The new UAE companies law, with the official name of Federal Decree Law No.32 of 2021 on commercial companies law (CCL), was introduced by the government to transform its business landscape. The new Companies Law was introduced on 2 January 2022, replacing the previous law introduced in 2015 with significant improvements in regulations of foreign ownership of companies, corporate regulations, and more. It has also made amendments in the existing companies law, which allows public joint stock companies to be divided by splitting the company’s activities or assets. The law applies to any company operating in commercial, industrial, financial, real estate, agriculture, and other business activities on the UAE mainland.
The new companies law in the UAE introduces SPVs (special purpose vehicles) and SPACs (special purpose acquisition companies). The law also includes new rules for companies’ directors, shareholders, and auditors to increase accountability and transparency. It is part of the UAE’s vision of increasing foreign investment, aligning the business sector with international standards, and promoting better administration in the business sector.
Understanding the New UAE Companies Law
Whether you are an investor, entrepreneur, or a company operating in the UAE, you need to stay updated in order to comply with new rules. This law applies to any business running in the commercial, financial, real estate, and industrial sectors on the mainland. Some companies are exempt, which are outlined in Article 4 of the law. Companies must ensure their legal documents and management structure align with the new regulations. Moreover, the management must explore opportunities to grow its business by taking advantage of the latest amendments.
What Type of Businesses Does the CCL Apply to?
The new commercial companies law applies to businesses incorporated in the UAE, including Public Joint Stock Companies (PJSCs) and Limited Liability Companies (LLCs). It also introduced two new types of companies,
Special Purpose Acquisition Companies (SPACs)
SPACs are public joint stock companies that are established to merge or acquire another company.
Special Purpose Vehicles (SPVs)
These are legal entities that separate the assets, liabilities, and operations of fulfilling a specific project.
However, certain companies are exempt from the new CCL 2021, such as federal or government-owned entities, or those in sectors like power, gas, and oil. Additionally, companies incorporated in the free zones are not subject to this law (free zone companies operating in the mainland may fall under this scope).
Key Modifications for Public Joint Stock Companies (PJSCs) – New UAE Companies Law
The new law has presented new changes for PJSCs, mainly on capital structure and management.
Share Capital
The law has removed the requirement of a minimal nominal value for shares, which allows the PJSCs to set their nominal value. Moreover, it has eliminated the requirement of authorized share capital.
Ability to Issue Discounted Rates
PJSCs can issue discounted shares (subject to approval of SCA and a passing of a special resolution) in case the market price of shares is below the nominal value.
Replacement Directors Appointment
If a director leaves before the expiry of their term, the board must appoint a new director within 30 days, who shall complete the remaining time of the previous director.
Directors Salaries
The profits of the board members should not be more than 10% of the net profit of the company’s fiscal year. However, suppose the company is not generating any profits. In that case, a board member will receive a fee of AED 200,000 at the end of the fiscal year (subject to the company’s constitution and approval of the general assembly).
Existing companies must adjust their position within one year of coming into effect; otherwise, they shall be considered liquidated.
Key Modifications for Limited Liability Companies (LLCs) – New UAE Companies Law
The key changes for LLCs are as follows,
Manager Powers (LLCs)
If a manager is not replaced by the end of their term, their term can be extended for up to six months from their term’s expiry date (during the pending appointment time of a new manager).
General Assembly Meeting
- Someone who is not a manager can now act as a substitute at a general assembly meeting.
- The notice period to gather a general assembly is now not more than 21 days (before it was 15 days).
- There is a relaxation in the quorum requirement, which means if the first meeting doesn’t have enough people to proceed, they can hold a second meeting without the requirement of a minimum number of people, and it will be counted as valid (even if the company rules are different in this regard).
Statutory Reserves of LLC
The statutory reserves, which are made up of net profit, are reduced from 10 to 5%, which will be appreciated by a lot of companies.
Memorandum of Association of LLC
The Memorandum of Association of an LLC must include ways to settle any business disputes between managers or directors and the company or shareholders.
Can Foreigners Own Companies in the UAE? – New UAE Companies Law
There are no changes for foreign investments in the updated companies law. It means that the foreign ownership is limited to 49%, while the other 51% shares are owned by a local Emirati national.
The UAE authorities introduced new UAE companies law to make sure that companies operating in the UAE are aligned with international standards. It also makes sure the companies are transparent and accountable for their actions.
The recent changes in the law have led many companies to open branches outside of the free zone and on the mainland, showing the flexibility and support of the UAE authorities.
Corporate Social Responsibility (CSR) – New UAE Companies Law
The new CCL allows PJSCs to donate a percentage of their profits to the CSR after getting approval from the Securities and Commodities Authority (SCA). There is no limitation of CSR contributions in CCL 2015. The old rules stated that only companies operating for two years could make CSR donations, and the amount was 2% of their average profit of the past two financial years.
Due to the continuous change in CSR and sustainability, the new CSR rules encourage companies to be more involved in these efforts. The rules should benefit both businesses and the community.
Impact on IPOs, M&A Transactions, and SPACs
The new companies law significantly affects initial public offerings (IPOs), mergers and acquisitions (M&As), and newly introduced SPACs. Here’s a brief breakdown,
- IPOs. The new law changes IPO procedures, which include a new subscription period and are subject to a period of 30 days, and it must be mentioned in the prospectus. The law can extend the period, but it should not exceed the time mentioned in the prospectus.
- M&A Transactions. The CCL 2021 law simplifies M&A regulations, which allows PJSCs to issue their shares at a premium or discount, after getting approval from shareholders and SCA.
- SPACs. The law provides a legal framework for SPACs which were not available in CCL 2015. These companies can list shares and merge with private target companies, which can help them go public.
Endnotes
Understanding the New UAE Companies Law (CCL 2021) aims to streamline the legal framework for businesses in the UAE to align with modern and international standards. With increased foreign ownership benefits it will attract more foreign investments which will help boost the economy.
Contact Al Riyady to understand the complexities of the new companies law in the UAE completely. We can help you throughout the registration process and ensure compliance with the latest regulations. We can also help you with Business Setup in the UAE Mainland, Business Setup in the UAE Free Zone, Business Licenses, and more.
