A big step towards strengthening the legal and regulatory framework
The UAE government has introduced UAE Federal Law No. 2 of 2015 concerning the Commercial Companies (the new CCL) which was published in the Official Gazette on 31st March 2015 and came into force on 1st July 2015. The time allocated to comply with the new requirements is up to 30th June 2016. The new CCL re- places the Commercial Companies Law issued in 1984, as amended (the previous CCL) which has regulated the corporate environment for decades.
The new CCL is a step forward towards the development of a more sophisticated corporate regulatory environment. The new provisions related to corporate governance, shareholder protection and social responsibility shall raise the level of confidence and faith with- in the international investors and entrepreneurs. The introduction of a number of strategic amendments and new provisions would be a conducive factor to take the corporate and legal framework to the next level of Global standards.
Some notable features and key changes that have been introduced by the new CCL are as follows:
Registrar of Companies
There will now be a Registrar of Companies to supervise trade name register, hold company documents for a period of time to be determined by the Ministry of Economy and to make available the company records to the relevant authorized parties.
Director’s and Manager’s Obligations
The Directors’ and Managers’ obligations were very limited under the previous CCL but under the provisions of the new CCL Directors and Managers must preserve the rights and work for the company and any explicit provision of Memorandum and Articles of association cannot exempt them from their responsibility towards the company.
Maintenance of Accounting Records
Under article 26 of the new CCL every company shall keep accounting records as per the international standards showing its transactions and accurately demonstrating the financial standing of the company as per the provisions of the new CCL. By virtue of Article 348 a fine of at least AED 50,000 but not more than AED 500,000 shall be imposed on a national or a foreign company that fails to keep accounting records stating its business deals and transactions.
Every company shall keep its accounting books in its head office for a period of at least 5 years from the end of the financial year. Under article 349 a fine of at least AED 20,000 but not more than AED 100,000 shall be imposed on a national or a foreign company that fails to keep accounting records for the period determined in this Law.
Maximum Number of Managers
The previous CCL capped the maximum number of managers to five but as per the new CCL there is no restriction on the maximum number of managers in a company.
Valuation of Non-Cash Consideration
By virtue of Article 118, whenever founders of a company bring in non-cash capital or assets in the company in consideration of their shares, then the company must seek approval from the Department of Economic Development once the valuation is completed by any approved financial advisor/consultant for the non-cash consideration.
Share Capital Clause
In pursuance of Article 256 and 193, there is also a change in the share capital clause where the minimum paid up share capital for a Private Joint Stock Company should be AED 5 Million and for a Public Joint Stock Company (PJSC) the minimum issued capital cannot be less than AED 30 Million.
Conclusion
There are several other amendments and new provisions introduced by the new CCL which include rights for the minority protection, pledge of shares by the partners, abolishing distinction between general assembly meetings and extra ordinary general assembly meetings, issuance of bonds, underwriting, book building, lock up period for the PJSC for the share transfer and takeover etc. but some areas still remain ambiguous and need explanation. We expect that subordinate legislations, further guidance and clarification from the relevant authorities will certainly pave the way for effective implementation and enforcement of the new CCL