THE UAE’S INVESTMENT LANDSCAPE IS CHANGING – INCREMENTAL REFORMS TO THE UAE COMPANIES LAW

After weeks of speculation between the UAE law firms on LinkedIn and other social media platforms, the new law No. 26 of 2020 (“New Law”) amending a total of 51 articles of the Commercial Companies Law No. 2 of 2015 (“Companies Law”) is now available and is coming into force on 2 January 2021, with three exceptions that will come into force after six months from the date of publishing of the New Law. The New Law introduces key incremental reforms that

have been long-awaited by the business and the legal community in the UAE since the promulgation of the new Companies Law back in 2015. Finally, the New Law puts an end to the inherited conservative approach in relation to foreign ownership restrictions. With particular exceptions that will be unveiled soon, under the New Law foreign investors are allowed to own up to 100% of their UAE business and no service agent is needed for branches of foreign companies.

The New Law addresses most, if not all, the exemptions that have always been

sought by companies considering an initial public offering (“IPO”). After a marathon of prolonged and extended discussions with UAE regulators, the legislation has taken into consideration all our exemption requests in formulating the New Law and sought to accommodate the fair demands of investment bankers, international underwriters, auditors, and IPO candidates. In addition to the foreign ownership restrictions, the New Law touches upon key matters that have always been a concern to all IPO participants and stakeholders. These key matters include: the nationality of board

members of public companies, founders’ lock-up periods, the scope of financial assistance, the joint liability of IPO advisors in respect of the content of prospectuses, the terms of auditors’ mandates, the limitation on the ability of founders to sell-down in IPOs, and many other strategic and crucial matters.

This note aims to shed some light on the main fresh concepts enacted under the New Law, the differences between the provisions of the New Law and the same provisions under the existing Companies Law, and to highlight the practical impact of these differences. It is divided into companies. The repealed provision provides that private joint-stock companies with more than 75 shareholders had to abide by the relevant corporate governance rules. It is not clear if this rule is abolished by the amended article

Article 10 Activities with Strategic impact This article is long-awaited and was expected to be included in the Companies Law back in 2015. The New Law, repeals the existing provision titled “UAE Ownership Percentage” that imposed the restriction of foreign ownership and required all companies to be owned at least 51% by UAE nationals, paving the way for foreign investors to own and control their own business without any complicated and costly contractual arrangements with a UAE sponsor. In principle, companies may now be owned 100% by foreigners. By way of exception, the new article provides that the UAE Cabinet, in conjunction with a new committee to be formed by the Cabinet, shall prepare a list of activities that require a minimum UAE ownership.

Article 11 Practice of Activities The new article abolishes the requirement that investment of funds may only be carried out by public joint stock companies as stipulated under the repealed provision, opening the door for private companies to carry out investment activities.

New Rules applicable to LLCs:

Article 71 Definition of Company

Sole-shareholder companies need not be owned by a UAE national (or by a company owned by a UAE national). This follows the revocation of the minimum UAE ownership percentage, and so, subject to the list of ‘activities with a strategic purpose’, sole-shareholder companies may now be owned by a non- UAE national or by a company owned by a non-UAE national.

Article 73 Companies MOAs Going forward, the memorandum of association (MOA) of LLCs must indicate a dispute resolution forum to resolve any dispute that might arise between the company and its shareholders and between the shareholders themselves.

Article 93 Invitations of General Assembly Meetings The new concepts introduced under this article are twofold:

As per the recommendations of the World Bank in respect of ease of doing business reviews, invitations to general assembly meetings must be published 21 days prior to the date of the meeting. As a point of interest, the repealed Companies Law No. 8 of 1984 had the same timing requirement to publish the general

into five main sections: (i) General By: Ahmed Ibrahim

Provisions; (ii) New Rules Applicable to

Managing Partner

LLCs; (iii) New Rules Applicable to Public Companies; (iv) New Rules Applicable to Private Joint Stock Companies; and (v) Concluding Provisions.

This note follows the same sequence of the New Law, though it is worth noting that the key reforms start from article 112 of the New Law.

DETAILED VIEWS

General Provisions:

Article 6 Corporate Governance The New Law defers to the Minister of Economy to introduce corporate governance rules that will be applicable to

assembly invitation, which was abolished by the Companies Law No. 2 of 2015. Now, the New Law comes to reinstate the repealed rule, requiring companies to publish the invitations for general assembly meetings 21 days prior to the date of the meeting. This should not be a concern to LLCs in view of its private nature but will of course have an impact on public joint stock companies. We will address this point later on in the note.

Reducing the quorum of LLCs from shareholders owning 75% of issued share capital of the company, to 50% only;

There will be no requirement to hold a third meeting, if the quorum is not satisfied in the first meeting, the second meeting will be valid regardless of the number of shares attended or represented in the meeting; and

The second meeting will have to take place after no less than 5 days but no more than 15 days from the date of the first meeting.

Article 101 Increasing or Reducing the Share Capital For the first time, the New Law introduces a new mechanism to allow shareholders to resort to courts to increase the issued share capital of a company where the quorum to increase the capital (being 75% of the shares represented in the meeting) is not met and the company in question suffers insolvency issues.

New Rules applicable to public joint stock companies:

The newly introduced rules in respect of public joint stock companies are the jewel of the New Law’s crown; it is where all the action begins.

Below are the key incremental reforms:

Article 112 Founders Committee – In an unprecedented approach in the UAE, the New Law abolishes advisors’ and offering participants’ liability in respect of the accuracy and completeness of information and reports submitted to regulators in an IPO process. Now, the liability lies solely with the founders committee of the company in question. Previously, all advisors and offering participants (including legal counsels, banks/underwriters, auditors, valuers, etc.) were jointly liable with the founders committee for the accuracy and completeness of information shared with different regulators. This is one of the articles that all companies going public seek a Cabinet exemption from. Such provision meant additional contractual arrangements between the companies going public and their advisors to ensure a proper and fair indemnity from the company to all offering participants. This will not be needed anymore.

Article 118 Valuation of In-kind contribution The new provision brings more relief to valuers, particularly the big four auditing/accounting firms that are extending valuation services to public joint stock companies. Valuers will not liable anymore in respect of their valuation reports of in-kind contributions, but rather

In view of the COVID19 pandemic, the New Law allows companies to

By: Ahmed Ibrahim
have general assembly meetings

Managing Partner

via electronic means. This concept was introduced during the lockdown and the New Law provides a legislative foundation for such practice, ending any potential legal challenges by shareholders where the general assembly meetings took or will take place via electronic means.

Article 96 Attendance Quorum of General Assembly Meetings and Voting Requirements – The New Law relaxes the requirements under the existing law as follows:



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