The new UAE Commercial Companies Law (Federal Law No. 2 of 2015) (“CCL”) came into effect on 1 July 2015. It replaced previous Law No 8 of 1984. A fine of AED 2000 per day of delay will be imposed on any company that fails to amend its MOA before 1 July 2017 to be compliant with the provisions of the new CCL.
Of critical importance is that fact that if a company does not comply
with the new law by 1 July 2017, it will be deemed dissolved (Article 374).
This is taken to mean that an LLC will need to have made necessary amendments
to its Memorandum and Articles of Association (MOA) to ensure compliance to
continue to exist. In addition, Article 357 provides that a fine of AED 2000
per day of delay will be imposed on any company that fails to amend its MOA to
be compliant with the provisions of the CCL.
Whilst the CCL introduces some new concepts and approaches, most of the
essential features of the previous Law are maintained. Despite media
speculation, the CCL applies the same conservative approach in relation to
foreign ownership restrictions under the previous Law, so foreign investors are
limited to 49%. Also, the CCL does not allow sell-downs in IPO deals.
The following is a snapshot of the key developments brought about by the
new CCL in relation to Limited Liability Companies in comparison to the
previous Commercial Companies Law No.8 of 1984 (“Previous Law”):
The matters that may require consideration and amendment in an LLC’s
memorandum of association are set out in the table below.
The name, nationality, date of birth and domicile of each shareholder
must be provided in the MOA.
If the managers/directors are named in the MOA, their full names,
nationalities, places of residence and powers
The CCL sets the quorum for the general assembly at shareholders
representing 75% of the share capital of the LLC, as opposed to the previous
threshold of 50%. Where the 75% quorum is not met at the first meeting, the
meeting shall be adjourned and a second meeting will be held where the
required quorum will be 50%. In the event such 50% quorum is not met at
the second meeting, a third meeting shall be held where the quorum shall be
valid irrespective of the shareholders present at the meeting.
In the event the company’s MOA stipulates a 50% quorum threshold for
the first called general assembly, this will need to be amended to reflect
the new position under the CCL.
Right of first refusal:
The selling shareholder must provide in its pre-emption notice to the
continuing shareholders the name of the proposed purchaser in addition to the
terms of sale, such as price. On a dispute as to price, the Previous Law
provided that the company’s auditor would adjudicate on price. The new
CCL requires value to be determined by a DED appointed financial expert.
The CCL requires LLCs to use International Accounting Standards and
this should be reflected in the MOA. The CCL requires that the MOA stipulate
the commencement and expiry date of the fiscal year.
In addition to the head office, the MOA must also now list any
branches that the company has (if any).
Any references to the Previous Law in the MOA should be updated to
refer to the applicable provisions contained in the CCL.
Shareholders now have the option to reduce
the previous 21 day notice period for general meetings to 15 days or such
shorter notice period as agreed between the shareholders
Form of notice:
Notice of meetings The CCL permits
invitations to general assemblies to be sent by any means of communication
that the shareholders agree upon, as opposed to the previous position which
required registered mail. This means that the MOA could be amended to
permit email communications
Dismissal of manager:
The new CCL provides for the dismissal of
managers by way of an ordinary resolution at a general meeting as opposed to
the previous position under the Preious law requiring a special resolution if
the MOA permitted dismissal of the manager, or unanimous resolution if the
MOA was silent. In light of the fact that the manager can now be dismissed by
an ordinary resolution, companies should consider including a higher
threshold in their MOAs.
Since the new CCL provides for shares to be
pledged in accordance with the CCL and the company’s MOA, shareholders are
advised to consider whether to detail the terms upon which shares may be
pledged in the MOA.
Considering that the deadline for the compliance is
approaching, companies would be well advised to review their constitutional
documents and make the necessary changes as soon as possible. Once
consideration has been given to the amendments to be made to a company’s
constitutional documents, the Amendment to MOA or a new Memorandum and/or
articles of Association need to be drafted, executed by the shareholders before
the notary public and submitted to DED for registration.