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Law Update to Commercial Companies Law

Updated: Dec 5, 2020

The decree was issued by Federal Law No. 26 of 2020 to amend some provisions of Law No. 2 of 2015 concerning commercial companies, which was published in the Official Gazette issued on September 30, 2020. One of the most prominent articles included was the repeal of article 329 concerning the need to appoint a service agent for branches of foreign companies, and the repeal of the Foreign Direct Investment Law.

Article 1 contained the amendment of 51 articles of the Commercial Companies Law. The following are the most notable amendments relating to the provisions of limited liability companies.

Article 10

It was stipulating in its first paragraph that every company established in the state must have a partner, shareholder or more of citizens with a share of at least (51%) Fifty-one percent of the company's capital, while In the light of this amendment, the foreign investor is eligible to own 100% of the company's shares. However, the amendment excluded activities called activities with strategic impact, which are to be determined by a decision of the Ministerial Cabinet. Although the said percentage of shares is abolished, the amendment authorized the Competent Authority in each emirate to determine the percentage of the citizens' contribution to the capital or the boards of directors of all companies established within the Competent Authority's jurisdiction.

Article 71

The amendment permitted that the owner of a sole proprietorship Limited liability company can be a natural or juristic person who does not attain UAE nationality.

Article 73

The amendment indicates that the memorandum of association should provide for ways to resolve the disputes that arise due to the company's business, whether between the company and any of its directors or between the company's partners.

Article 92

The amendment reduced the quorum related to the convening of the general assembly. The director or authorized managers , in accordance with the article prior to the amendment , should invite the General Assembly to convene if one or more partners who own at least a quarter of the capital request, while the amendment requires the General Assembly to convene if one or more partners who own at least 10% of the company's capital shares request so.

Article 93

The amendment established certain requirements and directives in relation to the invitation to convene the General Assembly. In terms of the duration of the convention notification, it becomes 21 days instead of 15 days. On the other hand, it becomes mandatory to provide the Competent Authority with a copy of the invitation papers of the meeting before calling the partners for the convention of the General Assembly. It is also required to state the element of the meeting such as the agenda and the eligibility of attending. The amendment also authorizes to conduct such a meeting remotely.

Article 96

The amendment reduced the quorum concerning the attending of partners at the general assembly. The meeting is valid if a partner or partners who own at least 50% of the shares is present, unless the memorandum of association requires for a higher percentage, while, in accordance with the article prior to the amendment, the presence of the partner or partners who own at least 75% of the shares for the validity of the General Assembly was required.

Article 101

The amendment authorized one of the partners to file a case to obtain an urgent ruling to increase the company's capital, in case it is necessary to save the company from liquidation or to pay off the debts. The amendment also indicated that if any partner is unable to pay its obligations, any other partner is entitled to pay for it in exchange for its ownership of shares in the company equal to what it paid.

In respect of the most notable amendments in general to the corporate governance rules applicable to Public Joint Stock Company (the “PJSC”) which are:

  • The restriction that previously existed on the percentage of experienced members of the board of directors who are not shareholders is lifted, as it was previously restricted to not exceed one third of the number of members specified in the articles of association, while it is now possible for all members to be non-shareholders.

  • The restriction on the nationality of the chairman and the majority of the members of the board of directors has been removed after the amendment, and the matter has been left to the decision of the Ministerial Cabinet or the Competent Authority.

  • In the event that the PJSC concludes deals with Related Parties, the chairman of the PJSC’s board of directors shall provide the Authority with a statement containing data and information about the Related Party, details of the deal and the extent of benefit to the Related Party.

  • The executive management, in addition to the board of directors, is responsible for all acts of fraud and abuse of power, the executive management includes each of the general manager, the executive manager or the CEO and their deputies.

It also stipulated that the executive management bears the responsibility for the error arising from a decision issued by it.

The chairman or any of the members of the board of directors or the executive management shall be considered dismissed by virtue of the law if it is proven by an unappealable court ruling that any of them committed fraud, abuse of authority, or the conclusion of deals or dealings involving conflict of interests in violation of the provisions of this law or the decisions implementing it.

  • The shareholder may file a lawsuit before the competent court against the PJSC, its board of directors, and its executive management if he is harmed as a result of an act performed by any of them in contravention of the provisions of this law, and the shareholder has the right to recover all the legal expenses that he actually spent in form of the judicial expenses and attorneys' fees from the PJSC in the event of an unappealable judgment Whether the judgment is issued in favor of the shareholder or against him, provided that the lawsuit is not malicious.

  • The requirement of the Authority’s approval of increasing the PJSC’s capital has been removed. A special decision from the shareholders is sufficient. However, the board of directors must implement this decision within three years from the date of its issuance otherwise the decision will lose its effect.

  • The conditions for the strategic partner's participation in the PJSC through the subscription to new shares have been removed.

  • The period of time during which the auditor can continue to audit the PJSC 's accounts has been extended to six consecutive years, provided that the partner responsible for the audit work of the PJSC is changed after the end of three financial years, and the auditor may be re-appointed to audit the PJSC's accounts after passing of at least two fiscal years since the expiration date of his appointment.

  • The companies wishing to convert into a public joint stock company have been allowed to sell no more than 70% of the company's capital after evaluation and to issue new shares according to a special decision. This percentage may be exceeded after obtaining the approval of the Authority’s board of directors.

  • If the board of directors invites the general assembly to convene to consider a decision to continue the PJSC or its dissolution when its accumulated losses reach half of its issued capital, then if the board of directors recommended the continuation of the PJSC 's activity, the board of directors must attach to the invitation a restructuring plan and the auditor's report. If the Board of Directors recommends dissolving the PJSC, the invitation shall be attached with the PJSC’s liquidation plan and the report of the auditor.

The board of directors shall supervise the implementation of the restructuring plan and notify the Authority with a report every three months on the results of implementing this plan and the extent of adherence to its schedule.

It is pertinent to mention that the amendment has given one year, from its effective date (2/1/2020), to companies to settle their MOAs in accordance with the provisions of this amendment, subject to a fine for delay.

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