THE NEW UAE COMMERCIAL COMPANIES LAW, 2015

August 2015

After years of speculation regarding an overhaul of commercial companies law in the UAE, Federal Law No. 2 of 2015 concerning Commercial Companies (“New CCL”) came into force on 1 July 2015, replacing the existing Federal Law No. 8 of 1984 for Commercial Companies (“Old CCL”).

All companies are required to amend their existing memoranda and articles of association to reflect and comply with the changes introduced by the New CCL. Any companies that fail to make the requisite amendments by 30 June 2016 will be dissolved.

The stated 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.

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 (ie non-cash) and the requirement to rotate auditors for public companies every 3 years.

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NEW UAE COMMERCIAL COMPANIES LAW, 2015

• UnliketheOldCCL,theNewCCLinvalidatesanytransferoftitletoanyshareofapartnerwhichmayaffecttheminimumUAEnationalholdingof51percent.ThoughmanywerehopingforanabolitionorreductionoftheexistingminimumnationalparticipationapplicabletoUAEmainlandentities,itwasnotaddressed

• TheNewCCLallowssoleshareholdercompanies.ThismeansthatanLLCcanbeownedbyonecorporateentityoroneindividual

• TheOldCCLdoesnotcoverfreezone(FZ)companies.TheNewCCLwilldealwithFZcompaniessolongasthesecompaniescanoperateoutsideoftheFZ.AresolutionistobeissuedbytheUAEFederalCabinettodeterminetheconditionsforFZcompaniestooperateinthemainlandUAE

• InvestmentfundsarenotrecognizedintheOldCCL,butintheNewCCLinvestmentfundshave

theirownlegalpersonality,legalformandfinancialposition

• TheNewCCLtreatsasvoidanyprovisioninacompany’smemorandumwhichauthorizesacompanytoexemptanofficerfrompersonalliability

• TheNewCCLhasmoreaccountingrequirementsthantheOldCCL.Internationalstandardsmustbeadheredtoandcompaniesmustprovideaclearandaccurateviewoftheirprofitandlosses.AfineofuptoAED100.000(€25.000equivalent)willbeleviedifthecompanydoesnotkeepproperaccountingrecords

• TheNewCCLhasincreasedthepenaltiesforexistingoffencesandpersonalliabilityfordirectors

• TheNewCCLdealswithmergersinmoredetail

Below is a summary of the key changes applicable to most companies:

Foreign ownership restriction NewprovisionexplicitlyinvalidinganytransferofshareswhichmayaffecttheminimumUAEnationalshareholdingof51%

Noprovisionexplicitlyinvalidinganytransferofsharesthatwillbe inbreachof theminimumUAEnationalshareholding of 51%. However, the Old CCL didprohibitanyassignmentofUAEnationalshareholdingbelowthe51%threshold

A COMPARISON OF THE NEW AND OLD CCL

1 Key Changes for all UAE Companies

New CCL Old CCL

Holding companies LLCs and JSCs are now permitted to be established as holdingcompanies in order to conduct business activities solely throughtheirsubsidiaries

Theconceptofa“holdingcompany”wasnotrecognized

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Director’s/manager’s duties Adirector/managerisapersonauthorizedtomanagethecompanyandmust preserve the rights and activities of the companywithcare. In addition, any provision in the company’s memorandumand articles of association exempting any director/manager frompersonalliability(thathe/shebearsinhis/hercapacityasanofficer)isvoidable

Limiteddutiesandobligationsimposedondirectors/managers

New CCL Old CCL

Companies Registrar The Ministry of Economy shall issue a regulation setting out theactivities and functions of the Companies Registrar. In particular,the Companies Registrar shall supervise the trade name register,holdcompanyrecordsandenableconcernedpartiestoinspecttherelevantcompanyrecords

NoCompaniesRegistrar

Accounting requirements Allcompaniesarerequiredtokeepaccountingrecordsattheirheadofficesforaminimumperiodof5years.Inaddition,theyshallapplyinternational accounting standards and practiceswhen preparingtheiraccountsinordertogiveaclearandaccurateviewoftheprofitandlossandbalancesheetposition

Free zone companies Generally, the New CCL shall not be applicable to free zonecompanies. However, if the laws of the free zone permit certainfreezonecompaniestooperateoutsidetherelevantfreezone(ieonshore),thentheNewCCLshallbeapplicabletosuchfreezonecompanies

Excluded companies CompaniesexemptfromtheNewCCLare:(a) companiesexcludedbyresolutionoftheFederalCabinet(b) companieswhollyownedbyfederalorlocalgovernmentandcompaniesheldinfullbysuchcompanies(c) companiesoperatingincertainoil,gasorpowersectorsinwhichthefederalorlocalgovernmentdirectly,orindirectly,holds25percent

Limited accounting requirements imposed oncompanies

Notapplicabletofreezonecompanies

OnlyexcludedcompaniesbyresolutionoftheFederalCabinet and companies operating in certainoil, gasandpowersectors

