UPDATE: since this article was written, the UAE government has announced a 12-month extension to the deadline to comply with the provisions of the 2015 Commercial Companies Law. UAE-based companies now have until 30 June 2017 to meet the requirements laid down in the legislation.
It is only a month to go until companies need to have taken all necessary action to comply with the new UAE Commercial Companies Law as enacted last year, otherwise they will as per the (rather dramatic) ruling be “automatically dissolved”. Now therefore seems a fitting moment to remind ourselves what the new legislation means for the business information landscape in the country.
In broad terms, whilst the new legislation (last updated in 1984) did not deliver everything foreign investors hoped for – notably the rule requiring all onshore companies to be 51% locally owned (Emirati or GCC) remains in place – the law was clearly designed to bring the UAE more in line with international standards and regulations. The protection of minority shareholders’ interests for example, and the requirement for all companies to maintain accounts at their head office which meet international accounting standards, will go some way to reassuring those western investors who come to the UAE expecting levels of transparency and accountability similar to their home countries.
For those of us who study company records in the UAE as a precursor to market research, due diligence or compliance screening, there are three key areas of interest:
- Single shareholder LLCs are now permitted in a move seemingly intended to encourage local entrepreneurs
- The law also now explicitly recognises the concept of a holding company, in common usage in many other parts of the world, and which will allow companies to consolidate their various interests into one UAE-based corporate structure
What companies can now do
- It is interesting to note that the new law specifically claims jurisdiction over freezone companies operating onshore, although how this will work in practice remains unclear as there is currently no guidance as to how and when freezone companies are permitted to operate outside their own freezone
- For onshore LLCs there is now no maximum number of board members they can appoint, whereas under the old law they were limited to five. From a corporate governance perspective this paves the way for improvements in how companies are managed, allowing external advisers to sit on the board and the allocation of specific portfolios such as remuneration and audit.
- Directors are now not permitted by law to be managers or directors in competing businesses, unless consent is given i.e. they have a duty to act in the best interests of the company – an additional protection for companies against conflicts of interest
And this is the big one as far as we at Diligencia are concerned; the new law states that the Ministry of Economy will be responsible for the establishment and activities of a Companies Registrar function which will control the trade names register and hold centralised records of all companies in the UAE. There is no doubt that this function is much needed in the UAE, where companies can be formed, regulated and dissolved by multiple authorities whether by emirate or freezone. The collection of that information centrally and making it available more widely would in our opinion be a major game changer for the country and help to reinforce its efforts seen elsewhere in this legislation to bring the UAE in line with international best practice.
As yet, no further guidance has been given on how this registry will be set up or managed, other than to say that “concerned parties” will be allowed to inspect the relevant records. Judging by previous form in this area, we believe it is unlikely this will include members of the public at least immediately, but we look forward to the day better access to this information in the UAE leads to a more open and business-friendly environment for everyone.
In the meantime if you are one of the companies affected by the 2015 law, you have 30 days – don’t say we didn’t warn you…