Background
Federal Law by Decree No. 26 of 2020 (the Amendment Law or AL), published in the official gazette in September 2020 introduces a number of substantial changes to the Federal Law 2 of 2015 concerning Commercial Companies in UAE (Commercial Companies Law or CCL). The changes not only affect the foreign ownership rule, but will also have an impact on the procedural aspects for mainland companies in UAE, governed by CCL. This update provides an overview of the key changes that will be implemented under the Amended Law.

UAE National Participation and Foreign Ownership

  • Article 10 of Commercial Companies Law has been revised to relax foreign ownership restriction. The Amendment Law states that the 51% UAE national ownership is being removed for entities not carrying out activities with strategic impact.
  • A Cabinet Decision will be issued outlining the scope of these “strategic impact” activities and controls/restriction from the licensing authorities. It will be interesting to see whether this list of “strategic impact” activities will correspond to the “negative list” under the (now repealed) FDI Law 19 of 2018 where 100% UAE ownership was mandated across 13 sectors (including banking, insurance, and commercial agencies), or whether it will be broader.
  • Meanwhile, in case of Public Joint Stock Companies (PJSC) the members of board of directors can be decided by the Cabinet or the Competent authority pursuant to Article 10 of the AL, with few restrictions, as opposed to the mandate in the Commercial Companies Law, wherein the majority board members seat including chairman was required to be an UAE national, as per Article 151.
  • Amongst others amendments, the AL also mentions that requirement for local service agent for branch office of foreign company in mainland UAE as per Article 329 of CCL, is repealed.
  • The aforementioned amendment shall come into force, six months following the date of the publication of the Amendment Law in the official gazette

General Assembly

  • Both Limited Liability Companies (LLCs) and Joint Stock Companies (JSCs) are affected by changes to the requirements for convening shareholder meetings. In particular, the notice period for calling a shareholders’ meeting has been increased to 21 days (from 15 days).
  • The General Assembly can be convened upon request of one or more partners holding at least 10% (reduced from 25%) of the share capital of the company.
  • The quorum of the General Assembly for the first meeting has been reduced to at least 50% (reduced from 75%) of the share capital of the Company, unless the memorandum of association (MOA) provides for a larger majority.

Other Key Changes

Auditors Appointment – Auditors may be appointed for a maximum period of six-year term (increased from three years), but there is a requirement to change the lead audit partner after three years. The same audit firm may be re-appointed after two years have expired from the date of their last term.

Public Subscription – Article 279 of the Amendment Law allows the sale of shares by public subscription to the maximum of 70% (increased from 30% as per the CCL). There is, however, a statutory lock-up period of six months for the founders. There are also new provisions pertaining to listing as per the AL.

Financial Duress – The AL introduces a mechanism for any shareholder of a Limited Liability Company (LLC) 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. In case of PJSC additional provisions needs to be examined by the company as per AL and other provisions of CCL

Entry into force and compliance

The Amendments pertaining to Article 10 (on the foreign ownership restriction), Article 151 (on UAE National participation on JSC boards) and Article 329 (on UAE service agents for branches of foreign companies) referred to in this Amendment Law shall come into force six months following the date of the publication of the Amendment Law in the official gazette (i.e., 27 March 2021).

Existing companies governed by the CCL will be required to adjust their position within one year from the date of entry into force (i.e., 02 January 2022) in line with the AL. However, this may be extended by an appropriate Cabinet Decision as proposed by the Minister.

A fine of AED 100 per day shall be imposed on the company in case of its failure to adjust its position in accordance with the provision of the AL and its implementing resolution, if any.

Conclusion and Way Forward

The much-awaited changes towards attracting investment into the UAE relate to the provisions for relaxing the foreign ownership restrictions and it is yet to be seen how these provisions will be implemented in practice by the local authorities.

It is pertinent to note that all the companies governed by the CCL will need to review their existing constitutional documents and should adjust their position accordingly within the stipulated time frame.

How can PKF assist?

  • PKF will review the memorandum of association (MOA) of the organization;
  • PKF will assist revising the MOA in line with the Amendment Law; and
  • PKF will assist with the translation and notarization of the Amendment to MOA with Notary Public.

Contacts

You may email us or can contact any of our team members relating to your queries on this subject:

Stany Pereira
Managing Partner
stany@pkfuae.com

Chaitanya Kirtikar
Senior Manager – Structuring Services
cgk@pkfuae.com

Deepak Karkera
Manager – Structuring Services
deepakkarkera@pkfuae.com

Disclaimer:
This document has been prepared as a general guide. It is not substitute for professional advice. Neither PKF UAE nor its partners or employees accept any responsibility for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document. If you wish to be included on the regular mailing list for this newsletter, forward your request and a mailing address to Ms. Greeta Creado, P O Box 13094, Dubai, UAE. Email: gcreado@pkfuae.com. PKFUAE is a member firm of the PKF International Ltd family of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member or correspondent firm or firms.