Sole shareholder Onenaturalperson,orcorporateentity,maybethesoleshareholderofaLLC,andonecorporateentitymaybeasoleshareholderofaprivateJSC

Acompanywithsoleshareholderisnotpermitted

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2 Key Changes for Limited Liability Companies

Share pledgesAllowsshareholdersinLLCstopledgetheirshares,andsuchpledgesmustbemadeinaccordancewiththecompany’smemorandumandarticlesofassociationandbenotarized.Suchpledgesshallonlybevalidfromthedateoftheirentryonthecommercialregister

Maximum number of directors/managersThe management of an LLC can be undertaken by one or moredirectors/managersasdeterminedbythecompany’smemorandumandarticlesofassociationorthegeneralassemblyofthecompany

Non-compete by directors/managersOtherthanwiththeconsentofthegeneralassemblyofthecompany,adirector/managerisnotpermittedtomanageanothercompetingcompany

No provision permitting shareholders in LLCs topledgetheirshares

Amaximumof5directors/managers

Noprovisionexplicitlyrestrictingdirectors/managersfrommanagingcompetingbusinesses

Valuation of shares for non-cash considerationValuationofsharescanbeassessedinkindeitherby:(a)agreementwith all of the shareholders, and subject to the approval of theMinistryof Economy,or (b)byafinancial consultant approvedbytheMinistryofEconomy

Shareholderscanagreetoavaluationofsharesinkind,and such valuation is prescribed in the company’smemorandumandarticlesofassociation

Protection of minority shareholdersNew measures include: (a) subject to the consent of board ofdirectors/managersandgeneralassemblyofthecompany,apublicJSCmaynotundertaketransactions,withrelatedparties,ofavalueinexcessof5%ofthesharecapitalofthecompany(b)shareholderswith 5%ormoreof a public JSCmay apply to the Securities andCommoditiesAuthorityand/oracompetentcourtclaimingthattheaffairsofthecompanyare,orhavebeen,conductedtothedetrimentof anyof the shareholders and (c) voidingany resolutionspassedfor,oragainst,acertainclassofshareholders,ortobringaspecialbenefittoarelatedparty,withoutconsiderationoftheinterestsofthepublicJSCasawhole

Relativelylimitedprotectionofminorityshareholders

3 Key Changes for Joint Stock Companies (Public and Private JSCs)

New CCL Old CCL

NEW UAE COMMERCIAL COMPANIES LAW, 2015

Share capital

Keychangesinclude:(a)only30%ofapublicJSC’ssharecapitalmustbeofferedtothepublicinanIPO,andtheNewCCLalsostipulatesthattheSecuritiesandCommoditiesAuthoritymayissueresolutionsconcerning underwriting and/or book-building activities (b)minimumsharecapitalofAED30mnforapublicJSCandminimumshare capital of AED 5mn for a private JSC (c) a public JSCmayhaveanauthorizedsharecapitalnot inexcessof twice the issuedshare capital (d)more than one class of shares is now permittedas the Federal Cabinetmay issue a resolution determining rights,obligationsandconditionsofdifferentclassesofshares,and(e)JSCsand their subsidiariesmaynot provide financial assistance to anyshareholdertoholdshares,bondsandsukukissuedbythecompany

Undertheoldregime:(a)55%ofapublicJSC’ssharecapital was required to be offered to the public onan IPO, and there were no provisions concerningunderwriting and/or book-building activities (b)minimum share capitalwasAED10mn for a publicJSC, andminimum share capital was AED 2mn foraprivate JSC (c) theconceptof anauthorized sharecapitalwasnot recognized (d) only a single class ofsharesispermitted,and(e)therewasnoprohibitiononfinancialassistance

Auditors’ rotation AllpublicJSCsmusthaveoneormoreauditorsnominatedbytheboardofdirectors/managersandapprovedbythegeneralassemblyof the relevant company. In addition, the general assembly mayappointoneormoreauditorsforonerenewableyear,providedthatsuchtermdoesnotexceed3successiveyears

Takeover regime Anyperson,orgroupofassociatedpersons,desiringtoact inanywaythatmayleadtothetakeoverofshares(orsecuritiesconvertibletostocks)inthesharecapitalofapublicJSCmustcomplywithallresolutionsissuedbytheSecuritiesandCommoditiesAuthority

Corporate governance regimeFor private JSCs withmore than 75 shareholders, theMinistry ofEconomyshallissueresolutionsconcerningacorporategovernanceframework.ForpublicJSCs,theSecuritiesandCommoditiesAuthorityshallissueresolutionsconcerningacorporategovernanceframework.Theboardofdirectors/managersof relevantprivateorpublic JSCshallbe responsible for compliancewith theapplicable corporategovernanceframework.

Norequirementstorotatetheauditorsevery3years

Noexplicitprovisionsconcerningtakeovers

Noexplicitprovisionsconcerningcorporategovernance

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