In brief:
- A new Companies Law will come into force on 2 January 2022 which replaces the existing UAE Companies Law in its entirety
- The New Companies Law confirms the principle of relaxation of foreign ownership restrictions initially introduced under the Decree of 2020 amending certain provisions of the existing UAE Companies Law
- Each of the relevant Abu Dhabi and Dubai economic departments has published a long list of activities permitted for the purpose of 100% ownership
As part of the substantial legal reforms in the UAE which were recently announced, the UAE President, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, issued on 20 September 2021 Federal Law No. 32 of 2021 regarding Commercial Companies (“New Companies Law”) which will come into force on 2 January 2022. The New Companies Law will replace in its entirety Federal Law No. 2 of 2015 regarding Commercial Companies (“Existing Companies Law”) including Federal Decree Law No. 26 of 2020 (“Decree Amending the Existing Companies Law”) issued on 20 September 2020 pursuant to which fifty one (51) articles of the Existing Companies Law were then amended.
Understandably, the aspect of the Decree Amending the Existing Companies Law which attracted most interest from media and investors was the modification of Article 10 which required a UAE national or an entity wholly owned by UAE nationals to hold at least fifty one percent (51%) of the share capital of each UAE company that is incorporated ‘onshore’ (which term is commonly used to exclude free zones).
Under the Decree Amending the Existing Companies Law, Article 10 had been amended to remove the specific requirement for a minimum of 51% UAE shareholding in onshore entities. Whilst the Decree Amending the Existing Companies Law will no longer be in effect from 2 January 2022, it is worth noting that Article 10 has remained unchanged under the New Companies Law. Therefore, the New Companies Law reiterates the principle of the relaxation of foreign ownership restrictions initially introduced under the Decree Amending the Existing Companies Law.
However, Article 10 (in both the Decree Amending the Existing Companies Law and the New Companies Law) also states that the threshold required for UAE ownership (if any) should be determined by the Cabinet upon the recommendation of a committee, which is required to determine activities considered to have a ‘strategic impact’ in order for foreign investors to be entitled to hold up to 100% of the legal interest in such companies.
Interestingly, a list of activities permitted for the purpose of 100% foreign ownership has recently been published by each of the relevant Economic Departments in Abu Dhabi and Dubai. Meanwhile, no Resolution has yet been issued by the UAE Cabinet regarding the list of activities that would be considered to have a ‘strategic impact’.
We note that each of the Abu Dhabi and Dubai Economic Departments has issued a list which includes more than one thousand approved activities within a broad range of industrial and commercial sectors.
The relevant lists of approved activities also includes a wide range of trading related activities, meaning that foreign investors may now hold the entire legal interest in the share capital of an Abu Dhabi or Dubai based mainland company.
Given that Article 10 remains unchanged under the New Companies Law, foreign investors may still rely on the Abu Dhabi and Dubai lists of approved activities to confirm whether they are entitled to hold the entire share capital of an Abu Dhabi or Dubai based mainland company including the extent of the legal requirements associated with such activities (if any).
The following key amendments were initially introduced under the relaxation of foreign ownership restrictions and have remained unchanged under the New Companies Law:
- Certain entities partly or wholly owned by the government in specific sectors are exempt from the provisions of the New Companies Law.
- The entire issued share capital of a limited liability company (LLC) may be held by a single non-UAE shareholder (subject to the above with respect to the relevant activities being considered of ‘strategic impact’).
- The articles of association of a LLC must include provisions addressing dispute resolution mechanisms between the LLC and any of its directors/managers or between the shareholders in connection with the LLC’s business.
- A shareholder holding ten percent (10%) of the share capital of the LLC has the right to request a General Assembly to convene (previously the threshold was twenty five percent (25%)).
- The notice period to convene a General Assembly is at least twenty one (21) days (previously fifteen (15) days).
- A shareholder’s right to seek an urgent court order pursuant to which the other shareholders are required to fund an increase of capital to the extent necessary to prevent the liquidation of the company. If a shareholder fails to pay the capital amount required then his share in the company would be diluted accordingly.
- The Cabinet to issue a decision confirming which provisions relating to joint stock companies will be applicable to LLCs taking into account the nature of a LLC.
- Branches of foreign companies are no longer required to appoint a national service agent.
We note that the Decree Amending the Existing Companies Law introduced an amendment which provided that, unless the articles of association of the company state otherwise, the quorum for a General Assembly meeting is at least fifty percent (50%) failing which a second meeting must be held within at least five (5) to fifteen (15) days from the date of the first meeting, such second meeting would be considered to be quorate irrespective of the number of shareholders attending.
Under the New Companies Law, the reference to “unless the articles of association of the company states otherwise” has been removed which effectively means that a second General Assembly meeting shall be considered duly convened and quorate irrespective of the number of shareholders attending and notwithstanding any provision to the contrary under the relevant articles of association of the company.
Also, existing companies must adjust their position within one (1) year of the New Companies Law coming into force, and companies which fail to do so shall be considered as dissolved.
Please note that this article focuses on key legal considerations under the New Companies Law relating to the relaxation of foreign ownership restrictions and key provisions having been initially introduced under the Decree Amending the Existing Companies Law.
Conclusion:
The confirmation of the relaxation of foreign ownership restrictions under the New UAE Companies Law is an extremely important milestone in terms of the development of the legal framework in the UAE in accordance with the country’s vision of facilitating foreign direct investments in the UAE. For more information, please contact Ahmad Sergieh, Partner, Head of Corporate, Dubai or Yasser Omar, Partner, Head of Corporate, Abu Dhabi.