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UAE brings in new commercial law

The United Arab Emirates has released a new Commercial Companies Law allowing a single person limited liability company (LLC) to be set up outside the country's 'free zones', Emirates News Agency has reported29 Apr 2015

One of the most important changes is that the new law allows for private joint stock companies and limited liability companies (LLCs) to be established and owned by a single person, although this change is only of significance to UAE and other GCC nationals, as the new law does not change restrictions on foreign ownership, said commercial law expert Ziad Haddad of Pinsent Masons, the law firm behind

Previously, a LLC needed a minimum of two owners, unless it was established in, and operated solely within, one of the country's 21 free zones. Otherwise, an individual could only establish a sole proprietorship, which does not provide the same protections as an LLC, said Haddad. Private joint stock companies previously had to have a minimum of three shareholders. In addition, the restriction on the ability of shareholders of private joint stock companies to transfer their shares has been reduced from two financial years from the date of incorporation to just one.

The new law addresses certain book keeping obligations, such as the obligation for companies to retain accounting books for a minimum of five years from the end of each financial year. A company's permitted financial year has been adjusted to a minimum of six months and a maximum of 18 months.

The new law provides some clarity on shareholding, Haddad said. "For example, companies other than public joint stock companies are now explicitly prohibited from offering shares to the public. As well, the new law explicitly allows LLCs to pledge their shares to third parties, which will assist companies to obtain finance and give additional comfort around beneficial ownership."

Rules around the management of LLCs have been amended to completely remove the limit on the number of managers a company may have. Previously the maximum was five, Haddad said. The new rules also restrict a manager's ability to manage or set up a competing business without the explicit consent of the general assembly of the company. Managers in breach of the non-competition article may be dismissed and required to pay compensation.

"The new companies law demonstrates the UAE government's commitment to developing the operating environment for companies in the UAE, and it, along with the anticipated passing of other laws under consideration, such as a foreign investment law and bankruptcy law, will assist the UAE in consolidating its position as a regional commercial hub," said Dubai-based Alison Hubbard of Pinsent Masons.