FNC Discusses Draft Companies Law

The draft commercial companies law (CCL), which aims to enhance the diversity and openness of the national economy, and to keep abreast with domestic and global economic changes by preserving a continuous and balanced growth in all economic sectors in the UAE, is being discussed by the Committee on Financial Affairs at the Federal National Council (FNC). The proposed UAE Federal Law on Commercial Companies, which was referred to FNC by the cabinet, comprises 12 chapters and 383 articles.

The law is aimed at improving the business landscape in the UAE, making it easier to do business here and potentially boost the economy. The draft law aims to protect businessmen and their investments and is also tipped to help upgrade the UAE's status from a frontier market to an emerging market, however it is questionable whether it will bring about the level of change anticipated and needed by the market. Under the draft law, the founders of a Public Joint Stock Company (PJSC) are obliged to subscribe to no less than 30% of the issued capital of the company.

The draft law will not apply to companies excluded by a Cabinet resolution. These include companies wholly owned by Federal or local authorities or any entities wholly owned by such companies, companies in which the Federal or local authority, or any establishment, authority, department or company controlled or held by any of the foregoing (directly or indirectly) holds at least a 25% shareholding and which operates in oil exploration, drilling, refining, manufacturing, marketing or operating in the energy sector in power generation, gas production, or water desalination and distribution.

The law states that the Cabinet can issue a decree outlining the conditions for registering companies operating in UAE Free Zones that wish to carry out their business activities outside the free zone, in mainland (onshore) UAE. These decrees will open up the jurisdiction for free zone companies wishing to also operate in the UAE outside of the Free Zones.

The draft law enforces strict corporate governance standards and procedures on PrJSCs in accordance with international standards and practices. The Ministry of Economy will be issuing a decree setting out corporate governance requirements and a framework for PrJSCs consisting of more than 75 shareholders. Banks, finance companies, financial investment companies, exchanges and money brokerage companies are excluded. In addition to this provision, it is intended that the Chairman of the Emirates Securities and Commodities Authority (ESCA) will issue corporate governance requirements for PrJSCs and the board of the company.

Pursuant to the new law, foreign ownership which cannot exceed 49% of the share capital of a company, the UAE Cabinet may, on proposals made by the Minister of Economy, co-ordinate with the competent authority in the relevant Emirate to determine the form of company, type of business activity or class of business that can be held in full by a foreign national. They can also decide on instances where the shareholding of a foreign partner can exceed 49% of the share capital of the company. These determinations are likely to be made by decree.

As for the scope of free zone companies, the draft law states that the UAE Cabinet can issue a decree outlining the conditions for registering companies operating in UAE Free Zones that wish to carry out their business activities outside the free zone, in mainland (onshore) UAE. These decrees will open up the jurisdiction for free zone companies wishing to also operate in the UAE outside of the Free Zones.