commercial law
Commercial law
Commercial Code The UAE Commercial Code has been in effect since 1993 and is a wide ranging law, which directly affects every commercial organisation conducting business in the UAE.
The Commercial Code covers such matters as the regulation of commercial activities, including preparation of commercial contracts, and obligations and assumptions that will apply in the absence of express agreement to the contrary.
The Code is also relevant such things as sale of business assets, registration of mortgages, carriage of goods and persons (including liabilities attaching to carriers and agents), agency and commercial representatives, banking operations, commercial pledges and guarantees, bills of exchange and cheques, and business bankruptcy.
There are pitfalls for the unwary but also important and useful provisions, which can be taken advantage of by those who structure their business arrangements appropriately.
Commercial Companies
There are seven types of company referred to in the UAE Commercial Companies Law which include general partnership, simple limited partnership, joint participation, public joint stock company, private joint stock company, limited liability company and partnership limited with shares.
Foreign ownership restrictions apply to UAE companies and in particular the UAE Commercial Companies Law requires nearly all types of foreign-owned companies to have at least 51% of their shares owned by a UAE national or a company wholly owned by UAE nationals (in the case of some activities, this threshold is even higher).
The most common form adopted by foreign companies is the limited liability company (LLC) and set out below are certain of the key issues to be considered in relation to such entities.
1. Company name - The name of the LLC should be derived from its objects or the name of one or more of its partners. It is possible to obtain the approval of the relevant authorities to a particular name prior to proceeding with an application for registration.
2. Minimum share capital – There is no longer a minimum share capital requirement for LLC’s formed in Dubai; however shares must be valued at AED 1,000 each. Please note that for certain activities the government authorities may prescribe a minimum share capital.
3. Profit and Loss - The profits and losses of a LLC can be distributed between the shareholders in whatever proportions they agree in the Memorandum of Association (MOA). The ratio does not need to reflect the shareholding and indeed often differs in order to dilute the mandatory 51% UAE national shareholding. It is not however permissible for the parties to express a profit share in the MOA which purports to entitle the UAE national shareholder to less than 20% of the profits.
4. Activities/ Objects - All relevant activity classifications should be listed on the license for the LLC together with being listed in the objects provision of the MOA.
5. Filing requirements – LLC’s should each year provide the Federal Ministry of Economy and Commerce (Ministry) and the Dubai Department of Economic Development (DED) with certain particulars. The manager should also lodge with both the Ministry and the DED the LLC’s balance sheet and profit and loss account within 10 days of their ratification by the shareholders in a general meeting. These documents are all technically available for public inspection.
6. Management – LLC’s should be managed by one or more managers who may be appointed pursuant to the MOA, a separate contract or by the shareholders in a general meeting. If the number of shareholders exceeds seven, supervision of the management of the LLC must be entrusted to a Board of Supervisors comprised of at least three of the shareholders.
7. Statutory reserve - It is obligatory for all LLC’s to allocate 10% of their annual net profits to create a statutory reserve. Contributions to this reserve may be suspended in the event that the value of the reserve reaches half that of the LLC’s share capital.
