Federal Law 32 of 2021 concerning Commercial Companies (New CCL) was issued as part of a major legal reform in the UAE and took effect on 2 January 2022. It repealed and replaced Federal Law 2 of 2015 concerning Commercial Companies (Old CCL).
In the New CCL, a number of changes regarding corporate governance and corporate reorganization will result in greater flexibility for limited liability companies (LLCs) and public joint stock companies (PJSCs). Through the New CCL, foreign investment and ownership are promoted, new corporate products are developed, and corporate governance is discussed, all of which are intended to promote a more investor-friendly business environment.
NEW CORPORATE VEHICLES
SPACs: The New CCL introduced special purpose acquisition companies (SPACs) as a new type of entity for onshore businesses. SPACs are designed to facilitate mergers and acquisitions as well as listing on a stock exchange and raising capital. It should be noted that SPACs are exempt from the New CCL and will be subject to regulations to be issued by the Securities and Commodities Authority (SCA). The SCA is expected to issue regulations providing clarity on the framework in which SPACs will operate.
SPVs: Special purpose vehicles (SPVs) are also offered by the New CCL, which are specialized vehicles designed to separate the obligations and assets associated with a specific finance operation from its parent. SPACs are expected to operate within a framework to be issued by SCA.
CHANGES TO PJSCs
Board of Directors
- Board members' remuneration shall be calculated as per company statute and, in any case, shall not exceed 10% of the net profits of the fiscal year (after depreciation and reserves deductions). An executive board member may be paid a lump sum fee not exceeding AED 200,000 at the end of the fiscal year if the company does not generate profits, in accordance with the company's constitution and approval by the general assembly.
- PJSC boards have 30 days to fill a vacancy after a new appointment has been approved by a general assembly.
Number of Shares
It is no longer necessary for PJSC founders to follow a minimum or maximum shareholding requirement. Instead, PJSC founders must consider any limitations laid out in the prospectus as well as any requirements imposed by SCA.
Discount on Share Price
If the market price of the shares falls below their nominal value, a PSJC can now issue them at a discount, subject to SCA approval and the passing of a special resolution.
There is no minimum or maximum value for shares. The New Companies Law no longer provides any restrictions on the nominal value of shares in a PJSC.
CHANGES TO LLCs
The statutory reserve requirement for LLCs has been reduced from 10% to 5% with the possibility to waive such a requirement if the reserve amounts to half of the capital and at the founders' discretion.
A manager's tenure may be extended up to six months if he is not replaced at the end of his term.
General Assembly Meeting
- A General Assembly must be convened at least twenty-one (21) days in advance (previously fifteen (15) days).
- Regardless of the number of shareholders present, a second general assembly meeting shall be considered quorate.
Therefore, existing companies must comply with the New Companies Law within one (1) year of its coming into effect and any company that does not comply with the New CCL shall be dissolved. Accordingly, it is important to ensure the requirements of the New CCL are applied and reflected in the Memorandum of Association of such companies (if applicable).
The new CCL is expected to impact M&A and capital market activity in the UAE, as foreign investors (e.g. private equity and private companies on the UAE mainland, whether established or new to the UAE) will be able to have complete control (without any of the previously associated risks) of their acquisitions.
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