New UAE Commercial Companies Law on 100% foreign ownership

The UAE has introduced a number of new legislative changes to mark the UAE’s 50th anniversary, with the aim of solidifying the country’s position as a global trade and commercial hub. Among these changes is the issuance by Decree No. 32 of 2021 of the UAE Federal Law on Commercial Companies (“Commercial Companies Law“), which has come into force on 2 January 2022.
The CCL repeals and replaces Federal Law No. 2 of 2015 (“Old Law”), which was amended in 2020 by virtue of Decree No. 26 of 2020 (“2020 Amendment”). The new CCL introduced certain amendments including the following :
1. Introduction of two new company forms (the special purpose acquisition company or “SPAC” and the special purpose vehicle or “SPV”)
2. Minor amendments to the provisions related to Limited Liability Companies (LLCs)
3. Amendments to certain provisions related to PJSCs and the introduction of a regime to allow for the division of Joint Stock Companies (JSCs).

As most of our clients are registered as Limited Liability Companies, I will only describe the amendments with regard to the LLCs:
1. The entire issued share capital of a limited liability company (LLC) may be held by a single non-UAE shareholder (subject to the practiced activities not being considered of ‘strategic impact’). A list of activities permitted for the purpose of 100% foreign ownership has recently been published by each of the relevant Economic Departments in Abu Dhabi and Dubai. Meanwhile, no Resolution has yet been issued by the UAE Cabinet regarding the list of activities that would be considered to have a ‘strategic impact’.
2. The statutory reserve required for LLCs has now been reduced from 10% of net profits down to 5%, with such deduction to be discontinued if the reserve reaches half the capital and subject to the partners’ discretion.
3. The articles of association of a LLC must include provisions addressing dispute resolution mechanisms between the LLC and any of its directors/managers or between the shareholders in connection with the LLC’s business.
4. A shareholder holding ten percent (10%) of the share capital of the LLC has the right to request a General Assembly to convene (previously the threshold was twenty five percent (25%)).
5. The notice period to convene a General Assembly is at least twenty one (21) days (previously fifteen (15) days).
5. A shareholder’s right to seek an urgent court order pursuant to which the other shareholders are required to fund an increase of capital to the extent necessary to prevent the liquidation of the company. If a shareholder fails to pay the capital amount required then his share in the company would be diluted accordingly.

The existing Limited Liability companies must adjust their position within one (1) year of the New Companies Law coming into force, i.e. before 2 January 2023 and companies which fail to do so shall be considered as dissolved.