The UAE has been making big moves to improve its business and legal environment, making it easier and more attractive for entrepreneurs to start and grow their businesses. One major step in this direction is the update to the UAE Commercial Companies Law (CCL) through Federal Decree-Law No. 32 of 2021, which came into effect on January 2, 2022.
This new law replaces the old company law and brings in a range of changes aimed at boosting transparency, encouraging foreign investment, and simplifying business setup processes. Whether you’re a startup founder, a small business owner, or an international investor, these changes open up new opportunities to do business in the UAE with more flexibility and fewer restrictions.
Major Changes Introduced by UAE Commercial Companies Law
The UAE’s Federal Decree-Law No. 32 of 2021 introduces significant reforms to the UAE Companies Law, aiming to enhance the business environment for entrepreneurs, startups, and investors. Here are the key changes:
1. 100% Foreign Ownership in Mainland Companies
The new law confirms the removal of the previous requirement mandating a minimum 51% UAE national ownership in onshore companies. Now, foreign investors can fully own mainland companies, except in sectors deemed to have a “strategic impact,” which remain subject to specific restrictions.
2. Introduction of SPACs and SPVs
- SPACs (Special Purpose Acquisition Companies): These are Public Joint Stock Companies (PJSCs) established solely for acquiring or merging with other companies, facilitating a streamlined path to public listings.
- SPVs (Special Purpose Vehicles): Recognized for the first time, SPVs are entities created to isolate financial risk, commonly used in financing operations, securitizations, and asset transfers.
3. Reforms Impacting Limited Liability Companies (LLCs)
Statutory Reserves:
The mandatory allocation to statutory reserves from net profits has been reduced from 10% to 5%, allowing companies to reinvest more profits into their operations.
Board of Managers’ Term Extension:
If a new board isn’t appointed upon term expiry, the existing board may continue for up to six months, ensuring continuity in management.
General Assembly Meetings:
- The notice period for convening meetings has been extended to a minimum of 21 days.
- If the first meeting lacks quorum, a second meeting can proceed without any quorum requirement, streamlining decision-making processes.
Supervisory Board Requirement:
LLCs with more than 15 shareholders are now required to appoint a supervisory board comprising at least three shareholders to oversee company affairs.
4. Enhancements for Public Joint Stock Companies (PJSCs)
- Founders’ Shareholding Flexibility: The previous requirement for founders to subscribe to 30%-70% of capital before public offerings has been removed.
- Nominal Share Value: Restrictions on the nominal value of shares (previously AED 1 to AED 100) have been abolished, allowing companies to set values as per their Articles of Association.
- Issuance of Discounted Shares: PJSCs can now issue shares at a discount if market prices fall below the nominal value, subject to Securities and Commodities Authority (SCA) approval and a special resolution.
- Director Appointments: If a director resigns before term completion, a replacement must be appointed within 30 days to ensure governance continuity.
5. Strengthened Corporate Governance and Shareholder Rights
- Dispute Resolution: LLCs are now required to include dispute resolution mechanisms in their Memorandum of Association, addressing conflicts between shareholders and management.
- Shareholder Legal Recourse: Shareholders are empowered to initiate legal action against the company for management failures resulting in damages, enhancing accountability.
- Inclusion of Non-Shareholder Directors: Companies can appoint independent professionals to their boards, promoting diverse expertise in governance.
6. Flexible Capital Requirements
Startups and SMEs will benefit from relaxed rules around capital. Key changes include:
- No mandatory minimum capital for LLCs unless specified by regulators
- Companies now have more freedom in deciding how much capital to raise or declare, based on their specific business needs
7. Taxation and VAT
The UAE introduced Corporate Tax (CT) effective from June 1, 2023. Businesses are taxed at:
- 0% for income up to AED 375,000
- 9% on income above that threshold
This applies to most businesses, including free zone companies, unless exempted. All taxable entities must register with the Federal Tax Authority (FTA) and file annual returns.
In addition, Value Added Tax (VAT) at 5% applies to most goods and services. Businesses with annual taxable supplies over AED 375,000 must register for VAT. Customs duties also apply (typically 5%) on certain imported goods.
