Companies in the United Arab Emirates have been granted an extra year to comply with the new Commercial Companies Law – but are being urged to do so as swiftly as possible.
A version of this article originally appeared in Governance & Compliance magazine.
The 30 June 2016 deadline for compliance with the new Commercial Companies Law (CCL) No. 2 of 2015 has been pushed to 30 June 2017.
The extension was granted following requests from the Securities and Commodities Authority, the Departments of Economic Development across all the Emirates and a number of existing UAE companies.
Many limited liability companies in the UAE were simply not prepared for the original deadline, risking a daily penalty of AED 2,000 and dissolution. Lack of awareness and understanding was a major reason for this oversight, with most head offices based outside the UAE. There was also some confusion as to whom the new law applied, with companies based in free zone locations being exempt.
In order to comply with the new law, most companies will need to amend their Memorandum of Association and Articles of Association, and ensure all voting rights and General Assembly procedures are clear and in line with regulations.
What has changed
The new law has introduced a number of key changes. Firstly, the number of company types has been reduced from seven to five, with the removal of joint ventures and partnership limited with shares. The five company types are:
- general partnership
- limited partnership
- limited liability company
- private joint stock company
- public joint stock company
The new law encourages companies to list and is particularly appealing for family businesses, as families may now retain a higher percentage (70%) of the shares.
For joint stock companies, there are significant changes to corporate governance and the responsibilities for the board of directors, as well as safeguarding the interests of the shareholders and the company as a whole (e.g. the requirement to rotate auditors every three years).
Meanwhile, a new company registrar (referenced in the law) is being established to oversee trade name applications and avoid duplication across the different Emirates. Other key changes include:
Some amendments have been made to make limited liability companies (LLCs) simpler and more attractive to investors. LLCs (and private joint stock companies) can now be set up by one individual with no change to the foreign ownership rights (although this individual must be from the Gulf Cooperation Countries) and there is no maximum number of managers (previously capped at five). LLCs must apply International Accounting Standards and Practices.
Quorum of the General Assembly
Voting regulations for board meetings and general assembly meetings are also clarified within the new law. The new minimum attendance quorum of the shareholders' assembly is 75% attendance of shareholders holding 50% of the share capital. If the quorum is not met in the first meeting a second meeting (with 14 days' notice) attended by shareholders holding 50% of the share capital is valid. If the quorum is not met in the first two meetings, a third meeting with a notice period of 30 days is valid with no minimum quorum requirement. The Articles of Association must be amended to reflect this change.
Steps to compliance
Reviewing compliance should be a priority for all companies registered in the onshore market in the UAE in order to ensure their entity types, governance structures and board governance meet the new regulations. Most companies will have to make some changes to their Articles of Association (AoA) since all Article numbers pursuant to the old law were moved and changed.
The AoA must also now include the full name, nationality, date of birth and place of residence/domicile of each founder/shareholder. Once the company's AoA have been updated in line with the new requirements and approved by the shareholders, they must then be signed in front of the Notary Public in the UAE (by not only the authorised signatory for the company but also their local Emirati sponsor or agent (nominee shareholder).
Documents must be translated and approved by the notary before they can be signed and stamped. Advance notice and schedule coordination is required in order to complete this essential step.
From 1 July 2017, any company that has not made the required amendments will be deemed dissolved and risk fines of AED 2,000 per day. It is therefore recommended that companies now move as swiftly as possible within the extended grace period to incorporate all of the new regulations within the Memorandum and their governance structures.
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