Dubai — The new UAE Commercial Companies Law, or CCL, that comes into effect tomorrow, features several key reforms aimed at strengthening the legal and regulatory landscape of doing business in the UAE, legal experts said.
“All companies in the UAE, with the exception of certain excluded entities, are required to amend their existing memoranda and articles of association to comply with the new law. Any company that fails to comply with the long-awaited CCL by June 30 2016 shall be deemed to be dissolved,” they said.
Companies that are exempt from the new CCL are those excluded by resolution of the Federal Cabinet; companies wholly-owned by federal or local government and companies held in full by such companies; and companies operating in certain oil, gas or power sectors in which the federal or local government directly or indirectly holds 25 per cent.
Notable features of the new CCL include the recognition of the concept of holding companies, procedures for pledging shares, expert valuation of shares in kind and the requirement to rotate auditors (for public joint stock companies) every three years.
“By introducing specific and strategic amendments, the new CCL contains a number of helpful improvements and modifications on the old CCL,” experts at PricewaterhouseCoopers said.
“The new CCL will impact different types of companies in different ways and so the starting point is to understand the changes relevant to each company,” Alan Wood, PwC legal partner, told Khaleej Times.
“Once companies have this information they should review their articles of association to identify aspects which will need to be modified. The good news is that many aspects of the new CCL have been included to reflect customs and practices that have developed in recent years and to reflect exceptions and exemptions which have often been made available by the relevant authorities,” said Wood.
According to PwC, the objective of the new CCL is to continue the UAE’s development into a global standard market and business environment and, in particular, raise levels of good corporate governance, protection of shareholders and promotion of social responsibility of companies.
“By recognising the concept of a ‘holding company’ under the new CCL, the UAE will become more appealing, as a jurisdiction, to large corporate groups when they consider restructuring or establishing a presence in the UAE,” PwC said.
Under the new law, limited liability companies, or LLCs, and joint stock companies, or JSCs, are now permitted to be established as holding companies in order to conduct business activities solely through their relevant subsidiaries. In many other jurisdictions, setting-up holding companies is now a common practice for large corporate groups to achieve tax and/or other corporate benefits in their corporate structure, they explained.
Another key change in the new law is that one natural person, or corporate entity, may be the sole shareholder of a LLC and one corporate entity may be a sole shareholder of a private JSC. Under the Old CCL, LLCs may only be established by a minimum of two shareholders.
“Allowing a sole shareholder to incorporate an LLC means that sole shareholders may enjoy the benefit of limited liability in their businesses by exercising their sole discretion. Given the continuing foreign ownership restriction, this change will primarily benefit Emirati and entrepreneurs from other GCC countries,” said PWC experts.
Generally, the new CCL shall not be applicable to free zone companies. However, if the laws of the free zone permit certain free zone companies to operate outside the relevant free zone (onshore), then the new law shall be applicable to such free zone companies.
“Allowing certain free zone companies to operate onshore will provide greater business flexibility/mobility and, therefore, it is logical for such free zone companies to be subjected to the new CCL. However, it is unclear how this will work in practice, as the Federal Cabinet is yet to issue a resolution to determine the conditions and requirements to register free zone companies to operate outside of the relevant free zone,” PWC experts said.
Another key reform of the law is that all companies are required to keep accounting records at their relevant head offices for a minimum period of five years.
In addition, all companies shall apply international accounting standards and practices when preparing their relevant accounts in order to give a clear and accurate view of the profit and loss of the relevant companies, experts explained.
The new CCL retains the same approach as the old CCL in relation to the foreign ownership restriction — 51 per cent for UAE nationals and 49 per cent for foreigners, or 100 per cent GCC nationals. However, the UAE government is considering relaxing the requirement of such restriction in certain industry sectors under a new Foreign Direct Investment Law regime, legal experts said.
What you need to know about the law
• Notable features of the new UAE Commercial Companies Law include the recognition of the concept of holding companies, procedures for pledging shares, expert valuation of shares in kind and the requirement to rotate auditors (for PJSCs) every three years.
• Another key change in the new law is that one natural person, or corporate entity, may be the sole shareholder of a LLC and one corporate entity may be a sole shareholder of a private JSC.
• Generally, the new CCL shall not be applicable to free zone companies. However, if the laws of the free zone permit certain free zone companies to operate outside the relevant free zone (onshore), then the new law shall be applicable to such free zone companies.
Events to be staged at the DWTC, comprising diverse sectors including construction, energy, technology, beauty, food, healthcare, environment and automotive, will mark the emirate’s post-pandemic economic recovery
Local business8 months ago