28 galadari advocates & legal consultants issue 59-15 ... monthly... · companies registrar and...
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29Galadari Advocates & Legal ConsultantsISSUE 59 -15ISSUE 59-1528 Galadari Advocates & Legal Consultants
ne of the most widely
speculated amendments
was that pertaining to
the permitted percentage
of foreign ownership in a limited liability
company. Notwithstanding years of
speculation and numerous articles
promoting the benefits of increasing
the foreign ownership percentage to
beyond 49%, which was largely viewed
as a key driver to stimulate direct foreign
investment, remains unchanged, with non-
UAE nationals still only entitled to hold a
49% interest in a limited liability company.
The 2015 Law does, however, introduce
certain new provisions which could be
viewed as being key drivers to stimulating
commercial growth and activity. Under
the 1984 Law a limited liability company
was required to have at least two partners
which automatically excluded a single
person from incorporating an LLC and
enjoying the limited liability benefits of
such an entity. The 2015 Law has done
away with this two party minimum and
provides that “One natural or corporate
person may incorporate and hold a
Limited Liability Company.” (Article 71). It is
anticipated that this will encourage many
smaller single person businesses to develop
into more formal corporate structures and
stimulate growth at the smaller end of the
corporate spectrum.
Another significant change has occurred
at the other end of the spectrum with a
new limit for public offering of shares in
Public Joint Stock Companies. The 1984
Law required that the founder members
“must subscribe to a minimum of 20% and
a maximum of 45% of the share capital of
the company”. This meant that in order
to take their business to this new level the
partners would have to divest themselves
of at least 55% of the equity in their
company, effectively giving up control of
the business they had built. This has been
seen as a deterrent to going public and
hence explains the relatively small volume
of this type of activity locally in recent years.
Under the 2015 Law however, this 55%
minimum has been reduced to only 30%.
It is hoped that by making provision for the
founding members to be able to retain up
to a 70% equity interest in their company,
this will encourage more business owners
to strive towards taking their companies
down this route and thereby stimulate
growth and development.
Securing financing has always been
something which SMEs in the region have
found difficult, particularly in the absence
of suitable security. Although the 2015
Law does not tackle this aspect directly,
the new Article 79 may, indirectly, assist
in this regard. Article 79 of the 2015 Law
makes provision for a partner to be able
to “pledge its share in the company to
another partner or to a third party.” This
ability to pledge ones shares did not exist
under the 1984 Law and may well therefore
present an alternate means of providing
security for the purposes of raising finance,
which should in turn stimulate business
growth.
There are several other features to the
2015 Law which should have the effect
of stimulating development and growth,
primarily by making the UAE Company Law
more familiar and in line with the company
law of many other western jurisdictions.
These include the creation of a centralised
Companies Registrar and the introduction
of numerous provisions pertaining to
transparency and corporate governance,
all of which should give potential foreign
investors a degree of comfort which may
not have existed previously.
Undoubtedly had the restriction of
requiring limited liability companies
to have a minimum 51% UAE national
ownership been done away with under the
2015 Law, this would have had the effect
of attracting direct foreign investment and
stimulate business in the region. Whether
the provisions discussed above will have
a similar effect will remain to be seen, but
they certainly open the legislative doors to
do so. LM
Federal Law no. 2 of 2015 (the “2015 Law”) is shortly
due to replace the existing Federal Law no.8 of 1984
(the “1984 Law”), ending several years in the legislative
process and even more years of speculation as to
amendments to certain key characteristics of the 1984
Law. To find out all about it, Lawyer Monthly benefits
from an exclusive article from Ken Dixon, a Partner at
Galadari Advocates and Legal Consultants.
THE NEW UAE COMPANIES LAW
O
The 1984 Law required that the founder members
“must subscribe to a minimum of 20% and a maximum of
45% of the share capital of the company”
“ “