8. Licensing Essentials
All businesses in the UAE must hold a valid license based on their activities:
- Mainland licenses: Issued by the Department of Economic Development (DED)
- Free zone licenses: Issued by the respective Free Zone Authority
- Types of licenses: Commercial, professional, industrial, or tourism, depending on your business nature
Types of Companies Under the UAE Commercial Companies Law
The UAE Commercial Companies Law (CCL) defines several legal structures for businesses operating in the country. Each type of company suits different business needs. Here are the main types of companies recognised under the law:
1. Limited Liability Company (LLC)
- Shareholders: 1 to 50 shareholders.
- Liability: Shareholders’ liability is limited to their capital contribution.
- Ownership: Allows 100% foreign ownership in most sectors, subject to specific regulations.
- Management: Managed by one or more managers; the previous cap of five managers has been removed.
- Statutory Reserve: Reduced from 10% to 5% of net profits.
- Supervisory Board: Required if the company has more than 15 shareholders.
2. Sole Proprietorship
- Ownership: Owned by a single individual.
- Liability: The owner bears full personal liability for debts and obligations.
- Activities: Suitable for professional services and consultancy.
- Note: While not explicitly detailed in the new law, sole proprietorships remain a recognized business form in the UAE
3. Private Joint Stock Company (PJSC)
- Shareholders: Minimum of 2 shareholders; no maximum limit specified.
- Capital: Minimum capital requirement as per the regulatory authority.
- Public Offering: Cannot offer shares to the public.
- Flexibility: Suitable for businesses seeking structured capital without public listing.
4. Public Joint Stock Company (PJSC)
- Shareholders: Minimum of 5 founding shareholders.
- Capital: Minimum capital requirement as per regulatory authority.
- Public Offering: Can offer shares to the public and list on stock exchanges.
- Governance: Subject to stringent corporate governance and disclosure norms.
Recent changes:
- Removal of the 30%-70% founders’ shareholding requirement before public subscription.
- Flexibility in determining nominal share value.
- Permission to issue shares at a discount under specific conditions.
5. Civil Company
- Ownership: Owned by professionals such as doctors, lawyers, or engineers.
- Liability: Partners bear unlimited liability.
- Activities: Restricted to professional services.
- Note: Civil companies are not governed by the Commercial Companies Law but are recognised under UAE law.
6. Holding Company
- Structure: Can be established as an LLC or PJSC.
- Purpose: To hold shares in subsidiary companies, manage assets, and oversee group operations.
- Regulation: Subject to the same provisions as the chosen company structure (LLC or PJSC).
7. Branch of a Foreign Company
- Ownership: 100% owned by the parent foreign company.
- Activities: Can conduct activities similar to the parent company.
- Liability: The parent company is fully liable for the branch’s operations.
- Recent Changes: The requirement for a local service agent has been removed.
8. Representative Office
- Purpose: Acts as a liaison office for the parent company.
- Activities: Cannot conduct commercial activities; limited to marketing and administrative functions.
- Ownership: 100% owned by the parent company.
- Liability: The parent company is fully liable for the representative office’s operations.
Dissolution and Liquidation
The UAE’s updated Commercial Companies Law (Federal Decree-Law No. 32 of 2021) has made the process of closing a business clearer and more structured.
A company can be dissolved voluntarily by a decision of its shareholders. However, if losses hit 50% of the capital (especially in LLCs or Joint Stock Companies), the law requires shareholders to act. For LLCs, once losses reach 75%, any partner with 25% of capital can request dissolution. If shareholders don’t act, the court may step in.
When a company is set for liquidation, a liquidator must be appointed, either by the partners or by court order. This person can’t be someone who audited the company in the last five years. If there are multiple liquidators, they must act together unless otherwise agreed.
Once the liquidation begins, the liquidator must notify all creditors. This includes publishing announcements in two newspapers (one in Arabic) and sending registered notices. Creditors then have 30 days to make their claims.
During liquidation, the company’s debts are paid off first. Any remaining assets are distributed among shareholders. The liquidator is required to submit periodic reports, and once the process is done, a final report is filed, and the company is deregistered.
How Shuraa Can Help
The new UAE Commercial Companies Law brings in a lot of positive changes for business owners like full foreign ownership, simpler rules for mergers and restructuring, better governance, and clear tax and licensing guidelines. These changes create more flexibility and opportunities to grow your business in the UAE.
If you’re not sure how the new rules affect your company or need help making changes, Shuraa is here to support you. We handle everything from legal structuring and compliance to updating licenses and documents. Doesn’t matter if you’re setting up a new company or making changes to an existing one, our experts make the whole process smooth and stress-free.
Get in touch with Shuraa to stay compliant and make the most of the new UAE company’s law.
