The UAE overhauled its commercial company ownership laws, annulling the need for an Emirati shareholder for onshore companies and opening up a number of sectors to foreign investors. This is aimed at boosting the country’s competitive advantage and attracting foreign capital to the Arab world’s second largest economy.
On 23 November 2020 the UAE President Sheikh Khalifa issued wide ranging and significant changes to the 2015 Commercial Companies’ Law, amending 51 articles and introducing three new ones.
Among the amendments is the abolition of a requirement for onshore companies to have a UAE national holding 51% shares in a company – a measure that reduces overhead costs, facilitates the ease of doing business for foreign investors and provides flexibility of operations for any business wishing to operate anywhere in the country.
In addition to that, the provision mandating for a UAE national or a UAE owned company as an agent, has been annulled. A stipulation that requires a company chair to be an Emirati and the board of directors to be an Emirati majority has also been removed.
In parallel to these changes, local authorities retain the power to determine the level of participation by Emiratis in any company. Companies in strategically important sectors, including oil and gas exploration, utilities and transport, as well as state-owned entities, are exempt from the changes.
The changes to the Commercial Companies’ Law supersede and cancel The Foreign Direct Investment Law number 19 of 2018 - as these amendments cancelled the provision mandating a UAE national as an agent. As a result, companies can now be fully established by non-Emiratis of all nationalities.
Most of the changes in the new law apply to provisions for joint stock and limited liability companies. Notable changes include that the chair or senior executives of a company can now be removed if found guilty of fraud or abuse of authority. Shareholders can now sue a company in civil court over any failure of duty that results in damages. Moreover, Electronic voting at annual general meetings is now permitted.
While most of the amendments are effective as of next month (1 December 2020), the changes related to foreign ownership, agency and boards of directors shall be in effect six months after publication in the Official Gazette. Companies will have one year to comply with the amended law from the time articles become effective.
An important change that will boost liquidity in local capital markets is a change to companies that wish to go public. A company wishing to become a public joint stock company after the approval of the relevant authorities can sell no more than 70 per cent of the company after the necessary review, instead of the current 30 per cent, through an initial public offering.
Under provision number 10 of the new law, a committee including representatives of the relevant authorities will oversee activities that have “strategic impact” and the necessary measures required to license companies that operate in such areas. Upon the recommendation of the committee, the Cabinet will stipulate what activities shall be considered of a strategic impact and the required measures for licensing such companies.