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29Galadari Advocates & Legal ConsultantsISSUE 59 -15ISSUE 59-1528 Galadari Advocates & Legal Consultants

ne of the most widely

speculated amendments

was that pertaining to

the permitted percentage

of foreign ownership in a limited liability

company. Notwithstanding years of

speculation and numerous articles

promoting the benefits of increasing

the foreign ownership percentage to

beyond 49%, which was largely viewed

as a key driver to stimulate direct foreign

investment, remains unchanged, with non-

UAE nationals still only entitled to hold a

49% interest in a limited liability company.

The 2015 Law does, however, introduce

certain new provisions which could be

viewed as being key drivers to stimulating

commercial growth and activity. Under

the 1984 Law a limited liability company

was required to have at least two partners

which automatically excluded a single

person from incorporating an LLC and

enjoying the limited liability benefits of

such an entity. The 2015 Law has done

away with this two party minimum and

provides that “One natural or corporate

person may incorporate and hold a

Limited Liability Company.” (Article 71). It is

anticipated that this will encourage many

smaller single person businesses to develop

into more formal corporate structures and

stimulate growth at the smaller end of the

corporate spectrum.

Another significant change has occurred

at the other end of the spectrum with a

new limit for public offering of shares in

Public Joint Stock Companies. The 1984

Law required that the founder members

“must subscribe to a minimum of 20% and

a maximum of 45% of the share capital of

the company”. This meant that in order

to take their business to this new level the

partners would have to divest themselves

of at least 55% of the equity in their

company, effectively giving up control of

the business they had built. This has been

seen as a deterrent to going public and

hence explains the relatively small volume

of this type of activity locally in recent years.

Under the 2015 Law however, this 55%

minimum has been reduced to only 30%.

It is hoped that by making provision for the

founding members to be able to retain up

to a 70% equity interest in their company,

this will encourage more business owners

to strive towards taking their companies

down this route and thereby stimulate

growth and development.

Securing financing has always been

something which SMEs in the region have

found difficult, particularly in the absence

of suitable security. Although the 2015

Law does not tackle this aspect directly,

the new Article 79 may, indirectly, assist

in this regard. Article 79 of the 2015 Law

makes provision for a partner to be able

to “pledge its share in the company to

another partner or to a third party.” This

ability to pledge ones shares did not exist

under the 1984 Law and may well therefore

present an alternate means of providing

security for the purposes of raising finance,

which should in turn stimulate business

growth.

There are several other features to the

2015 Law which should have the effect

of stimulating development and growth,

primarily by making the UAE Company Law

more familiar and in line with the company

law of many other western jurisdictions.

These include the creation of a centralised

Companies Registrar and the introduction

of numerous provisions pertaining to

transparency and corporate governance,

all of which should give potential foreign

investors a degree of comfort which may

not have existed previously.

Undoubtedly had the restriction of

requiring limited liability companies

to have a minimum 51% UAE national

ownership been done away with under the

2015 Law, this would have had the effect

of attracting direct foreign investment and

stimulate business in the region. Whether

the provisions discussed above will have

a similar effect will remain to be seen, but

they certainly open the legislative doors to

do so. LM

Federal Law no. 2 of 2015 (the “2015 Law”) is shortly

due to replace the existing Federal Law no.8 of 1984

(the “1984 Law”), ending several years in the legislative

process and even more years of speculation as to

amendments to certain key characteristics of the 1984

Law. To find out all about it, Lawyer Monthly benefits

from an exclusive article from Ken Dixon, a Partner at

Galadari Advocates and Legal Consultants.

THE NEW UAE COMPANIES LAW

O

The 1984 Law required that the founder members

“must subscribe to a minimum of 20% and a maximum of

45% of the share capital of the company”

“ “