UAE: Commercial Company Law 2021 Amendments

The government of the United Arab Emirates has announced Federal Decree No. 32 of 2021, which makes significant modifications to the Commercial Companies Law (CCL) as part of its ongoing round of legislative reforms. On January 2, 2022, the CCL 2021 will take effect, replacing the present Commercial Companies Law No. 2, which was passed in 2015. The CCL 2021 comprises improvements that will have a favourable impact on current company’s activities and entrepreneurs seeking to establish a presence in the UAE. The United Arab Emirates has undertaken the greatest legislative reform in its history, with the goal of improving the regulatory environment and stimulating economic growth.

Key changes in CCL

SPAC’s & SPV’s

• The Special Purpose Acquisition Company (SPAC) will be constituted as a public joint-stock company (PJSC) and authorised by the UAE Securities and Commodities Authority (SCA) under the New Companies Law 2021 for the exclusive purpose of acquiring or merging companies. This is in line with the current practice of using SPACs for IPOs, and it will provide another avenue for M&A activity, including international investment. The SCA will govern the operations of a SPAC through regulations that it shall adopt in this respect.
• The idea of a special purpose vehicle (SPV) has been developed, which is a company created for the purpose of segregating the responsibilities and assets connected with a specific financing operation from the parent entity’s obligations and assets. Credit activities, borrowing, securitization, issuance of bonds, and risk transfer connected with insurance, reinsurance and derivative activities can all be used to fund the project, as long as the SCA’s laws are followed.

Changes Affecting Limited Liability Companies

• Expiry of Manager’s Tenure – When a manager’s term expires without being replaced, their term can be prolonged for up to six months, and if no one is appointed, the Department of Economic Development (DED) can appoint aboard for a period of not exceeding one year, wherein the LLC must nominate a new board of managers.
• Formation of Supervisory Board – To form a supervisory board, CCL 2021 has raised the needed number of shareholders to fifteen (15). The Supervisory Board is made up of at least three shareholders who are responsible for overseeing the company’s annual reports, budgets, and profit distribution, as well as overseeing the LLC’s management and submitting a report to the General Assembly.
• Legal Reserve –  The mandatory reserves, which are made up of net earnings, have been decreased from 10% to 5%, which is clearly a positive improvement for businesses.

Public Joint Stock Company (PJSC)

• Subscription shares of PJSC – Founders must now subscribe to the stipulated percentage of shares in the prospectus, subject to SCA restrictions. Previously, the percentage of subscription shares was set to be anywhere between 30% and 70%.
• Remuneration for directors – Board members’ remuneration cannot exceed 10% of the fiscal year’s net profits (after depreciation and reserves deductions), but if the company does not create revenue, a board member could be paid a lump sum fee not exceeding AED 200,000 at the close of the financial year, pertaining to the company’s constitution and approval by the general assembly.
• Issue shares at a discount – A PSJC can now issue shares at a discount if the market price of the shares falls below the nominal value, subject to SCA approval and the passage of a special resolution.
• General Assembly Meeting – If shareholders owning no less than 95 percent of the company’s share capital authorise a time shorter than 21 days before convening the General Assembly meeting in line with the SCA’s requirements and procedures, the meeting must be announced 21 days prior to the date of the meeting.
• Hiring for the position of Director – The CCL 2021 states that if a directorship becomes vacant, the Board of Directors (Board) must hire a substitute within 30 days, given that such an appointment is reviewed by the General Assembly in its first meeting for approval or to appoint another individual, and the newly appointed director shall hold the position for the remainder of the predecessor’s period.
• Corporate Social Responsibility (CSR) – CCL 2021 permits newly formed businesses to engage in CSR and set aside any revenues for that purpose. Moreover, the CCL 2021 requires public notification on a company’s website even if it does not participate in CSR, whereas the CCL 2020 does not.
• PJSC division – The option of separating a PJSC was introduced in the CCL 2021. This separation can be made in two ways.
  • Horizontal, that is, when the shareholders of the dividing firm and the new business formed as a result of the division are the same and have identical ownership percentages, or
  • Vertical division, which occurs when a company carves off a portion of its assets or commercial operations by forming a subsidiary to purchase the carved assets or commercial activities, and the subsidiary is completely owned by the firm.

Liquidation Notice to Creditors
Creditor claims against a firm in liquidation must be submitted within 45 days of the company’s bankruptcy, according to CCL 2020. This time limit has been shortened to no less than 30 days by CCL 2021.

Conclusion
The incorporation of the New Companies Law is an optimistic step towards enhancing the United Arab Emirates’ economic viability in the form of business development, demonstrating to the rest of the globe the nation’s capacity to cope with global standards, thereby encouraging established companies and recruiting potential investment opportunities.

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