The New Commercial Companies Law of United Arab Emirates (UAE) that is Federal Law No. 2 of 2015 became effective from July 1, 2015 replacing the old Federal Law No. 8 of 1984. The objective of the new law is to regulate the companies in UAE as per international norms related to governance rules, the protect the shareholders, encourage foreign investment and to promote the corporate social responsibility on the part of companies along with contributing to the development of the working environment and capacities of the UAE and its economic position.
Conflicts & Uncertainty
The changes in the new Commercial Companies Law (CCL) contained many improvements and modifications on the old Federal Law No. 8 of 1984.
There were debates due to uncertainty of Article 104 of New UAE Commercial Companies Law. As per the said Article all the provisions applicable to Joint Stock Companies (JSC) of the Federal Law No. 2 of 2015 are also applicable to Limited Liability Company (LLC). Thus, leading to different interpretation and conflict as to the application.
Recently,Ministry of Economy (MOE) has issued Ministerial Resolution 272 of 2016 effective from 29
April 2016 providing the application of the Article 104 and clarifying the issues faced by the businesses in UAE in interpretation.
List of Joint Stock Company’s provisions that will apply to an LLC
Directors’ liability
As per the Article 6 of the new CCL all the members of the Board of Directors are required to act in the interest of the Company first and within the Authority granted to them.Further the obligations and duties of the Board and executive management is required to be mentioned in the Articles of Association of the companies.
Audited accounts and Accounts filing
As per Article 10 of the new CCL states that the company shall prepare and maintain proper Books of accounts and follow the international accounting principles and standards for the same.
Auditor provisions
The provision 7,8 and 9 in relation to Auditor is applicable to both JSC and LLC.
To comply with the CCL article 7 and 8 a company is required to appoint one or more auditors for one renewable year. Also, the auditors have the right of access to all Company books, registers and documents etc.. Also, the auditor is required to send a copy of the report to the competent authority in case the company’s management fail to enable them to perform duties. And as per Article 9 the Audit is required to present an Annual Report to the General Meeting and is considered responsible for the correctness of all information presented in said report.
Right to call a general meeting
Article 12 has been made applicable to LLC also. The said Article states that if a shareholder holding 20% or more share capital in the company he may submit an application for the calling of the General Meeting, that must be called within 5 days. Also, if any shareholder is holding 10% or more of the company shares may submit an application accompanied by supporting documents for the calling of the General Meeting to an urgent meeting.
List of Joint Stock Company’s provisions that will not apply to an LLC
Financial assistance
The MOE Resolution clearly clarifies that thefinancial assistance prohibition as provided in Article 222 will not apply to LLCs.
Director remuneration
The Article 169 in reference to Director remuneration as applicable to JSC have been made non-applicable to the LLC Company.
Related party transactions
Articles 152(1) and (2) in relation to the prohibition on related party transactions, are also not applicable to LLCs.
Board formation and composition
The restriction as to accepting nomination as a director in Article 147 and to the upper limit for the number of board appointments an individual may hold as provided in Article 149 are now not applicable to LLCs. Thus, an LLC Director can act as Director for a number of companies without having any upper limit for the same.
Restrictions on powers of the directors
The Article 154 of the CCL provides for restrictions applicable to JSC directors’ powers – the same are not applicable to LLC directors.
Conclusion
After the Federal Law No. 2 of 2015 the MOE said Resolution 272 of 2016 specifically provides a list of provisions concerning Joint Stock Companies that applies to LLCs. Also, the Article 3(1) of the MOE Resolution specifically sets out provisions applicable to JSC that will be applicable to LLCs, to the extent do not conflict with the nature of LLCs. Further the clarification, resolution puts burden on the shareholders and general managers to be conversant with the new rules so that can implement them to their companies.
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