law — with effect from 2 January 2022.
The new law
- incorporates a number of amendments gradually rolled out over the last 12 months and
- introduces some exciting new tools for the regulation and operation of companies in the UAE mainland.
What’s new?
On the 20th of September, Federal Law by Decree No.32 of 2021 on Commercial Companies (the New Companies Law) was issued to replace Federal Law No. 2 of 2015 on Commercial Companies (Existing Companies Law).
The New Companies Law incorporates many of the provisions contained in Federal Decree Law No.26 of 2020 (Decree Amending the Existing Companies Law) – the main feature of which was the amendment to the foreign ownership requirements in limited liability companies. Our summary of the key changes can be found here.
Key observations:
The following summarizes a few notable elements of the New Companies Law:
| Description | ||
|---|---|---|
| 1. | Recognition of new corporate vehicles | Two new corporate vehicles have been introduced both to be overseen and regulated by the UAE Securities and Commodities Authority (SCA):
The introduction of an SPV is a particularly interesting development for companies seeking to separate the obligations and assets associated with a specific financing operation from the obligations and assets of its parent entity. Further guidelines and resolutions pertaining to the use of the SPV will be issued by the SCA. |
| 2. | Relaxation of foreign ownership restrictions | Article 10 reflects the amendment introduced under the Decree Amending the Existing Companies Law, to remove the specific requirement for a minimum of 51% UAE shareholding in onshore entities, subject to some conditions. |
| 3. | Extension of the term of a general manager when no replacement is appointed | If the term of the board of managers of an LLC has expired and no replacement board of managers has been appointed by the company’s general assembly, the existing board of managers shall remain in office for a period not exceeding six months from the date of expiry of their term, until a new board of managers is appointed by the general assembly. |
| 4. | Provisions relating to general assembly meetings of an LLC |
|
| 5. | Statutory reserves of LLCs | The percentage of net profits which must be allocated each year to the statutory reserves of an LLC has been reduced from 10% to 5%. |
The New Companies Law is one of a host of recent regulatory developments reflective of the UAE government’s willingness to adapt the operating environment to attract greater private sector investment and develop a more sophisticated and credible operating environment.
The New Companies Law conveniently consolidates recent changes to the regulation of onshore companies into one document. It also extends the operating framework to include the option of new corporate vehicles; the special purpose acquisition company (SPAC) and the special purpose vehicle (SPV).
The usability of the special purpose vehicle together with the anticipated guidance on corporate governance standards and practices will be monitored closely by M/HQ.
In the meantime, companies should take note and make preparations to adjust their affairs, including amending provisions of their Memorandum of Association, to conform with the New Companies Law before 2 January 2023. Failure to do so may lead to the company being considered dissolved.
This is an extension of one year from the previous deadline of 2 January 2022 contained in the Decree Amending the Existing Companies Law.
Updating your memorandum of association can be combined with other corporate actions such as:
- transitioning to 100% foreign ownership; or
- corporatizing/optimizing shareholding.
Team M/HQ is available to support you with your re-/structuring needs and to ensure that corporate documents are aligned with the New Companies Law
Team M/HQ has experience working with companies to put in place tools and documents to mitigate against the risks associated with the sole establishments / civil partnerships legal forms. Please contact us to learn more.
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