Overhaul of UAE companies law signals big changes

The long awaited draft of a new companies law has finally been approved, with sweeping changes expected for businesses.

The long awaited draft of a new companies law has finally been approved, with sweeping changes expected for businesses based across the UAE.
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The biggest overhaul of the country's companies law in almost three decades is set to usher in sweeping changes for businesses.

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The new legislation could reduce start-up costs and boost stuttering economic growth throughout the Emirates.

The long-awaited draft of a new companies law was approved by the UAE Cabinet on Sunday.

A provision in the legislation also states the Cabinet can issue a separate resolution specifying the types of businesses that could be majority-owned by foreigners. Previously, at least 51 per cent of a business had to be owned by an Emirati national if it was located onshore and outside a free zone.

"The law will define what a company does, and everything that relates to a company and how it operates," said Lubna Qassim, the director of the economic legislations department at the Ministry of Economy, who helped to draft the law.

The legislation will exclude joint stock companies wholly owned by an emirate or the federal Government, and appears to be focused on joint stock companies as well as limited liability businesses, said Lisa Kelaart-Courtney, the head of compliance advisory services in the Middle East at Clyde & Co, a law firm.

Ms Qassim said the legislation would become law once published in The Official Gazette, which is published on a monthly basis.

"Its passage will boost companies and boost economic growth," she said.

Observers from legal circles agree and say it will now be easier for business owners, and particularly smaller ventures, to get started because they can forgo the Dh150,000 (US$40,838) minimum capital that was required by the old law, which dates back to 1984.

In August 2009, the Government stopped requiring the minimum capital for establishing a private-sector firm, and now the legislation sets no minimum for any venture.

"It'll help both small businesses to accelerate and be established but also offer good transparencies for bigger businesses," said Essam Al Tamimi, founder of the law firm Al Tamimi & Company.

One provision calls for companies to develop a general framework for corporate governance. This change aims to protect shareholder rights, increase transparency through the disclosure of financial statements and improve the efficiency and integrity of a company's board of directors.

By providing shareholders with a clearer corporate governance structure, they "can understand their roles and capabilities in terms of challenging the [general manager], and where the opportunities arise to ask for their rights," said Younis Haji Al Khoori, the under secretary of the UAE's Ministry of Finance.

While experts say provisions such as those are well-intended, some warn they might be hard to regulate. "It's really a question of the follow-through," said Vishnu Deuskar, the managing director of Salvus Strategic Advisors, a business consultancy in Dubai.

"How do they ensure everyone implements this?"

It is also unclear, as yet, whether small businesses will be exempt from certain aspects of the legislation.

Another provision requires businesses to apply unified standards and accounting principles.

This is expected to make it easier for multinational companies to implement practices and policies across all of their businesses, said Stuart Dunlop, the head of the Association of Chartered Certified Accountants in the Middle East.

"Looking to the future, common auditing and accounting standards will significantly simplify the introduction of any new tax frameworks that the UAE Government may chose to introduce," added Mr Dunlop.

The legislation also allows the founders of a public joint stock company to subscribe for 30 to 70 per cent of the capital of the company and reduces the length of time spent in the setting-up phase.

Broadly speaking, Ms Qassim said, the new legislation "paves the way for other business laws in the pipeline".

One of the most carefully watched draft laws includes foreign investment legislation, which has yet to be approved but may further help to clarify which businesses or industries could increase their foreign ownership up to 100 per cent.

"The big thing that foreign investors have been crying out for is a loosening of foreign ownership, which has been pretty much set in stone," said Hardeep Plahe, a counsel at Linklaters, a global law firm with an office in Dubai.

"Now there appears a window for the Cabinet to change that."