Changes Introduced to LLCs by the New UAE Companies Law

Commercial Companies Federal Law No. 2 of 2015 was amended by the Federal Decree-Law No. 26 of 2020 and further substituted on September 20, 2021, by Law-Decree No. 32 of 2021 pertaining to commercial Companies commonly known as  Companies Law promulgated by the UAE President Sheikh Khalifa Bin Zayed Al Nahyan. The New Companies Law was enforced from 2 January 2022, and remarkably expanded the doctrine of foreign shareholding of companies, collective management, and minority protection.

New companies law is a broad, exclusive, and revolutionary modification:-

The New Companies Law commences a wide range of modifications in the Existing Law by presenting a regime to be further divided for public joint-stock companies. It also introduced special-purpose acquisition companies and special-purpose vehicles by offering measures for Public facilitation. The New Companies Law also introduced provisions allowing for a joint-stock company to indicate the value of its shares. The New Companies Law aims to fortify the UAE’s competitive capacity in the domain of economic development and proves once again that international best practices are applied. 

Substantial Developments:- 

The New Companies Law interprets the special purpose acquisition companies (SPACs) and sets them up as public joint-stock companies (PJSCs), authorized by the UAE Securities and Commodities Authority (SCA). The main objective behind this is to develop different companies together. This pursues the United States’ idea of emerging companies to enhance foreign investment.  Additionally, the purpose of SCA is to provide details on the practical implementation of SPACs and under the application of New Companies Law how they are processed. Furthermore, the obligations and assets affiliated with a particular financing operation from the obligations and assets of its parent entity are isolated. The SCA uses these laws by operating on the emission of obligations, issuance of bonds, loan contracts, and credit transactions.

Significant Changes Introduced by the New Companies Law to LLCs:-

1.LLC Manager Authorities 

One of the notable changes is the extension of terms in managerial positions. LLC managers, under the new law, continue to serve for a maximum of six months if they are not replaced at the expiry of their terms. This is to ensure smooth transitioning as a new manager gets appointed. The provision benefits companies undergoing managerial changes through the creation of a buffer period that ensures continuity and stability within the management. 

2. LLC General Assembly Conferences

The new law made a number of changes in holding general meetings of assembly with the view to enhance flexibility and participation.

• Proxy Representation: The law now permits non-managers to act as proxies for shareholders to represent them in general assembly meetings. This change opens up the flexibility in the way the representation is effected and allows the shareholders to appoint trusted representatives to attend meetings and vote on their behalf. This applies when some of the shareholders cannot attend in person, as will be experienced by those with geographical or other constraints.
•   Notice Period: The period of notice necessary to call a general assembly meeting has been extended from 15 days to 21 days. The extension gives the opportunity for the shareholders to be better prepared for the meetings, review the agenda in more detail, and hence make better decisions based on this study. It also secures reasonable notice for all shareholders and allows them to take part effectively in the process of making decisions.

3. LLC Statutory Reserves 

Under the old companies’ law, the statutory reserves were 10 percent out of the total net profits which have been reduced to 5% under the newly amended law. It is a positive shift for LLC towards its rise. The New Companies Law assures that the stock owner can stop the allotment if the legal reserve of 50% of the share capital is achieved.

4. LLC Memorandum of Association 

Following the New Companies Laws, the LLC Memorandum of Association must take into account the system for resolving conflicts that may happen among the company and any of its managers, directors, shareholders, and associated people with that business company. The New Companies Laws provide a set of rules to run the LLC and focus on the maintenance of its people.   

5.Termination of the Board of Directors

If the period of the Board of Directors expires, and a new Board of Directors is not assigned, the current board has the right to proceed.  By the New Companies Laws, a period of six months has been given to LLC to choose a new board of directors and appoint them within the prescribed time. 

In case of LLC be unsuccessful in accomplishing this, the Department of Economic Development negotiates and nominates a board of director for a maximum of one year, meanwhile, the LLC must be assigned a new Board of Directors.  Consequently, the appointment of the Board of Directors by the Department of Economic Development is an alternative that will regulate the working operation of the LLC. 

6.Appointment of the Supervisory Board

Under the new companies’ law, LLCs with more than 15 partners, the partners must appoint at least three partners as a supervisory board that may be re-elected or replaced by the general assembly. In this regard, the supervisory board also works like a board of directors and is entitled to manage and control the LLC’s balance sheet, annual report, and payment of dividends. Managers are not allowed to vote on the election or dismissal of supervisory board members..

Conclusion

The New Companies Law is a very impressive step toward the embellishment of the UAE in the field of Business and Economic Development. It depicts the ability to sustain pace with international best practices to the world. It is a fast-moving track for companies towards higher objectives and pursuing investments in the country. Companies may regulate their position within one year of the New Companies Law enforcement to get advantages and meet the standard. The companies that fail to comply with the new companies’ law within the stipulated time shall be considered dissolved.

How HHS Lawyers Can Assist You

HHS Lawyers are here to provide professional legal advice and assistance to achieve complete insight into and compliance with these changes. Whether you need help with managerial transitions, general assembly meetings, or compliance with new company law, HHS Lawyers will guide you through it.

Please do not hesitate to contact us today to learn more about how we can help your business thrive under the new UAE Companies Law.