What should you know about the New Companies Law in the UAE.

The passage of Federal Law No. 32 of 2021 on Commercial Companies (the "New Companies Law") was a significant piece of legislative reform. This completely supersedes Federal Law No. 2 of 2015 (the "Old Companies Law") and codifies recent trends and recognition of international economic practices suitable to boost local economy and encourage feigning investors.

The New Companies Law went into force on January 2, 2022. All businesses have one year to comply with the modifications that were implemented. During this transition phase, all businesses should examine the impact of the New Companies Law, revise their constitutions, and ensure they are completely compliant by January 2, 2023.

The following are the main changes in the Companies Law:

1.Special Purpose Acquisition Company ("SPACs")

SPACs have increased in favor in recent years, notably in the United States, as vehicles for raising cash through a public listing in order to make acquisitions or strategic mergers.

In the UAE, SPACs now have a legal foundation. The Securities and Commodities Authority ("SCA") has approved a Public Joint Stock Company ("PJSCs") for the express purpose of purchasing or combining enterprises, according to the New Companies Law. SPACs are recognized under the New Companies Statute, but they are also excluded from the law and are governed by special regulations published by the SCA earlier this year.

2.Special Purpose Vehicles ("SPVs")

For the first time, the New Companies Law recognizes onshore special purpose vehicles. SPVs are companies formed to separate the obligations and assets associated with a specific financing operation from the obligations and assets of the person who formed it, for credit operations, borrowing, securitization, bond issuance, and risk transfer associated with insurance, reinsurance, and derivatives operations.

SPVs, like SPACs, are recognized under the New Companies Law but will be controlled by distinct SCA laws.

The establishment of SPACs and SPVs is expected to encourage business and finance transactions by providing greater flexibility in structuring and aligning the UAE with structures available to investors and financiers in other established legal jurisdictions.

3.Foreign Direct Investment

Federal Law No. 26 of 2020 introduced the most important revision to the Old Companies Law in 2020. With the exception of specific "Activities of Strategic Effect" this eliminated the need for a minimum 51% UAE investment in onshore firms.

The New Companies Law simply restates the concepts presented in 2020, but it codifies and verifies these modifications as a basic element of the New Companies Law. This is a positive step for both new and current international investors.

4.Limited Liability Company ("LLCs") – Reduced Statutory Reserve Contributions

The percentage of net income that a Limited Liability Company ("LLC") must set aside each year for statutory reserves has been decreased from 10% to 5%. When the statutory reserve reaches the value of half of the company's share capital, the shareholders may elect to discontinue supporting it.

5.Limited Liability Company ("LLCs") – Manager Renewal Upon Appointment Term Expiration

One or more managers are in charge of running a Limited Liability Company ("LLC"). According to the New Companies Law, if the term of appointment of the managers ends and the board of managers is not reformed, the present board of managers may continue to govern the firm for up to six months. The shareholders must nominate new management on or before the six-month term expires, failing which managers may be chosen by the appropriate competent entity having jurisdiction over the firm.

6.Limited Liability Company ("LLCs") – Relaxed Quorum Requirements for Reconvened Shareholder Meetings

If an original meeting of shareholders is ruled inquorate, the reconvened meeting must be held within five days of the initial meeting and no later than 15 days. The rescheduled meeting will now be judged quorate regardless of the number of shareholders present. This regulation is now required, even if the LLC's article of organization states otherwise.

7.Public Joint Stock Company ("PJSCs") – Subscription Caps for Founders

Founders' subscription shares on an IPO under the Old Companies Law were subject to minimum (30%) and maximum (70%) limitations on the number of shares they might subscribe for through the public offering. These statutory caps are no longer in effect. Founders can now subscribe for shares in the percentages mentioned in the prospectus, subject to applicable the Securities and Commodities Authority ("SCA") restrictions.

8.Public Joint Stock Company ("PJSCs") – Public Subscription Periods Extend

Previously, the subscription time for shares in a public offering was established at 10 working days. Subscriptions may now stay available for a duration indicated in the offering prospectus, as long as it does not exceed 30 working days, under the New Companies Law. If all of the shares are not subscribed for within the stipulated time frame, an application to the Securities and Commodities Authority ("SCA") might be filed to extend the public subscription period further. The founders can subscribe for any unsubscribed shares that remain at the end of the subscription term.

9.Public Joint Stock Companies ("PJSCs") – Issuing Shares at a Reduced Price

If the market value is less than the nominal value, Public Joint Stock Companies ("PJSCs") can now issue shares at a discount to the nominal value. This is subject to the Securities and Commodities Authority ("SCA") approval and the corporation creating a special reserve equivalent to the discount amount and repaying the difference from future profits prior to dividend distribution.

10.Public Joint Stock Company ("PJSCs") – Removal of caps on nominal value of Shares

The New Companies Law abolished previous limits requiring the nominal value of PJSC shares to be between AED 1 and AED 100.

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