New UAE Commercial Companies Law


Overview

The UAE has introduced a new Commercial Companies Law (UAE Federal Law No. 2 of 2015) (the New CCL), which replaces the previous Commercial Companies Law (UAE Federal Law No. 8 of 1984, as amended) (the previous CCL). The New CCL will come into force on 1 July 2015.

Key changes for limited liability companies (LLCs)

Number of shareholders: the New CCL maintains the maximum limit of shareholders in an LLC at 50. It also allows an exception to the requirement for an LLC to have a minimum of two shareholders, by permitting a UAE natural or juridical person to incorporate a “single person” LLC [Articles 71 (1) and 71(2)].

Pre-emption rights: similar to the previous CCL, the New CCL imposes statutory pre-emption rights on a transfer of shares to non-shareholders. The pre-emption process remains the same overall, save that if there is a disagreement on pricing between the shareholders, the pre-emption price will be determined by technical/ financial experts (as opposed to the company’s auditor). This pre-emption process remains sub-optimal from a selling shareholder’s point of view as it may require it to sell its shares to another shareholder at a pre-emption price which may not necessarily be the same as the price offered by a third party purchaser [Articles 80 (1) and 80 (2)].

Governance and managers: although it was anticipated that the New CCL would further develop the concepts relating to the governance of LLCs by introducing a “board of directors” structure, it has retained the language in the previous CCL which provides that LLCs will be managed by one or more managers. One positive development is the removal of the requirement for a maximum of five managers [Article 83].

Invitations to general assemblies: the New CCL better serves the requirements of practicality and modern technology, by now allowing invitations to attend the general assembly of LLCs to be sent by any means of communication that the shareholders agree upon (unlike the previous CCL which restricted these communications to registered mail). In addition, the New CCL sets a minimum notice period of 15 days and (in line with international market practice) allows the shareholders to agree on a shorter notice period (unlike the previous CCL, which required that shareholders’ meeting notices be sent to the shareholders at least 21 days prior to the meeting) [Article 93].

Quorum and adjourned meetings: the quorum for general assemblies has been raised from shareholders representing 50% to shareholders representing 75% of the share capital. Non-quorate meetings are to be reconvened within 14 days from the date of the first meeting and will only be quorate if attended by shareholders representing 50% of the share capital. If a quorum is not present at the second meeting, then a third meeting is to be held after 30 days from the date of the adjourned meeting and such meeting will be quorate provided that at least one shareholder is in attendance. Under the previous CCL, a non-quorate meeting would reconvene within 21 days from the date of the first meeting and would be quorate provided that at least one shareholder was in attendance [Article 96].

Pledge over shares: the ability to create a pledge over the shares of an LLC is now included in the New CCL and as a result, shares in an LLC can be pledged and the pledge can be registered in the Commercial Register. This is a welcome development as it means that LLCs can now be more effectively used in financing structures, have greater access to debt finance and offer enhanced collateral. Although under the previous CCL there was nothing to prevent shares of LLCs being pledged, the lack of a specific recognition of this possibility under law, coupled with an inability to register such a pledge or take physical possession of share certificates, meant that pledgees faced considerable enforcement risk when taking an LLC pledge. Some enforcement risk still exists under the New CCL, however, as there is still an inability to take possession of share certificates; there is no possibility of pledgees holding pre-signed but undated share transfer forms; and pre-emption rights will continue to apply [Article 79]. To learn more about the changes applicable to PJSC, capital markets, Conversions and mergers and other regulations (such as company registrar, holding companies, Issuance of bonds/sukuk, Social responsibility Investment funds), please contact at info@astuteme.com.

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