Change to minimum capital requirements for UAE

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Middle East Alert
If you have questions or would
like additional information on the
material covered in this Alert,
please contact the following
members of the UAE team on:
Arash Amai
Partner, Abu Dhabi
[email protected]
+971 2 418 5725
Tim Gordon
Associate, Abu Dhabi
[email protected]
+971 2 418 5787
Change to minimum capital requirements for
UAE companies
The President of the United Arab Emirates, His Highness Shaikh Khalifa bin Zayed Al Nahyan,
has issued a decree abolishing the minimum capital requirement for setting up a limited liability
company in the UAE.
Summary of the new law
The decree amends Article 227 of Federal Law No.8 of 1984 (UAE Companies Law) which
provided that the minimum share capital of a limited liability company must be no less than
AED 150,000 divided into equal shares of minimum value of AED 1,000 each.
Under the amended law, prospective business partners seeking to establish a limited liability
company will have the freedom to determine the capital requirements of their new company and
there will be no minimum par value for the company’s shares. The law provides that the limited
liability company must have a “sufficient capital … to achieve the object of incorporation”.
The amended law will come into effect on publication of the decree in the UAE Gazette, but will
apply retrospectively to companies established on or after 1 June 2009.
Reactions of the business community
The amendment has been widely welcomed by business leaders for reducing barriers to entry
in the UAE which, according to the World Bank, has comparatively high establishment costs for
new businesses. Historically, UAE authorities have required limited liability companies to have
a minimum capital of AED 300,000 in Dubai and AED 150,000 in the other emirates, with more
capital often being required depending on the activities of the company.
The removal of the compulsory capital requirement is viewed as being of particular benefit
to small and medium sized enterprises seeking the benefits of limited liability, but without
the capacity to invest substantial start-up funds. It is also being seen as an attempt by the
UAE Government to provide assistance to small businesses that have struggled to overcome
tightening credit and declining orders across many sectors of the economy.
Comments
The removal of the minimum capital requirement of AED 150,000 from the UAE Companies Law
is likely to encourage the incorporation of establishments currently operating in the UAE with
unlimited liability. It is also likely to encourage new entrants to the market for whom the previous
capital requirements were difficult to meet and make incorporation less complex where the
foreign shareholder is also paying the capital contribution of the UAE national shareholder (as
often happens).
Whilst the minimum capital requirement will be removed from the law, it seems likely
nonetheless that the UAE authorities will closely review the proposed capital for a new limited
liability company to ensure that it is appropriate for the planned activities of the company. It is
not clear yet what criteria the authorities will apply when determining the appropriateness of the
capital and this discretion is likely to create some degree of uncertainty, at least initially.
Certain types of business activity such as construction and finance have their own minimum
capital requirements. This amendment to the UAE Companies Law is unlikely to affect those
requirements.
Client Alert 09-234
August 2009
It is also important to note that limited liability companies will still have to comply with other
aspects of the UAE Companies Law relating to capital, such as Article 289 which provides that if
the losses of a limited liability company amount to half its capital, the matter must be referred to
the shareholders to decide whether to dissolve the company.
All in all this is a positive step and maybe the first stage in the long awaited overhaul of the UAE
Companies Law.
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This Alert is presented for informational purposes only and is not intended to constitute legal advice.
© Reed Smith LLP 2009. All rights reserved.
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Client Alert 09-234
August 2009
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