Although the New Law maintains the cornerstones of the Old Law, it introduces some fundamental provisions that must be observed carefully by existing companies and investors in the UAE. All commercial companies operating in the UAE are required to adjust their positions in compliance with the provisions of the New Law within a maximum period of one year from the Effective Date.
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 (the “LLCs”) in the Old Law are maintained by the New Law. However, the New Law makes several positive changes which can be summarized as follows:
- An LLC can be incorporated in the UAE now by one natural Emirati shareholder;
- The pledge of an LLC’s shares is now expressly permitted under the New Law;
- 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;
- The shareholders can now nominate managers for an LLC without any limitations;
- The statutory required notice period for general meetings has been reduced to only 15 days; and
- 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 (the “JSCs”), these include the following:
- The minimum founding partners required for Private Joint Stock Companies have been reduced from 3 to 2 and from 10 to 5 for Public Joint Stock Companies;
- The minimum and the maximum limits for the subscription of the founders of a Public Joint Stock Company have been increased to 30% and 70% respectively;
- 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;
- The cap on the number of board members of JSCs has been reduced from 15 members to only 11;
- The minimum notice required for convening a general assembly meeting has been reduced from 21 days to 15 days;
- The minimum share capital required has been increased from AED 2 Million to AED 5 Million for Private Joint Stock Companies and from AED 10 Million to 30 Million for Public Joint Stock Companies;
- The shareholders’ pre-emption rights can now be sold to other shareholders or to third parties;
- The New Law gave the UAE’s Cabinet the right to issue a resolution determining and regulating other classes of shares issuable by Public Joint Stock Companies;
- Public Joint Stock Companies 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;
- 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- The appointment of JSCs’ auditors have been capped at only 3 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.
There are almost two months left before the expiry of the period granted for existing companies to comply with the provisions of the New Law and any company that fails to achieve that, may be considered as dissolved.
Authored by Mojahed Al Sebae, www.galadarilaw.com