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UAE Introduces New Laws to Allow Foreign Business Ownership
1 year ago by Antoun Massaad

UAE Introduces New Laws to Allow Foreign Business Ownership

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The UAE has introduced Federal Decree-Law No 26 of 2020, which details amendments to the Commercial Companies Law (CCL) no. 2 of 2015. The amendments apply to rules around foreign ownership of UAE businesses, the most notable of which is the removal of the 49% maximum capital restriction on foreign ownership.

This important change, in conjunction with the removal of a minimum requirement on Emirati directors, allows full foreign ownership of onshore companies within the UAE for the first time. However, companies with a "strategic impact" will continue to be subject to certain restrictions on foreign ownership as defined by the government. This highlights the importance of knowing who ultimately owns the companies you do business with.

The new rules will also supersede UAE Federal Law No. 19 of 2018 on Foreign Direct Investment. The original law listed 122 ‘positive economic activities’ that allowed such businesses to be 100% owned by foreign investors. Subsequently, it included a 'Negative List' of business activities that could not be owned by foreign entities, including security, military, banking, and oil and gas companies, amongst others. 

Under the changes, a single natural or corporate foreign investor can own 100% of an onshore Limited Liability Company (LLC) as a single shareholder. Additionally, LLCs can also invest money for the account of third parties, something previously restricted to joint-stock companies.

Key changes include:

  • The inclusion of provisions relating to full foreign ownership of companies in the UAE.
  • Removal of the need to have a UAE national agent (also referred to as a Local Sponsor).
  • Introduction of provisions and regulations related to limited liability and joint- stock companies.
  • Permission for electronic voting at general assembly meetings.
  • An increase in IPO share sales from 30 to 70 percent for entities looking to become joint-stock companies.
  • Allowance for stakeholders to sue a company in the civil courts over any failure of duty that results in damages.
  • Allowance for the Securities and Commodities Authority (SCA) to establish procedures to evaluate in-kind shares and gather names of stakeholders attending the general assembly meetings of companies.
  • Allowance for the SCA to appoint independent board members who are not stakeholders and the dismissal of any chairperson or board member found to have committed fraud or abuse of power.

Timeline and future developments

The changes will come into effect in January 2021 and are implemented officially from March 30, 2021, which is precisely six months since they were first published in the official gazette. It’s worth noting that the changes will most likely apply to all business entities, not just joint stock or Limited Liability companies. This will be particularly relevant to LLC's which have historically lacked some of the more specific guidelines and standards of conduct included in the new rules.

Specific activities considered to have 'strategic impact' are yet to be finalised, but reports suggest that the Department of Economic Development (DED) are working with the Ministry of Economy (MOE) to complete the list before the end of 2020. 

We believe that they will make further announcements as they finalise specifics. Even in the event of further clarity, companies should always conduct adequate due diligence to assess the nature of businesses they work with.

Further changes:

Director Liability
The new rules have several clauses that aim to increase liability for directors and key managers of public joint-stock companies (PJSC), including the CEO, general manager, and executive manager. Employees in these roles that are found to have breached their duties will be removed from office and disqualified for at least three years 

Extra provisions have also been included to protect shareholders bringing claims against directors and executives for losses incurred as a result of a breach of their duties. When dealing with third-party clients, it’s vital that you know who the ultimate beneficial owner (UBO) is should a liability claim arise.

Public joint-stock companies (PJSCs) 
Additional provisions have been added to allow shareholders to commence proceedings on behalf of a PJSC if the board of directors fails to act. Founders of PJSCs will now be 'locked in' for a six-month period during which time they can't sell their shares.

The percentage of share capital that can be offered in a listing on UAE stock exchanges (ADX/DFM) has been increased from 30% to 70%, a change aimed at increasing fluidity in the UAE capital market.

New provisions have been included to allow companies in financial distress to apply for a court order to increase their share capital. This would allow for the injection of funds when required to save the company from bankruptcy.

These new rules make it easier to get rescue funding, as opposed to previous routes that required 75% of shareholder approval plus cumbersome applications via Notary or DED. 

UAE businesses will have one year to comply with the amendments from the time they become effective in January 2021.

Directorship & Shareholding check

Cedar Rose can help you to assess business ownership in the event of acquisitions or partnerships with the most comprehensive Directorship & Shareholding check in the world. Our investigative research team can find business connections, trace assets, and analyse a partner’s networks, providing you with a comprehensive report listing all the results.

We can also help to identify the companies connected to your client through directorships or shareholdings. Cedar Rose’s investigative due diligence team conducts thorough research in local languages to uncover corporate data and unique identifiers such as commercial register, tax, and VAT numbers of companies the subject company is either a director or shareholder of. With our extensive MENA coverage, Cedar Rose offers unprecedented expertise in this field.

For more information on how we can help your business, give us a call today on +357 25 346630 or email info@cedar-rose.com