New UAE commercial companies law soon in full force
Technical update 3 minute read

New UAE commercial companies law soon in full force

01 June 2015

The UAE Government’s new Federal Law No. 2 (2015) – Commercial Companies Law, will be in full force and effective from 1 July 2015. Companies will have one year from this date to make required changes as may be required by the new law.

The changes are not dramatic, but reinforce the country’s strategy and commitment to enhancing Corporate Governance, particularly for listed companies; as well as a focus on making IPO ventures more attractive to companies; principally family-owned businesses.

For limited liability companies (LLCs) the framework remains largely unchanged, and the law is not applicable to Free Zone companies unless the company is dealing onshore.

Some key changes include:

  • The reduction in the number of company ‘types’ from seven to five with the removal of ‘Joint Ventures and ‘Partnership Limited with Shares’.

The five company types are:

  • General Partnership
  • Limited Partnership
  • Limited Liability Company
  • Private Joint Stock Company
  • Public Joint Stock Company.

For Joint Stock Companies, there are significant changes to Corporate Governance and the responsibilities for the Board of Directors as well as safeguarding the interests of the shareholders and the company as a whole.  Penalties for non-compliance will now be enforced.

  • A company Registrar is being developed and is referenced in the law, the role of which will be to oversee the application for Trade Names and avoid duplication across the different Emirates.
  • Limited Liability Companies as well as Private Joint Stock Companies can now be set up by one individual.
  • Voting regulations for Board meetings and General Assembly Meetings are clarified.
  • The sales of Priority Rights will now be allowed under the new law.
  • The new law encourages companies to list, particularly family businesses with the new law allowing a family to retain 70% of the shares - a significant increase.

The inclusion of ‘Preparation of accounts’ as a requirement:

Manager shall prepare the annual balance sheet, profit and loss account and annual report on the affairs and financial position of the company and provide recommendation on the distribution of profits’. These will have to be finalised within 3 months from the end of fiscal year.

  • No longer a maximum number of ‘Managers’ that are set (was previously set at 5).
  • Timeframe for dispatch of the invitation to convene a general assembly reduced from 21 days to 15 days.

The new law does not change or address foreign ownership of companies in the UAE and foreign individuals or companies still require a local Emirati or Emirati company to be their local agent or sponsor, in order to establish in the onshore market (not applicable in Free Zones).  

It is anticipated that the 51% local ownership requirements will be reviewed and possibly amended in the new Foreign Direct Investment Law, which is currently being assessed by the Federal Government; there is no date as to when this will be due for issuance.

Read more about doing business in the UAE.

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Written by

Stephanie Williams

General Manager, UAE

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