Changes to UAE Company law

March 28th, 2014 by Stephen Jones Leave a reply »

The new provisions relating to Limited Liability Companies focuses on how to make the management of these companies simpler and more attractive to investors.

Significant changes are introduced to the shareholder structure, which now provides for single shareholding, and the introduction of an express provision in relation to granting a pledge over shares.

(It is uncertain how the perfection and enforcement of such a pledge would work in practice without numbered shares, or indeed any share certificates. )

The Draft Companies Law 2013 provides for the registration of share pledges and this area will of be of interest to lenders a simpler and more cost effective way to get security over this form of asset class.

The Draft Companies Law 2013 anticipates the creation of a formal companies’ register for share pledges through an e-filing system where the public may access companies’ documents. A significant move towards greater transparency and an invaluable tool in jurisdictions (such as England and Wales through Companies House) that currently operate the system.

For Public Joint Stock Companies, there are amendments to the provisions relating to the company’s share structure which include a slight relaxation on the strict pre-emption rules to allow for the issuance of new shares to a “strategic partner” which provide a route for new equity fund raising.

The Draft Companies Law 2013 introduces provisions prohibiting financial assistance to shareholders even though such concepts are the subject of de-regulation in other jurisdictions. The interpretation and implementation of this provision may cause delays, uncertainty and risk as there are no precedents.

The Draft Companies Law 2013 also provides a provision that clarifies the relationship between free zone entities and the on-shore regime. Free zone entities are exempt from the application of the Draft Companies Law 2013 provided such exemption is set out in the regulation governing the free zone. However, when the laws and regulations of the free zone permit business activities in on-shore UAE, the Draft Companies Law 2013 will apply. The provision allows for further regulations on the applicable conditions for such companies at a later stage.

The Draft Companies Law 2013 also contains numerous provisions in relation to corporate governance, following the financial crisis. The concept of ‘Social Responsibility’ is introduced for the first time but further regulations will be needed to establish this in the wider framework.

We consider that the draft supports the government policy of attracting foreign direct investment into sectors outside the oil industry by providing greater security and transparency for shareholders.

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