United Advocates

Salient Changes to the UAE Companies Law

In recent years, the UAE has taken steps to reduce certain restrictions applicable to onshore companies by passing various laws and regulations for the attraction of foreign direct investment into the UAE, by previously issuing Federal Law No. 19/2018 (regarding Foreign Direct Investment) and thereafter Cabinet Decision No. 16/2020 in line with such law (the “FDI Laws”).

The UAE recently issued Federal Decree-Law No. 26/2020 (the “Amendment Law”) amending certain provisions of Federal Law No. 2/2015 on Commercial Companies (the “UAE Companies Law”) by setting out the much-anticipated changes; which per se repeals the FDI Laws.

Please find below salient changes:

  1. Changes to the 51% Emirati shareholding in Limited Liability Companies and Joint Stock Companies in the UAE
  • The Amendment Law has modified Article 10 of the UAE Companies Law, and in principle changed the default requirement of having at least 51% Emirati shareholding in limited liability companies or joint-stock companies in the UAE. On the contrary, limited liability companies or joint-stock companies in the UAE may be wholly owned by foreign nationals unless they are engaged in an activity that has a “strategic impact”.
  • Hence, the amended Article 10 of the UAE Companies Law lays the foundation for the formation of a Committee by resolution of the Cabinet, that will include representatives from the competent authorities from various Emirates; who shall propose activities with a “strategic impact” and the controls required to license the companies that undertake any of these activities.
  • Subject to the Cabinet’s decision, the appointed representatives from the competent authorities of each Emirate will determine the specific percentage of Emirati participation in the capital and/or the board of the companies to be incorporated in their jurisdictions.
  • In addition to the above, the competent authority (as the case may be) may exclude any company organising its activities under any “special legislation”, from any term or provision that stipulates the percentage of ownership of Emiratis or their involvement in the management of the company.
  1. Board of Joint Stock Companies

Subject to the provisions of Article 10 of the Amendment Law; Article 151 of the Amendment Law sets out prescriptive requirements for the participation of UAE nationals on the boards of joint-stock companies, which indicates that if the proportion of UAE nationals on the board of directors falls below what is necessary for the application of Article 151 of the Amendment Law, the deficiency must be filled within no later than three months; unless the resolutions of the board of directors shall be void upon the expiry of such period.

  1. Methods of Settling Disputes

The memorandum of association for limited liabilities companies pursuant to Article 73 of the Amendment Law must include methods for settling disputes that arise from the affairs of the company, whether between the company and any of its managers or among the partners in the company.

  1. General Assembly

Article 92 of the Amendment Law states that a general assembly meeting is to be called by the manager/director of limited liability companies upon the request of shareholders owning at least 10% of the share capital of the company (instead of 25% as was previously required).

  1. Quorum

The quorum requirement for limited liability companies’ Annual General Meetings has been reduced from shareholders owning 75% of the company’s share capital to 50% as per Article 96 of the Amendment Law. This is subject to anything higher prescribed in the company’s articles. If such quorum is not present at the first meeting, the general assembly must be invited to a second meeting to be held within at least five (5) days (or a maximum of fifteen (15) days) from the date of the first meeting. The second meeting shall be deemed valid no matter the number of attendees unless the memorandum of association stipulates the attendance of a certain percentage of shares of the capital. The resolutions of the general assembly shall only be valid if they are issued by a majority of the shares represented in the meeting unless the memorandum of association stipulates a greater majority.

  1. Shareholder Meetings

The notice period for calling a shareholders’ meeting has been re-increased from 15 days to 21 days as per Article 93 of the Amendment Law. In addition to this, the company must file a copy of the invitation to the meeting with the competent authority. and the need to appoint proxies (other than board members) has to be done way of a power of attorney.

  1. Increase or Decrease in Share Capital

A mechanism as per Article 101 of the Amendment Law has been introduced for any shareholder to obtain a court order to increase the share capital of the company to the extent necessary to avoid liquidation of the company or for the company to pay its debt.

  1. Branches and Representative Offices of Foreign Companies

The Amendment Law has repealed Article 329 of the UAE Companies Law which required to have an Emirati national (or a company wholly owned by Emirati nationals) as its agent for a branch or representative office of a foreign company.

The majority of provisions enacted by the Amendment Law will take effect on 2 January 2021. However, Article 10 (on the foreign ownership restriction), Article 151 (on UAE National participation on Joint Stock Company boards) and Article 329 (on UAE service agents for branches of foreign companies) will come into effect six months from the date of the Amendment Law’s publication in the Official Gazette.

It remains to be seen how the above-amended provisions of the UAE Companies Law exist and develop in due course.

If you require future assistance on the matter, please do not hesitate to contact us at United Advocates.