Commercial Companies Law (CCL) 2021

All you need to know about Commercial Companies Law 2021 (CCL) in UAE

Overview

Commercial Companies Law 2021 (CCL 2021) came into force with effect on 2 January 2022.

CCL 2021 will repeal the earlier Commercial Companies Law 2015 and all its amendments till this law came into force. Earlier this year, the UAE Commercial Companies Law (CCL) was amended to allow foreign investors to own up to 100% of their mainland (ie outside a free zone area) company.

Key changes in Commercial Companies Law 2021

Here are the highlights of what is new in the Commercial Companies Law:

• 100% foreign ownership of mainland UAE companies (except for certain Strategic Activities)
• Inclusion of Special Purpose Acquisition Company (SPAC) and Special Purpose Vehicle (SPV)
• Reduction in the notification period to creditors of liquidation companies from 45 to 30 days
• Allocation to Legal Reserve reduced from 10% to 5%. The cap of Legal Reserve stays at 50% of the share capital
• Changes in the LLC’s governance mechanism
• Changes in governance mechanism of Public Joint Stock Companies

CCL 2021 for Limited Liability Companies

The changes affecting Limited Liability Companies (LLCs) are as follows:

Board of Members

The Board of managers is typically appointed for a fixed term. On the expiry of the term, if the new Board of managers is not appointed, the existing Board of Managers will continue to manage the LLC for a period of six (6) months by which the new Board of Managers must be appointed.

In the event that the new Board of Managers is still not appointed, the Department of Economic Development (DED) can appoint a new Board of Managers and their duration will be a maximum of one (1) year, by which time the LLC must appoint the new Board of Managers.

This is a stopgap arrangement by DED to ensure that the operation of the LLC is not impacted.

Appointment of the Supervisory Board

Any LLC which has more than fifteen (15) shareholders (earlier this limit was 7 shareholders) must appoint a Supervisory Board. The Supervisory Board must consist of at least three (3) shareholders and they will have a responsibility to supervise the Board of Managers and supervise the LLC’s annual reports, budgets, and distribution of profits. The Supervisory Board is also required to submit a report to the General Assembly.

Contribution to Legal/General Reserve

CCL 2021 has decreased the allocation of profits to Legal or General Reserve from 10% to 5%. Further CCL 2021 allows shareholders to stop allocation to Legal or General Reserve once it reaches 50% of the share capital.

Dispute Resolution Mechanism

The Memorandum of LLC must include provisions relating to the dispute resolution mechanism between the LLC and any of its Directors or Managers or between the Shareholders in connection with the management and operation of the LLC.

Annual General Meetings

The notice convening the Annual General Meeting must be issued to the shareholders at least twenty-one (21) days from the date of the Annual General Meeting. Earlier the requirement was fifteen (15) days. In the event the quorum is not met, a second Annual General Meeting will be convened as per the provisions of the Memorandum of the LLC. In such a second Annual General Meeting, the quorum may not be required.

Auditor Appointments

Increase of auditors' term of appointment from 3 to 6 years. However, the 6 years should be such that one Audit Partner can be in charge of the audit for a maximum of 3 years.

Amendments to the Memorandum for existing LLCs

Companies incorporated prior to CCL 2021 coming into force are required to amend their Memorandum. The Law has provided a period of one year, i.e up to 2 January 2023 to amend their Memorandum. This is to ensure the Memorandum of LLCs is in line with and does not contradict the new CCL 2021.

Some of the major changes that are to be done to the Memorandum of Association are as follows:

• Notice Period for calling shareholders’ meeting
• To allow for virtual meetings
• Quorum requirements: 50% of the shareholders instead of the earlier limit of 50%. This change however is optional. Companies can still keep the earlier limit.

Happy to Help!

We will continue to monitor developments in this area and issue further updates on the Amendment Law and any implementing regulations in due course. If you have any questions related to the new CCL 2021 legislation, its implementation, and its implication on business, please feel free to get in touch with us.