(MENAFN- Khaleej Times) Firms that dont comply by July 1 2016 will be deemed to be dissolved.
Dubai — The long-awaited new UAE Commercial Companies Law or CCL will come into force in July 2015 and all companies in the country are required to amend their memorandum to comply with the new law by July 1 2016.
“Companies that do not make the necessary amendments to their memorandum by July 1 2016 will be deemed to be dissolved” the law stipulates.
According to law firm Latham & Watkins the new CCL is substantially similar to the 2013 draft of the CCL and represents an evolution of the UAE’s existing CCL rather than a revolution.
“The most controversial proposal — to abolish or reduce minimum UAE national participation — was rejected.” The new CCL retains a 49 per cent limit on foreign ownership. Under the new law any foreign investor can own a maximum of 49 per cent of a locally-incorporated company apart from companies incorporated in a free zone in which they can own 100 per cent. Where a public joint stock company lists there is not a 51 per cent UAE ownership required but there is a 51 per cent GCC requirement.
Yet even though majority GCC ownership is permitted the law imposes a mandatory requirement that the chairman and majority of directors of any public joint stock company must be UAE nationals.
Under the new CCL companies in the UAE can make their employees stakeholders in the firm in line with an employee share incentive scheme.
The most useful changes adopted in the new CCL are provisions allowing sole shareholder limited liability companies or LLCs and private joint stock companies or PrJSCs; exempting government-owned companies from the new CCL if the company includes a provision in their memorandum to that effect; allowing partners to pledge their interests in LLCs; allowing certain non-pre-emptive share issuances by joint stock companies or JSCs; and allowing founders to list their businesses yet retain 70 per cent of the shares.
Latham & Watkins notes that the “most unhelpful change” in the new law is a new article which provides that all the provisions of the latest CCL concerning JSCs shall apply to LLCs. “What lawmakers intended or how this would work remains unclear but this article potentially significantly increases the regulatory environment for LLCs and their managers. In addition the new law contains a blunt new prohibition on JSCs providing financial assistance in connection with the holding of shares and bonds” the law firm said.
An important impact of the new law is to provide additional encouragement to UAE companies to list on local financial markets. A reduction in the free float requirement from 55 to 30 per cent is a key element that will encourage new listings. This will enable family owned enterprises to list their businesses yet retain 70 per cent control.
Another key provisionpermits free zone companies to operate “onshore” from their free zone base premises subject to the promulgation of a regulating Cabinet decree.
The new law creates a framework for introducing refined bookbuilding rules as a market pricing mechanism of UAE IPOs. This means that pricing will be aligned more closely to market rather than regulator-approved valuations.
Allen & Overy said in its note that under the new CCL the minimum number of founders has been reduced from 10 to five. “This change will be welcome in particular by family companies and LLCs wishing to go public as it will allow them to carry out an initial public offering with an initial founder shareholder base of five.” The new law prohibits companies from making loans to board members including their family members and creates an offence for anyone accepting such a loan. The previous CCL differed in this regard as it allowed banks to make loans to its board members.
Another key reform is that the minimum share capital of PJSCs has been raised from Dh10 million to Dh30 million. Unlike the case for private joint stock companies the new law does not allow existing PJSCs to be exempt from this increased share capital requirement. “As such unless competent authorities would otherwise permit existing PJSCs with a share capital less than Dh30m will have to increase its share capital within one year of the new CCL coming into force.”
The new companies law also introduces for the first time the concept of “authorised” share capital.
The authorised share capital serves the function of a pre-approval obtained from the general assembly (and granted to the board of directors) to increase issued share capital up to the limit of authorised share capital (which must not exceed twice the issued share capital). The Emirates Securities and Commodities Authority is expected to issue legislation regulating the method of such increase the note said.
The new CCL prohibits joint stock companies from providing financial assistance to fund the acquisition of their own shares in line with the international market practice. It permits public joint stock companies to make strategic share placements without having to run the gauntlet of their shareholders’ pre-emptive rights thus facilitating the formation of important strategic alliances by UAE public companies.
The law enables shareholders in public joint stock companies to sell their preemption rights (rights issue) and enables shares inLLCs to be pledged as security to financiers. This will enhance the opportunity for banks to take security over shares in limited liability companies.
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