April 2015
The New UAE Commercial Companies Law 2015
Practice Groups:
By Owen E. Waft, Omar Momany, Jennifer A. Lovesy and Mona B. Lemp
Corporate/M&A
A new commercial companies law (“New CC Law”) was issued in the United Arab
Emirates (“UAE”) on 1 April 2015 and will come into effect within the next three months.
The New CC Law applies to companies established in the UAE and to some foreign
companies conducting business in the UAE. It is likely that the New CC Law will have the
greatest impact on public joint stock companies (“Public JSCs”), limited liability
companies (“LLCs”) and initial public offerings (“IPOs”) on the Dubai Financial Market
and the Abu Dhabi Securities Exchange.
Capital Markets
Global Government
Solutions
The New CC Law will not apply to:
• government entities or companies fully owned by the UAE federal government or the
government of one of the seven Emirates;
• companies exempted by a federal law or cabinet resolution;
• companies operating within the oil, gas, energy, power, water or similar sectors where
at least 25% of such companies are government owned (directly or indirectly); or
• free zone entities where the regulations of the free zone in which they are established
exclude the applicability of the New CC Law (although the New CC Law remains
applicable where a free zone entity is permitted to conduct business onshore).
Public JSCs
IPOs
Whilst Public JSCs were previously required to offer a minimum of 55% and maximum of
80% of their shares to the public upon undertaking an IPO, these thresholds have now
been relaxed such that they can now offer a minimum of 30% and a maximum of 70% of
their shares to the public. In addition, upon conversion of a company to a Public JSC, up
to 30% of a company’s existing share capital may be offered to the public. These
changes will allow the founders of a Public JSC to exercise more control after a listing
and will permit investment by strategic partners.
In addition, there is no longer a requirement to issue new shares at the time of IPO.
Public JSCs may now offer existing shares to the public. Importantly, prices will be able
to be established in accordance with investor demand through a book-building process
as opposed to a pre-established valuation method, thus giving full effect to existing bookbuilding regulations.
The New CC Law provides Public JSCs with more flexibility in raising capital and enables
pre-emption rights to be traded by shareholders or waived by a special resolution of the
shareholders.
Takeovers
The New CC Law suggests that a code on takeovers will be issued to introduce a
regulatory takeover regime and streamline the process of bidding for shares in public
companies. We will be monitoring developments in this regard and will issue an alert as
and when an update becomes available.
The New UAE Commercial Companies Law 2015
Financial Assistance
The New CC Law prohibits the provision of financial assistance to shareholders. A Public
JSC or any of its subsidiaries can no longer provide financial assistance in the form of
pardoning debts, providing of loans, gifts or security or delivering any other financial
assistance to allow a shareholder to acquire shares in the Public JSC. This is in line with
international best practice. It remains to be seen if a ‘whitewash’ or other similar
procedure permitted by certain jurisdictions will be set out in future implementing
regulations.
LLCs
Foreign Ownership
There was much anticipation that the New CC Law may enable non-UAE shareholders to
own a majority stake in an LLC. This is not the case. However, it has been reported that
a new Foreign Direct Investment Law will allow non-UAE shareholders to own 100% of
an onshore LLC in certain sectors. There has been no indication of applicable sectors or
when such a law would be published. Again, we will be monitoring developments in this
regard.
Shareholders
Whereas 2 to 50 shareholders were previously required to form an LLC, the number of
shareholders required is now 1 to 75. Whilst this could lead to more LLCs being formed
by single shareholders, the two shareholder model is likely to prevail for foreign investor
shareholders as 51% of the shares of an LLC must still ultimately be owned by a UAE
shareholder.
Share Pledges
Prior to the issue of the New CC Law, share pledges over shares in an LLC were
generally not recognised in the UAE. The New CC Law provides for the creation of share
pledges over shares in an LLC and this is likely to play an important role in the future
financing of LLCs.
New Structures and Entities for LLCs and Joint Stock Companies
The New CC Law provides for the concepts of holding companies and common
investment companies. Holding companies will establish and control subsidiaries and can
take the form of either an LLC or a joint stock company. The activities of a holding
company will be limited to holding shares in other LLCs and joint stock companies,
acquiring assets necessary for its business, holding intellectual property rights to license
to its subsidiaries and providing management services and financing to its subsidiaries. A
holding company may only conduct trading activities through its subsidiaries.
Conclusion
The New CC Law has introduced several improvements to the existing commercial
companies law in an effort to modernize the legal framework governing commercial
companies in the UAE. It introduces new concepts and relaxes some existing rules such
as offering a potentially easier route to IPOs which is seen as part of a wider initiative to
improve and strengthen the UAE’s economy. That said, there remain a number of areas
where further complementing laws and implementing regulations are necessary in order
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The New UAE Commercial Companies Law 2015
for the UAE’s corporate law and regime to become more aligned with international
standards.
Authors:
Owen E. Waft
Omar Momany
Jennifer A. Lovesy
Mona Lemp
owen.waft@klgates.com
+971.4.427.2714
omar.momany@klgates.com
+971.4.427.2733
jennifer.lovesy@klgates.com
+971.4.427.2723
mona.lemp@klgates.com
+971.4.427.2706
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