UAE Companies Law update from PwC Legal Middle East UAE Companies Law: Compulsory changes required to memoranda and articles by June 2016 November 2015 In brief Following the adoption of the new Commercial Companies Law (“New CCL”) on 1 July 2015, all UAE companies are required to amend their existing memoranda and articles of association (“Articles”) to mirror and comply with the changes introduced in the New CCL. Companies that fail to make the amendments by 30 June 2016 will be “deemed as dissolved”. There are also financial penalties in the New CCL for non-compliance, ranging from AED 10,000 to 100,000. Important changes applying to a limited liability company (“LLC”) in the New CCL include, but are not limited to, new rules concerning pre-emption rights, expert valuation of shares, and the general meeting procedures. Given that all LLCs must review their Articles to ensure compliance with the New CCL the PwC Legal view is that they may also want to consider additional changes which, although not mandatory, may be commercially beneficial to the operation of the company. Other changes are mandatory to the extent the current Articles conflict with the provisions in the New CCL. References in the Articles to the now-redundant old Commercial Companies Law (“Old CCL”) should also be revised. The Departments of Economic Development (“DED”) throughout the Federation have issued various required additions to the evidential detail within a LLC’s Articles that companies should include when changing the Articles. The New CCL was introduced in July as Federal Law No. 2 of 2015 concerning Commercial Companies and replaced the old Federal Law No. 8 of 1984 concerning Commercial Companies. As usual, the Arabic text of the New CCL will prevail over the English version so a proper assessment of the updated clauses is necessary. Note – In this briefing we use the term ‘shareholders’ to refer to members of the LLC. The text of the New CCL uses the term ‘partners’. www.pwc.com UAE Companies Law update Changes to make Change PwC Legal view Details of the Shareholders The New CCL specifies that the Articles should list with the details of the shareholders of a LLC their date of birth. In Dubai, the DED also requires shareholder’s mobile numbers. When making changes to the Articles, it is important to update these details at the same time. References to the Old CCL Any part of the LLC’s Articles which refers to a provision the Old CCL should be updated to ensure clarity. Accounting standards The New CCL requires LLCs to use the International Accounting Standards. A company should amend its Articles in the event that they contradict this requirement. The Old CCL was silent on this point; allowing any standards to be used in the past. Valuation of shares for noncash consideration Shares allotted for non-cash consideration must be valued by the UAE’s Securities and Commodities Authority, subject then to the DED’s approval. Pre-emption rights The notice period for shareholders wishing to exercise pre-emption rights remains at 30 days and the manager(s) of the LLC must notify the other shareholders immediately when a shareholder wishes to sell. The contents of the notice are amended slightly to ensure the selling shareholder notifies the other shareholders of the name of the purchaser and the terms of the share transfer. Valuation of pre-empted shares Pre-empted shares will be evaluated by an expert appointed by the Dubai DED. The pre-empting shareholder(s) will cover this cost. Increase in the number of managers/directors in the LLC LLCs now have the flexibility to appoint more than 5 managers/directors. LLCs considering increasing their governance positions should alter the Articles accordingly. Notice of a general assembly Matters for the general assembly Quorum of the general assembly Ordinary resolutions of the company (simple majority resolutions) PwC The notice period for a general assembly of the LLC has decreased from 21 days to 15 days. This can be further shortened on a case-by-case basis by unanimous shareholder approval. Specifying the Old CCL period of 21 days in the LLC’s Articles will not be a breach of the New CCL, but the shorter notice period may be commercially advantageous to companies so a change should be considered. The New CCL specifies that appointments of members of the Board of Managers (if any), Control Council (if any), and the Internal Shari’a Control Committee and Controller (if applicable) are matters reserved for the general assembly and the Articles should mirror this. The remuneration of auditors is also now a matter for the general assembly, the appointment of which remains a decision for the assembly. A general assembly requires shareholders holding at least 75% of the share capital of the LLC to be present. The Old CCL required a general assembly with the aim of all shareholders attending. In the event of an inquorate adjournment this figure decreases to 50%, then further to at least one member present at the third meeting. Under the Old CCL, resolutions could be passed with only 50% of the votes at that meeting. Shareholders resolutions now require a simple majority (i.e. more than 50%) of the shareholders present at the general assembly to be passed. 2 UAE Companies Law update Let’s talk For a deeper discussion of how this issue might affect your business, please contact: Middle East Tax and Legal Services Alan Wood Middle East Corporate Legal Leader +971 (0) 4 304 3739 email@example.com Jonathan Gibson Middle East Legal Managing Partner +971 (0) 4 304 3079 firstname.lastname@example.org Stephanie Samuell +971 (0) 4 304 3079 Corporate Lawyer email@example.com David Pang +971 (0) 4 304 3229 Corporate Lawyer firstname.lastname@example.org Dean Kern Middle East Tax and Legal Services Leader +971 (0) 4 304 33575 email@example.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. 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