from fifteen members to only eleven;

e)      The minimum notice required for convening a general assembly meeting has been reduced from twenty one days to -fifteen days;

f)       The minimum share capital required has been increased from AED two million (USD 544,959) to AED five million for private JSCs and from AED ten million to thirty million for public JSCs;

g)      The shareholders' pre-emption rights can now be sold to other shareholders or to third parties;

h)      The new law gave the UAE cabinet the right to issue a resolution determining and regulating other classes of shares issuable by public JSCs;

i)        Public JSCs are now prohibited from providing any of its shareholders with financial assistance to enable them to hold any shares, bonds or sukuk issued by the company;

j)        a JSC company may increase its share capital by the entry of a strategic shareholder in consideration of the technical, operational or marketing support that such shareholder may extend to the company; and

k)      The appointment of JSCs' auditors has been capped at only three consecutive years.

The new law introduces several new penalties which all companies and their management operating in the UAE should consider and observe. These include a daily penalty of AED 2,000 on any company that fails to amend its memorandum of association and articles of association in compliance with the provisions of the new law within one year from the effective date.

Please click here to see the full overview of the law.

© Special Contributions 2016