Introducing specific changes and amendments to the commercial companies law in the UAE, Federal Law no. 2 of 2015 concerning Commercial Companies (the “CCL”) has replaced Federal Law no. 8 of 1984 concerning Commercial Companies on 1 July 2015.
The CCL requires existing UAE companies and corporate entities, specifically limited liability companies, to review and amend their ownership structures and constitutional documents in compliance with the new CCL and its regulations.
With the notable objective of advancing the UAE commercial development into a globally recognized standard market, the new CCL has introduced internationally competitive standards of corporate governance, social responsibility and protection of shareholders.
Noteworthy changes include an adjustment to the minimum UAE national shareholding of 51% (considering a shift to more relaxed requirement in certain sectors of the market), the introduction of the concept of a ‘holding company’, the insertion of non-compete provisions, procedures for pledging shares and requirements for bookkeeping and accounting.
Due to the newly implemented regulations, all companies are required to reconsider and amend their memoranda and articles of association and therefore comply with the CCL. Failure to implement such amendments by 30 June 2016 will result in the immediate dissolution of the company. Noting that we are yet to see how such sanction will be practically applied to the noncompliant corporate entities, the immediate dissolution of a company is a strong deterrent, acknowledging the difficult and costly procedures that are to be followed for the reinstatement a company’s good standing.
In order to comply with the new CCL, a company will have to receive a prior approval from the Department of Economic Development and, practically speaking, initiate the procedure for the amendment of the memorandum and articles of association. This means that the memorandum and articles of association will need to be evaluated, with contravening clauses removed and replaced with provisions that are complaint with the new regulations of the CCL. The revision and amendment of the memorandum and articles of association shall have to be completed on a case by case basis and it is therefore difficult to apply a one-size-fit-all approach to such matter.
When to start?
As soon as possible. Considering the various national holidays and the Ramadan period in June, it is easy to see that the deadline of 30 June 2016 is fast approaching.
For information and a more in-depth discussion on how this matter will affect your business, contact Clotilde Iaia Polak at [email protected] or give us a call at +971 (0) 42766120.