The United Arab Emirates government published the Federal Decree No. 32 of 2021 concerning Commercial Companies Law (CCL 2021) which came into force on 2nd January 2022, on which date the Federal Decree Law No. 2 of 2015 and its amendments (CCL 2020) were repealed.
Prominent provisions and amendments to the Law:
Public Joint Stock Companies (PJSC)
(a) Allows the establishment of companies for the purposes of acquisition or merger, and SPVs, and establishes a legal framework for these new legal forms and excludes them from some provisions of the Companies Law through a decision issued by the SCA to regulate the work of these forms of companies.
(b) Abolishes the maximum and minimum percentage of the founders’ contribution to the company’s capital at the time of the public offering as well as cancels the legal limitation of the subscription period and leaving the two matters to what is specified in the prospectus.
(c) Eliminates the requirement for the nationality of the members of the board of directors and upholds the organization shareholders’ decisions in the election of board members, in accordance with the terms and conditions set by the competent authority.
(d) Allows companies to transform into a Public Joint Stock Company and sell its shares or offer new shares in a public subscription without being restricted to a certain percentage by following the price-building mechanism of the security.
(e) Allows companies to divide and create legal rules governing division operations, thus contributing to diversifying the company’s activities and fields of work and increasing its projects and growth opportunities.
(f) Allows companies to determine the face value and to determine the percentage of the offering. The CCL 2021 allows shareholders to determine the nominal value of shares as specified in accordance with the PJSC’ Articles of Association thus removing the range of AED 1 to AED 100 prescribed by the CCL 2020.
(g) Finds financing solutions for companies through the issuance of other types of shares.
(h) Allow companies to issue discounted shares in case the market value of a company’s share price falls below the nominal value subject to (a) passing a special resolution; and (b) obtaining the approval of the Securities & Commodities Authority (SCA). However, the result of issuance of shares at a discount will cause a negative reserve, which must be settled from its future profits before any profit can be distributed amongst the shareholders.
Limited Liability Companies (LLC)
(a) Expiration of the Board of Managers’ term If the term of the Board of Managers expires, and a new Board of Managers is not appointed, then the existing board will continue to manage the LLC for a period of 6 months. At the end of this term a new board must be appointed by the LLC, and if not appointed, the Department of Economic Development (DED) can appoint a board whose term will not exceed one year, during which, the LLC must appoint a new Board of Managers. Therefore, the appointment of the Board of Managers by the DED is a stopgap arrangement that will be regularised if the LLC fails to appoint the board itself.
(b) Appointment of the Supervisory Board CCL 2020 obligated LLCs to appoint a Supervisory Board when the company consists of more than 7 shareholders. CCL 2021 has increased the number of required shareholders to 15. The Supervisory Board is appointed from at least three shareholders to supervise the company’s annual reports, budgets, distribution of profits and to also supervise the LLCs’ managers and submit a report in this regard to the General Assembly.
(c) Decrease in Legal Reserve CCL 2021 has decreased the extent of allocating a legal reserve from 10% to 5%, and as prescribed by the CCL 2020, the CCL 2021 emphasized that shareholders can stop this allocation if the legal reserve reaches 50% of the share capital.
Foreign Company Branches
Allows branches of foreign companies licensed in the country to transform into a commercial company with UAE citizenship.