April 7, 2015
The new UAE Commercial Companies Law (“New CCL“) will come into effect in the next 3 months. Here is a list of 10 things you need to know about the New CCL. This list deals with the two most popular types of UAE company: (i) limited liability companies (“LLCs“) and (ii) public joint stock companies (“PJSCs“).
- Who does it apply to? The New CCL continues to apply to companies established in the UAE and, in part, to foreign companies conducting business in the UAE. (Also see “Who is exempt?” below.)
- Who is exempt? Certain companies are exempt including, for example:
2.1 Cabinet Exemption: Companies exempt pursuant to a Federal Cabinet resolution.
2.2 Government Owned Companies: Companies fully owned by UAE Federal or Local government.
2.3 Certain Strategic Industries: Companies in certain strategic industries such as oil, gas, power and water (provided at least 25% of their share capital is directly or indirectly UAE Federal or Local government owned).
2.4 Free Zone Companies: Companies established in a UAE free zone continue to be exempt from the application of the New CCL (unless the laws of the free zone in question specify otherwise).
- Foreign Ownership: The foreign ownership limit (restricting the ownership of UAE companies by foreign shareholders to 49%) remains in place. However, the UAE is considering relaxing this requirement under a new Foreign Investment Law – the timing of which is unclear. It should also be noted that the foreign ownership limit does not apply (or is modified for) companies exempt from the New CCL. (See “Who is exempt?” above.)
- LLCs may have one shareholder: The New CCL no longer insists on LLCs having at least two shareholders. (Note that private joint stock companies may also have one shareholder.)
- LLC shares may be pledged: The New CCL provides that shares of an LLC may be pledged. This change should improve access to finance as LLC owners will now be able to grant security over LLC shares.
- A 30% “free float” on IPOs and up to a 30% “sell-down” permitted on PJSC conversion: Only 30% (not 55%) of a PJSC’s share capital needs to be offered to the public on an IPO and up to 30% of a company’s existing share capital may be offered to the public upon conversion of a company to a PJSC. This should stimulate interest in companies wishing to grow their businesses through accessing local capital markets.
- Greater flexibility in share capital raising: The New CCL gives greater flexibility to PJSCs wishing to raise capital. For example, pre-emption rights on a share capital increase may be traded by shareholders or may be waived by a special resolution (to allow investment by a strategic partner).
- Financial assistance: The New CCL has introduced a financial assistance regime for the first time. Neither a company nor any of its subsidiaries may provide loans, gifts, security or other financial assistance to any shareholder to enable the shareholder to acquire/hold shares, bonds or sukuk issued by the company. There is no “whitewash” procedure.
- Holding Companies: The New CCL has introduced the concept of “Holding Company” which is a company that establishes or controls subsidiaries. There are restrictions on the activities of a “Holding Company” – essentially that they must conduct trading activities through their subsidiaries. As many companies own and control subsidiaries in addition to their normal trading activities (and so would fall within the definition of “Holding Company”), it would be unhelpful if the restrictions on trading applied to them.
- Takeovers: The New CCL includes a “placeholder” for the introduction of a takeover regime. The term “takeover” is not defined. The Emirates Securities and Commodities Authority is entrusted with creating the regulatory framework around takeovers.
There are, of course, a number of other changes that have been introduced in the New CCL that have not been listed above. The list is not intended to be exhaustive but a quick summary of some of the key provisions.
Gibson, Dunn & Crutcher, with more than 1,200 lawyers in 18 offices in major cities throughout the United States, Europe, the Middle East, Asia and South America, is committed to providing the highest quality legal services to its clients. Gibson Dunn has been advising leading Middle Eastern institutions, companies, financial sponsors, sovereign wealth funds and merchant families on their global and regional transactions and disputes for more than 35 years. Please contact the Gibson Dunn lawyer with whom you usually work, or the following authors in the firm’s Dubai office, with any questions, thoughts or comments arising from this article.
Hardeep Plahe – +971 (0)4 318 4611, firstname.lastname@example.org
Fraser Dawson – +971 (0)4 318 4619, email@example.com
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