What is the UAE Commercial Companies Law?

The UAE has transformed its business landscape by introducing the New UAE Companies Law, officially known as Federal Decree-Law No. 32 of 2021 on Commercial Companies Law (CCL 2021). This shift, which took effect on January 2, 2022, replaced the previous law introduced in 2015 (CCL 2015).  

This is part of a broader legal reform program initiated to mark the UAE’s 50th anniversary, designed to modernise and streamline the country’s corporate framework. Whether you’re an entrepreneur, an investor, or a company operating in the UAE, understanding the new UAE Companies Law is crucial for managing the evolving business environment. 

Understanding the New UAE Companies Law: Opportunities and Compliance 

With these sweeping changes, UAE companies and their directors must stay informed and prepared to comply with the new regulations. Companies should carefully examine their constitutional documents and governance structures to align with the new requirements. Additionally, boards should explore opportunities to capitalise on the more flexible provisions of the CCL 2021, particularly in areas like share capital, mergers, and IPOs. 

The New UAE Companies Law is part of a broader reform agenda that aims to increase foreign investment, promote better governance, and align the UAE’s corporate sector with international standards. With the proper guidance and preparation, companies can leverage these changes to unlock new opportunities and strengthen their position in the market. 

When did CCL 2021 come into Effect? 

The Commercial Companies Law 2021 became enforceable on January 2, 2022. Companies governed by the old CCL 2015 had until January 2, 2023, to comply with the new provisions, though this timeline could be extended by the UAE Cabinet.  

Companies that fail to comply with the new regulations may face penalties. In practice, they may be prohibited from registering or notifying public bodies until they adjust their constitutional documents accordingly. 

What Types of Companies Does the CCL 2021 Apply To? 

CCL 2021 applies to most companies incorporated onshore in the UAE, including Limited Liability Companies (LLCs) and Public Joint Stock Companies (PJSCs). Additionally, the law introduces two new company types: 

• Special Purpose Acquisition Companies (SPACs): These are public joint stock companies established solely to acquire or merge with another company. 
• Special Purpose Vehicles (SPVs): These companies separate the assets and liabilities of a specific financing arrangement. 

However, some companies are exempt from the CCL 2021, such as those wholly owned by the federal or emirate governments or those in specific strategic sectors like oil, gas, and power. Also, companies registered in free zones, such as DIFC and ADGM, are not subject to this law, although free zone companies operating onshore may fall under its scope. 

Key Changes for PJSCs (Public Joint Stock Companies) 

The new UAE Companies Law has introduced several changes for PJSCs, particularly regarding capital structure and governance. 

• Share Capital: The CCL 2021 removes the requirement for a minimum nominal value for shares, allowing PJSCs to set their nominal value. Furthermore, the concept of authorised share capital has been eliminated. 
• Issuing Shares at a Discount: A PJSC can issue shares at a discount (subject to shareholder and SCA approval). However, any discounted issuance will create a negative reserve that must be cleared with future profits before distributing dividends. 
• Company Divisions: The new law recognises the division of a PJSC, which was previously not allowed. A PJSC can now divide its assets, liabilities, rights, and obligations into two or more companies, subject to shareholder and SCA approval. 
• Director Remuneration: The law allows directors to receive remuneration of up to AED 200,000 per year, even if the company is not profitable, with shareholder approval. In addition, directors can receive a bonus of up to 10% of the company’s profits. 

Key Changes for LLCs (Limited Liability Companies) 

The new law has also introduced significant LLC provisions, particularly in governance and company meetings. 

• Management Structure: If the term of the LLC’s board expires and no new board is appointed, the existing board will continue to manage the company for six months, after which the Economic Department may appoint a new board. 
• Supervisory Board: The shareholders of an LLC with more than 15 partners may now appoint a Supervisory Board to oversee the annual reports, budgets, and distribution of profits, which was impossible under the previous law (the threshold was seven partners). 
• Company Meetings: The quorum for a valid meeting has been reduced, and general assembly meetings can now be conducted via electronic methods, like emails or company websites. Additionally, the notice period for general assembly meetings has been set to 21 days, though shorter periods can be agreed upon if 95% of the shareholders approve. 
• Legal Reserves: LLCs are now only required to set aside 5% of their net profits for statutory reserves, down from the previous 10% requirement. 

Impact on M&A Transactions, IPOs, and SPACs 

The new UAE Companies Law significantly impacts mergers and acquisitions (M&A), Initial Public Offerings (IPOs), and the newly introduced SPACs: 

• M&A Transactions: CCL 2021 simplifies the regulations around M&A by allowing PJSCs to issue shares at a discount or premium, subject to shareholder and SCA approval.
• IPOs: The law also changes IPO procedures, including a new subscription period for public offerings, which can last up to 30 days but can be extended.
• SPACs: CCL 2021 provides the legal framework for SPACs, which were not previously available under the CCL 2015. These companies can list shares and merge with private target companies, helping them go public.

Corporate Social Responsibility (CSR) 

The new law also introduces provisions for Corporate Social Responsibility (CSR) contributions, which allow PJSCs to allocate a percentage of their profits to social causes. This change removes previous restrictions, such as the cap on contributions and the requirement that the company be operational for at least two years. 

How Shuraa India Eases Compliance with the UAE Companies Law 

Shuraa India is crucial in helping businesses navigate the complexities of the new UAE Companies Law (CCL 2021). They provide expert guidance throughout the company registration process, ensuring compliance with the latest regulations. Shuraa offers strategic advice on selecting the most suitable corporate structure, factoring in ownership and governance requirements, and assisting in acquiring the appropriate licenses for mainland, free zone, or offshore companies.  

With a strong focus on compliance, Shuraa India helps businesses adhere to new rules on corporate governance, reporting, and transparency. Additionally, they provide comprehensive visa and immigration services, ensuring enterprises meet the latest visa regulations. Shuraa also supports ongoing operations, assisting with amendments to company structures as needed, and ensures your business remains attractive to investors by optimising its setup in line with the CCL.