New Federal Company Law
The new Federal Decree-Law No. 32 of 2021 (“New Company Law”) issued on 20 September 2021 to replace the Federal Company Law No. 2 of 2015 (“Old Company Law”).
The New Company Law comes into effect from 2 January 2022, and includes several aspects designed to further strengthen the UAE’s position as a leader for foreign direct investment and business in the region and world.
The New Company Law applies to mainland companies and not certain free zones in the UAE that have their own company laws and regulations. All mainland entities within scope have one year to comply with the changes by 2 January 2023.
Among the changes in the New Company Law are the following:
- Limited Liability Company (“LLC”) Legal Reserve
The legal reserve within equity is an amount set aside by the company to provide a liquidity buffer among other reasons. This legal reserve account is funded as a transfer each year from the annual net profit of the company. The amount that is funded per year is now reduced from 10% to 5%. As before, the shareholders may decide to stop funding the legal reserve account when it reaches half of the share capital amount.
- Creation of New Corporate Vehicles: SPACs and SPVs
The New Company Law introduced the Special Purpose Acquisition Company (“SPAC”) and Special Purpose Vehicle (“SPV”) corporate vehicles that will be useful for businesses looking for mergers and acquisitions as SPACs have gained in popularity for entities looking to go public via an Initial Public Offering. Further, the SPV can aide businesses by separating assets and liabilities associated with a specific financing operation from those of its parent entity.
- Quorum for LLCs:
The New Company Law has relaxed the quorum needed by the shareholders for the Annual General Meeting to 50% of the share capital represented. Further, if no quorum is met at the first meeting, then the second meeting have no quorum requirements. This makes the calling for a third meeting not required, as it was under the Old Company Law.
Disclaimer on Use
The information presented is intended for general information only and is not meant to be a substitute for professional advice or to be used for decision-making.
Professional advice relies on an assessment and understanding of the specific situation for each person and, therefore, the application of changing laws and regulations in the UAE, will vary widely from case to case.
The information contained herein is based on facts available from sources we believe to be credible at the time of publication and is subject to change.