Key amendments to the CCL under the New Decree: What you need to know
- Companies governed by the provisions of the CCL
The New Decree broadens the scope of companies governed by the CCL. It now explicitly includes three categories:
- Commercial companies incorporated in the UAE
- Foreign companies engaging in activities in the UAE or establishing headquarters, branches, or representative offices, subject to the provisions of the CCL related to foreign companies
- Branches or representative offices of free zone companies engaging in activities in the mainland
- The New Decree explicitly requires free zone companies, which are permitted under the relevant free zone regulations to conduct activities outside the free zone and within the UAE mainland, to establish branches or representative offices in the mainland UAE that will be subject to the CCL.
- Definition of a company
The New Decree retains the original definition of a company but introduces one key exception that permits the incorporation of nonprofit companies that reinvest profits to achieve their stated purposes without distributing the profits to partners or shareholders. Further details regarding the regulations and exemptions applicable to nonprofit companies will be issued by a Cabinet decision.
- Nationality of companies
The New Decree clarifies that companies incorporated in the UAE, including those in free zones and financial free zones, will hold the UAE nationality.
- Drafting the memorandum of association
The New Decree introduces provisions allowing limited liability companies and private joint stock companies to include clauses in their memorandum of association or articles of association related to (i) tag-along or drag-along rights and (ii) mechanisms for handling shares of deceased partners. These mechanisms include preemption rights to buy those shares at a price agreed with the heirs of the deceased partner and grant the court the right to determine the value of the shares in case of disputes.
- Nature and valuation of shares provided by a partner
The New Decree maintains that the company's share capital may consist of cash or in-kind contributions but adds that the Ministry of Economy, in coordination with the competent authority (i.e., the relevant Department of Economic Development), will set standards for valuing in-kind contributions and approve valuators (excluding public joint stock companies).
- Offering of securities
The New Decree maintains the restriction that only public joint stock companies may offer securities for public subscription but adds the following two provisions: (i) private joint stock companies may offer securities for private subscription (private placement) in one of the UAE financial markets under conditions set by the Emirates Security and Commodities Authority; and (ii) private subscription is defined as an invitation to a pre-specified category or persons (natural or moral) to purchase any securities.
- Share capital of limited liability companies
The New Decree now allows limited liability companies to issue different classes of shares with varying value, voting rights, redemption rights and priority in distribution. This is subject to the company's memorandum of association allowing for the existence of the different share classes and provided that each class of shares and the specific rights attached to it is recorded in the Commercial Register.
- Rights attached to shares of public joint stock companies
The CCL has been updated to explicitly allow for the issuance of different classes of shares in public joint stock companies. The Cabinet may now, based on the recommendation of the Emirates Securities and Commodities Authority, issue resolutions setting out different classes of shares, conditions for their issuance, as well as the rights, obligations, rules, and protocols applicable to such shares.
- Restrictions on transfer of shares
The existing restrictions on transfers of shares have been updated to remove the limit on the prohibition period for the transfer of ownership of shares of Public Joint Stock Companies (PJSCs). Previously, the Ministry of Economy could issue resolutions that either extended or reduced the prohibition period between six months and two years. This time limit has now been removed. Additionally, PJSCs that offer their securities for private placement and list them on one of the UAE financial markets will be exempt from the prohibition period.
- Rules of conversion
The New Decree has developed rules on converting companies from one legal form to another. In particular, it addresses the conversion of companies into joint stock companies.
In addition, companies are now allowed, in accordance with the provisions of the CCL, to convert into any legal form while retaining the company's legal personality. It is also worth noting that this clause specifically refers to cooperatives as a possible legal form to which companies may convert.
- Transfer of companies' registration in the commercial register
Companies are now permitted to transfer their registration from one authority to another without losing their legal personality. However, such a transfer is only permitted if both the transferring and receiving authorities permit it. The company must obtain the necessary approvals from these authorities and ensure the decision to transfer the company is published according to the requirements set by the competent authority.
A company can transfer its registration from a free zone to the mainland and vice versa.
The Cabinet, in coordination with the competent authority and the financial free zones authorities, will issue decisions establishing the controls and procedures for transferring companies between financial free zones and the UAE mainland, and vice versa.
*****
Marwa AlGhawi and Mousa Abughoush, Trainees, have contributed to this legal update.
