A look of New UAE Companies Law

Finally, after more than a decade of patiently waiting and after the production of various — and sometimes — conflicting drafts, Law No 2 of 2015 issuing the new (UAE) Commercial Companies Law has been issued. This article is merely an attempt to have a high level overview of the basic principles of the law without going into the detailed technicalities that would need to be addressed to a special audience.

In the beginning, it should be noted that the Law is in fact not new in any sense. Rather, it is merely an attempt to improve the existing law by addressing certain deficiencies in the previous version, which was enacted in 1984, and which was subject of severe criticism and which impeded business activities in various sectors, particularly in the field of IPOs.Thus, the provisions of the current law are merely cosmetic changes to the old while leaving the main structure untouched.Here are the main features of the “new” Law:

1. To start with, the Law has included few modern definitions that will add certainty in its application. Terms such as “business day” and “related parties” are much needed to be defined in UAE’s jurisprudence.

2. The law has also included a few provisions allowing concepts that were much needed in the field of IPOs such as “book building” and admitting a “strategic partner” in a public joint stock company without the need to adhere to the rigid pre-emption rights.

3. The Law has made quite few references to “Corporate Governance” in an attempt to be in line with the modern trend. The detailed mechanism of how Corporate Governance will be introduced and implemented is left to a ministerial decision that will be issued later.

4. For the first time in the UAE, a law has declared its objectives. The new Companies Law has set its objectives to “ … contribute to the development of the business climate …. and the State’s economical stand. … and to protect the rights of the shareholders … and support the flaw of foreign investment…”. However, in spite of the nobleness of these, the provisions of the law fall short of achieving them.

Scope of the application

1. Companies in respect to which the Cabinet issues a resolution thereto — companies that are fully owned by the Federal government or local governments and companies that are fully owned by these companies — are not subject to the provisions of the Law.

The fact that these companies are exempted is an implicit acknowledgement by the legislator that the provisions of the Law may not accommodate the needs of these companies in the modern business world. Had the Law been progressive enough there would not have been the need for such exclusion.

The question that will add to the complexity of the situation is what law would be applicable to these companies? As there can be no vacuum, it could be argued, rightly or wrongly, that the provisions regulating companies in the UAE Civil Code would be applicable. A result that has definitely not been intended.

2. The Law for the first time indicates the possibility of companies incorporated in free zones to conduct their activities outside the free zones. This means that the 51:49 ownership rule can be circumvented by establishing a free zone entity that has full foreign ownership and which can conduct its activities on the mainland.


1. The Law has maintained its classical definition that a company must target profits. This will not allow the establishment of non-profit companies that exist in many parts of the world.

2. In spite of the demands by the legal and the business community to allow the incorporation of a one-man company, the law still requires that a company be formed by two parties. Strangely, the law in the next immediate article allows, as an exception, the establishment of a one-man company!

It seems that there has been two different drafting trends in writing the Law.

3. Joint Ventures, a common form of companies, are still not recognised under the law.

Activities of companies

1. The law has maintained the mandatory requirement of national ownership of not less than 51 per cent of any company that is established in the UAE. Relaxation of this requirement was the subject of many calls within the business community, particularly that it is not a secret that the vast majority of the companies are not adhering to this requirement.

2. What the law has added in its new version is that any transfer of shares that would have an impact on the mandatory national ownership would be deemed null and void.

It would have been comprehended if the Law had ruled that such companies would be null. However, to rule that only the transfer of the shares would be null while the companies continue to exist means, in effect, that share transfer documents, which are drafted to preserve the foreign ownership in excess of the 49 per cent, have no legal value.

This means that the shares, the subject of these documents, would as a result be owned by the force of law by the national shareholder in spite of any agreements to the contrary that he signs. This is even a more restrictive approach than the practice under the previous law, which recognised the ownership of the foreign investor to the value of his shares even if the company was declared void as a result of the violation of the mandatory national ownership requirement.

3. The law requires that every company in the UAE have a “registered” address without defining what that address should consist of.

The Registrar

1. The Law has come up with the concept of a Companies’ Registrar, which is widely known in Common law jurisdictions.

2. Unfortunately, the Registrar’s role under the new UAE’s Companies Law is very limited in scope and has no resemblance to the role that a companies’ registrar plays in other jurisdictions. The role is limited to supervising the Companies Names’ Registry and keeping certain documents.

3. In an era where transparency is an address, the Law restricts the right to inspect and view companies’ records to related parties only and not to the general public.


1. The minimum capital for Limited Liability Companies has been removed. Instead the Law requires that a LLC should have a capital sufficient to achieve its goals. However, immediately after that, the Law mentions that the Cabinet may issue a resolution setting the minimum capital off a LLC!

Public Joint Stock Companies

1. The Law continued its approach of having provisions relating to IPOs and listings within the Companies Law. There have been many calls to have these provisions in a separate detailed Capital Markets Law, a trend that is followed in many jurisdictions.

2. An IPO is still allowed for a newly incorporated company that has no track record. This was a major deficiency in the old law that should have been avoided in the new one. No developed economy would allow a newly incorporated company with no track record or audited accounts to go public. This is like off-plan sale in real estate.

3. In response to demands from family owned and other companies, the Law has increased the percentage of shares that founders can keep to 70 per cent. This is a development that would encourage family owned companies to go public.

4. The Law has introduced the book-building mechanism in valuing the shares as opposed to the old nominal value that was the only method under the old law. A development that is much needed.

5. Adding a premium to newly issued shares is finally allowed in the Law.

6. Pre-emption right on newly issued shares is still the rule under the new Law. It is true that the Law allows the introduction of a “Strategic Partner” without the need to adhere to pre-emption rights, however it still falls short of allowing it for company’s employees, a rule that is known in other jurisdictions.

7. Pre-emption right can be sold under the new law, which may provide a level of flexibility in dealing with this restrictive rule.

8. The Law is contradictory with regard to issuing different class of shares. On one hand it provides that issuing different class of shares is prohibited which is the current rule. On the other hand, and immediately after providing for that prohibition, it rules that issuing different class of shares may be allowed upon a recommendation of ESCA.

9. The maximum nominal value of a share is Dh100. No explanation is given for imposing this artificial ceiling.

10. Emirates Investment Authority, the federal sovereign fund, has the right to subscribe to 5 per cent of the shares of any company that goes IPO. However, there seems to be a drafting flaw here as the provision falls short of guaranteeing that allocation to EIA.

11. Holding companies is a new concept that the Law has introduced and which was needed.


1. Appointing non-executive board members is now allowed under the new Law up to one-third of the board.

2. Unlike the old Law, not only the Chairman of a public company should be a UAE national but under the new Law, the majority of the board members as well. Any resolution issued by a board not maintaining that majority is null and void.


1. No improvement has been introduced with regard to the role of Representative Offices of foreign companies. It was expected that with the expansion of the roles that these offices play, that the Law would have come up with enhanced provisions.

2. The Law has unnecessary detailed provisions with regards to penalties and fines that would be imposed for violating its provisions … to the extent that the chapter dealing with penalties looks like a chapter of a Penal Code rather than a Companies Law.

In conclusion, there have been a few undeniable enhancements and improvements in the new Law. However, after a waiting period of more than a decade, for a country that is the second largest Arab economy and one that leads the region in innovation and leadership, one has to admit that the new Companies Law is disappointing.

Source: GulfNews



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