A New Companies Commercial Law for the United Arab Emirates (U.A.E.)

On December 4, 2011, the U.A.E. Ministry of Economy announced that a new form federal Companies Laws had been approved by the Cabinet of the U.A.E.

Whilst the full text of the law remains undisclosed (and is yet to be passed into force), it is expected to introduce significant and wide-sweeping changes to the previous Commercial Companies Law (Federal Law No.(8) of 1984, the “1984 Law”) which has been in effect now for almost thirty (30) years. Initial reports and announcements from the Ministry of Economy indicate the law will cover the following when it comes into effect:

  • Foreign Ownership Restrictions – Allow the Cabinet to relax the restrictions currently placed on the foreign ownership of U.A.E. companies by the 1984 Law. Under the current legislation, foreign ownership is restricted to 49 percent, with the remaining 51 percent being held by U.A.E. Nationals (except where the company is to be incorporated in a Free Zone under which different ownership rules apply). Whilst the law may not specifically raise the permissible foreign ownership shareholding (or specify what the limit may be raised to), the ability of the Cabinet to increase the percentage of foreign participation in U.A.E. companies will have important consequences for corporates looking to operate within the country. Initial reports indicate that increasing the foreign ownership allowance may be restricted to: (a) certain industry sectors where the government would like to encourage foreign investment; and (b) would only apply to limited liability companies (LLCs) and private joint stock companies rather than government-owned public joint stock companies (PJSCs). Until the full law is published and brought into effect, the maximum level of permissible foreign ownership remains as currently set forth in the 1984 Law.
  • Incorporation – One of the objectives of the law is to reduce the length of time required to incorporate a company. Each individual Emirate has its own rules and procedures for establishing a company, however at the Federal level, it is expected that the law will permit private joint stock companies and LLC’s to be formed with just one (1) shareholder rather than the current minimum of two (2), and will streamline some of the existing establishment procedures.
  • Rights of Pre-Emption – The law is expected to contain several provisions allowing companies to exclude pre-emption rights (i.e. a right of first refusal for existing shareholders) for new share issues including: (a) shares to be issued to a strategic partner; (b) shares to be issued as part of an employee share scheme; and (c) shares to be issued when debt is capitalized.
  • Minimum Capital Requirements – In 2009, Federal Law No. 1 removed the minimum capital requirements set forth under the 1984 Law. Despite the 2009 amendment, certain departments of economic development for individual Emirates still require that companies comply with minimum capital requirements (albeit depending on industry sector). It is anticipated the new law will preserve the current status quo, formalizing the removal of the minimum capital requirements at Federal level, but permitting individual Emirates to formulate their own regulations.
  • Public Joint Stock Companies – In a similar move made by Federal Law No. 10 of 2007 to the law of family companies, the Ministry of Economy has indicated the new law is likely to increase the capital subscription amounts for founders of a PJSC from not less than 20 percent and not more than 45 percent under the 1984 Law to not less than 30 percent and not more than 70 percent. The law is also expected to address rules in relation to rights issues and the pricing of shares through an Initial Public Offering.
  • Corporate Governance – The law is likely to include a general framework for corporate governance covering areas such as: (a) disclosure of financial statements; (b) shareholder protection rights; (c) greater transparency; and (d) the promotion of the efficiency and integrity of a company Boards of Directors. At this stage, it is unknown whether the law will contain specific obligations and requirements on each company or simply create a general framework with which each has to comply.
  • Uniform Accounting Standards – The Ministry of Economy has also indicated that the law will introduce a set of unified accounting and audit standards for the preparation of interim and annual accounts and determining distributable profits. It is unclear whether the law will specify any particular international accounting standard.
  • Unified Company Naming System – In order to avoid repetition of company names across the various Emirates, the law may require the Registrar of Companies at the Ministry of Economy to create, maintain, supervise and manage a central register of company names.

The law was signed by the Cabinet on December 4, 2011. There are a number of additional formalities which must be cleared before the legislation comes into force, including: (a) the approval of the Federal National Council; (b) the approval of the Supreme Council; and (c) the approval and signature of the President of the U.A.E., His Highness Sheikh Khalifa bin Zayed Al Nahyan. Thereafter, the law will be sent to the Ministry of Justice to be published in the Official Gazette and will come into force one (1) calendar month after publication (unless otherwise stated).

Contact Information

If you have any questions regarding this alert, please contact—

Natasha G. Kohne
nkohne@akingump.com
971 2.406.8520
Abu Dhabi
Chadi A. Salloum
csalloum@akingump.com
971 2.406.8580
Abu Dhabi
Wael Jabsheh
wjabsheh@akingump.com
971 2.406.8525
Abu Dhabi