Companies in the UAE that have not changed their memorandum of association (MoA) in accordance with the provisions of the new Commercial Companies Law can now take it easy.
They will not be under pressure to comply with the new law before the June 30, 2017, deadline set earlier by the Ministry of Economy, nor do they have to face the hefty fine of up to Dh2,000 per day for non-compliance.
According to a notification by the Ministry of Economy obtained by Khaleej Times, the MoA of companies that have been in operation before the new Commercial Companies Law (CCL) came into effect would remain valid regardless of the latest deadline given for compliance.
This means, there will be no more deadline to be met by companies to amend their MoA and make the necessary modifications in accordance with the new law. Companies are also not required to pay fines for non-compliance within a specified timeline, Essam Al Tamimi, Senior Partner, Al Tamimi & Company, said.
As per the New Commercial Companies Law, which came into effect on July 1, 2015, existing companies were required to comply with the new MOA format and regulations before June 2017. Those that do not comply with the new deadline would have faced a fine of Dh2,000 a day and in extreme cases dissolution.
The long-awaited new regulations are aimed at refining regulatory structures within LLCs and Joint Stock Companies and expected to transform the business landscape of the national economy by raising the level of competitiveness as well as corporate rules to international standards.
The ministry said in its Ministerial Order No. 694 of 2016 that memorandum of association or articles of association of existing companies shall remain valid. “Any expression, text or article stated in such memorandum of association or articles of association inconsistent with provisions of law shall be deemed amended and replaced by texts of the law from the date this order is valid.”
“Companies shall comply with such amended texts and shall deemed conciliated its positions and consistent with Article No. 374 of the law.”
However, new companies applying for approval to its formation following issuance of the new Commercial Companies Law (CCL) “shall include in its memorandums of association the provisions stated in law and any provisions requested by the competent authority to be included in such memorandum of association or articles of association,” the notification said.
As per some of the critical changes in the law relating to the new law, every Joint Stock Company or Limited Liability Company shall have one or more auditors to audit the accounts of the company every year. The company shall apply the International Accounting Standards and Practices upon preparing its periodical and annual accounts, to give a clear and accurate view of the profits and losses of the company. As per the new CCL, if the company’s MoA does not stipulate the proportion of a partner in the profits or losses, his share thereof shall be pro rata to his stake in the capital. If the MoA is limited to specifying a partner’s share in the profits, his share in the losses shall be equivalent to his share in the profits and vice versa.
Addressing over 500 guests and members of the Institute of Chartered Accountants of India UAE (Dubai), Al Tamimi said the new CCL introduces some incremental reforms, mostly maintaining the fundamental framework and features of the old provisions such as foreign ownership restrictions and preemption rights in LLCs. “The new law also introduces new concepts such as allowing sole shareholder companies either in limited liability or private joint stock companies and addresses employees incentive share schemes,” he said. At the event, Al Tamimi also answered a range of questions on the DIFC law and wills among other legal topics.
The law aims to relax rules covering stock market flotations and seeks to attract more investment by moving corporate regulation closer to international standards. The law reduces the minimum free float of shares in company flotations on the UAE’s two main stock markets to 30 per cent from 55 per cent in a move aimed at encouraging company owners to go public. At present company owners are not allowed to divest less than 55 per cent stake in their firms in a public offering.
The new CCL retains a 49 per cent limit on foreign ownership. Under the new law, any foreign investor can own a maximum of 49 per cent of a locally-incorporated company, apart from companies incorporated in a free zone in which they can own 100 per cent. Where a public joint stock company lists, there is not a 51 per cent UAE ownership required, but there is a 51 per cent GCC requirement.
Under the new CCL, companies in the UAE can make their employees stakeholders in the firm in line with an employee share incentive scheme.
The most useful changes adopted in the new CCL are provisions allowing sole shareholder limited liability companies, or LLCs, and private joint stock companies; exempting government-owned companies from the new CCL if the company includes a provision in their memorandum to that effect; allowing partners to pledge their interests in LLCs; allowing certain non-pre-emptive share issuances by joint stock companies, or JSCs; and allowing founders to list their businesses yet retain 70 per cent of the shares.– firstname.lastname@example.org