In the first chapter of this communiqué, Raju Menon, Chairman and Managing Partner of Kreston Menon elaborated on the new update on the UAE Federal Law on Foreign Direct Investment, granting foreign investors an ownership up to 100% in the mainland.
The new Federal Direct Investment (FDI) Law could not have been come into force at a more appropriate time. This long-awaited reform will progressively transform the economic and business atmosphere locally and regionally, and attract large scale investments. With governance gaining focus, the landmark FDI Law could just provide the right impetus for promoters and investors who consider enhancing their stakes and benefiting from the virtues of a corporate structure.
To begin with, there lies an immediate opportunity for aspiring limited liability companies where governance procedures are already in place, to convert the legal status into a Private Joint Stock Company (PSC) and thus transform their corporate image and enjoy the associated benefits. Though the Commercial Companies Law states the “holder of capital of a limited liability company shall not be liable for the obligations of the company other than to the extent of the capital as set out in its Memorandum of Association”, the practical applicability of this clause is often arbitrary. In case of PSC, the liability of the shareholder is limited to the extent of the value of the shares subscribed by a shareholder. In true sense, PSC is a limited liability corporation.
Prior to the implementation of the FDI Law, Article 10 of Law No. 2 of 2015 on Commercial Companies required the shareholding structure of a PSC to have 51% minimum national equity participation, just like the LLCs. Article (7) clause (5) of the Federal Law by Decree No. (19) of 2018 Regarding Foreign Direct Investment states that foreign investors can invest up to 100% in mainland companies in UAE as long as the activity is in the Positive List.
The resolution of the Council of Ministers may exclude Foreign Investment Companies from certain provisions of the Companies Law and the federal laws of the State as shall be consistent with the nature of Foreign Direct Investment Projects.
Salient features of Private Joint Stock Companies
- A Private Joint Stock Company is a company where the number of shareholders is at least 2, but not exceeding 200.
- The capital of the company shall be divided into shares of the same nominal value, to be paid in full.
- The nominal value of the share shall not exceed AED 100 and shall not be less than AED 1.00
- It is not permitted to offer the shares for public subscription.
- A shareholder shall be liable only to the extent of his share in the capital of the company.
- The issued capital of the company shall not be less than AED 5,000,000 (AED five million) and shall be paid in full either in cash or in kind.
- The founders shall choose from amongst them a committee consisting of at least 2 members to complete the incorporation procedures and to register the Company with the relevant authorities.
- The Founders Committee shall be fully liable for the accuracy, validity and completion of all the documents, studies and reports provided to the relevant authorities in connection with the incorporation, licensing and registration process of the company.
Merits of a Private Joint Stock Company
The FDI Law requires a minimum capital investment between AED 7.5-10 Million for the Agricultural and between AED 2-100 Million for the Manufacturing Sectors, while the capital requirement for the Services Sector will be in accordance with the legislation in force. It should be noted, however, that the Resolution relies on the general minimal capital requirements for some commercial activities.
Kreston Menon Corporate Services has a FDI advisory team which can help you with corporate structuring and related services. If you have any queries related to converting the legal status of your LLC into a Private Joint Stock Company (PSC) or have general questions about the Positive List Resolution you may contact the Author.
