Introduction
On September 20, 2021 Federal Law By Decree No. 32 of 2021 on Commercial Companies (New Companies Law) was issued, to replace Federal Law No. 2 of 2015 on Commercial Companies, as amended (Existing Law). The New Companies Law will come into force on 2 January 2022, and notably strengthens the principles of foreign ownership of companies, corporate governance and minority protection. The New Companies Law also introduces a range of amendments to the Existing Law, including introducing a regime to allow for public joint stock companies (PJSCs) to be divided (by splitting up the company’s assets or activities and related obligations and ownership rights into two or more separate companies), the introduction of special purpose acquisition companies (SPACs) and special purpose vehicles (SPVs), and the introduction of measures aimed at facilitating public offerings.
The New Companies Law also introduces provisions allowing for a joint stock company to specify the value of its shares (thereby no longer restricted from being a minimum AED 1) and reaffirms the principle of the relaxation of foreign ownership restrictions recently introduced.
Important changes
Introduction of new corporate vehicles
- The New Companies Law sees the introduction of SPACs, to be established as a PJSC and as approved by the UAE Securities and Commodities Authority (SCA), for the sole purpose of acquiring or merging companies. This follows the recent trend of utilising SPACs for IPOs, as seen in other jurisdictions such as the United States, and will serve as another option to facilitate M&A activity including foreign investment. We expect the SCA to issue further resolutions to provide details on the practical implementation of SPACs and how they will be treated under the New Companies Law.
- In addition, the concept of an SPV has been introduced, as a company established for the purpose of separating the obligations and assets associated with a specific financing operation from the obligations and assets of its parent entity. Similarly, we expect the SCA to issue further resolutions and guidance but anticipate that such vehicles could be utilised in bond issuances and credit transactions.
Key changes to LLCs
- LLC Manager powers – Where a manager has not been replaced at the end of their term, their term in office can be extended by up to six months from the date of expiry of their term (pending appointment of a new manager).
LLC general assembly meetings
- A person who is not a manager may now act as a proxy for a shareholder at a general assembly meeting.
- The notice period to convene a general assembly is now no less than 21 days (previously 15 days).
- A relaxation of quorum requirements has been introduced whereby in the event a first meeting is inquorate and a second meeting is held, there will be no quorum and the meeting shall be deemed validly constituted (notwithstanding the provisions of the memorandum of association).
- LLC statutory reserves – The statutory reserves, made up from net profits, has now been reduced from 10% down to 5%, which will undoubtedly be a welcome change for companies.
- LLC Memorandum of Association – The company’s Memorandum of Association must include methods for settling any disputes which may arise between the company and any of its managers/directors or between the shareholders, relating to the business of the company.
Key changes to PJSCs
- Replacement directors appointment – In the event a director departs their role prior to the expiry of their term, the board shall appoint a replacement within 30 days (who shall be presented to the general assembly and), who shall complete the remaining term of the previous director.
- PJSC subscription shares – Founders must now subscribe to such number of percentage of shares as specified in the prospectus and subject to SCA requirements. Previously the percentage of subscription shares was designated to be between 30% and 70%.
- PSJC’s ability to issue discounted shares – subject to SCA approval and the passing of a special resolution, a PSJC is now permitted to issue shares at a discount in instances where the market price of the shares falls below the nominal value.
- Directors remuneration – the remuneration of the board members may not exceed 10% of the net profits of the fiscal year (after depreciation and reserves deductions) but where the company fails to generate profits, and subject to the company’s constitution and approval of the general assembly, a board member may be paid a lump sum fee not exceeding AED 200,000 at the end of the fiscal year.
Existing companies must adjust their position within one (1) year of the New Companies Law coming into force, and companies which fail to do so shall be considered as dissolved.
Conclusion
The introduction of the New Companies Law is yet another positive move aimed at enhancing the competitiveness of the United Arab Emirates in the field of economic development and illustrates to the world its ability to maintain pace with international best practice, thereby stimulating existing companies and attracting further investments into the country.
How can we help?
If you have queries or are concerned as to the effect of the introduction of the New Companies Law on your business and are unsure of the next steps you should be considering, we would be happy to assist. Please see the contacts below.
