United Arab Emirates: The UAE Commercial Companies Law In Focus: Corporate Structuring

Last Updated: 26 April 2016
Article by Clyde & Co LLP

The CCL has introduced modernising changes in certain areas of corporate structuring, while preserving the status quo in others.

Foreign ownership

The structuring of investments and corporate transactions in the UAE is strongly influenced, in particular, by the restrictions on foreign ownership under which at least 51% of the capital of a company established onshore in the UAE must be owned by a UAE national.

These restrictions have remained unchanged under the CCL. The UAE Minister of Economy has made clear that foreign ownership will instead be covered in a new Foreign Investment Law.

New company types

The CCL contains the following potentially helpful new concepts:

Single member companies: single member companies are now permitted, subject to the UAE's foreign ownership restrictions. This will facilitate investments and acquisitions by UAE (and potentially GCC) nationals, who will now be able to incorporate wholly-owned companies. It is hoped this change will encourage sole establishments to incorporate in order to benefit from limited liability and separate legal personality from their owners. This change could also potentially be useful in the restructuring of a large group, e.g. to facilitate the separation of different business lines into a series of wholly-owned subsidiaries beneath a single holding company parent. However, the full range of set-up options for single member companies is still to be fully understood, whilst working within the foreign ownership restrictions.

Holding companies: a limited liability company (LLC) or a joint stock company (JSC) may now be established with the sole object of holding "subsidiaries" incorporated in the UAE or overseas. A holding company may undertake ancillary activities to that primary object, including management of its subsidiaries, but will not be entitled to trade or undertake any other activities. The holding company concept adds greater transaction structuring flexibility as compared to the Old CCL, under which acquisition vehicles in the UAE had to find an appropriate licence category (and there was not a category for a pure "holding company"). However the practical requirements, such as the need for, and space requirements of, commercial premises of a holding company, are yet to be clarified.

Common investment funds: the CCL introduced the concept of common investment funds with separate legal personality. However further regulation from the Securities and Commodities Authority (SCA) is awaited for the detail.

Muhassa companies

As well as adding new concepts, the CCL has also removed certain company types. Most notably, one type of entity which was referred to in the Old CCL which no longer appears in the CCL is the muhassa (otherwise known as a joint participation or an "Article 56 joint venture").

The muhassa no longer exists as a type of entity which may be established in the UAE under the CCL. This is, presumably, because the entity did not in reality exist outside of a private arrangement between the partners. It is still possible to enter into a joint venture or partnering arrangement on a contractual basis, but such an arrangement is not subject to the CCL.

Under Article 9, any type of company which is not expressly provided for in the CCL is null and void and persons concluding contracts in its name will be individually and jointly liable for its obligations. In other words, any one of the partners in a muhassa company may be held liable to third parties under the new CCL for the liabilities arising out of that arrangement (rather than the company itself). The partner which received the claim would then need to pursue the other partners under the terms of the joint venture agreement.

Impact on LLCs

Certain important modernising changes have been introduced for LLCs in particular, for example:

  • Share pledges: under the Old CCL, there was considerable debate as to whether a shareholder in a LLC was able to pledge its shares. This debate focused on both the legal technicalities as to whether a pledge of LLC shares was possible, and the practicalities of registering and enforcing the security. The CCL now expressly permits shareholders to pledge their LLC shares. However, several issues remain outstanding, in particular with regard to enforcement.
  • Management: under the Old CCL, a LLC was allowed a maximum of 5 directors (also called "managers"). This cap has been removed, allowing for the creation of more flexible board structures.
  • General meetings: provisions have been included to allow for meetings to be held on short notice and for notices to be given by electronic means.

The UAE Commercial Companies Law In focus: Corporate Structuring

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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