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Your company will be liquidated if you don’t comply with these new company law regulations

Your company will be liquidated if you don’t comply with these new company law regulations

In a series of complete legislative overhaul, the government of UAE has promulgated the Federal Law No (32) of 2021 relating to commercial companies. This new law has completely replaced the erstwhile Commercial Company Law i.e., Federal Law No. (2) of 2015. This new law has come into force from 2nd January, 2022.

What does this new law offer?
Under this new law, a host of changes have been made with an objective to increase business participation and attract foreign investment. Some of the major changes are as follows-

  1. Introduction of the SPAC and the SPV

Under this law, two new forms of companies have been introduced, namely special purpose acquisition company (SPAC) and the special purpose vehicle (SPV). The major objective of setting up a SPAC is to facilitate initial public offering merger and demerger. It is important to note that the SPACs will not be subject to the provisions of the new law, but they will be regulated by the guidelines issued by the UAE Securities and Commodities Authority (SCA).

The special purpose vehicle (SPV) is a special type of company whose main objective is to separate the assets and liabilities of a business corporation from the person who incorporated the same. These SPVs can be used as investment holding companies in large scale financial transactions. Similar to SPACs, the SPVs will be only subject to the guidelines issued by the SCA.

  1. Amendment in the provisions related to the Limited Liability Companies (LLC)
  • As per the new law, if the tenure of the company’s board of managers expires, but they haven’t been reformed yet, then, the earlier board of managers can continue to run the company for a maximum period of 6 month. It is imperative for the company to hold a general meeting and appoint the managers within a period of 6 months.
  • If the number of partners in a limited liability company exceeds the limit of 15, a supervisory board shall be constituted to look upon the affairs of the partners.
  • Prior to the amendment, an LLC needs to create a statutory reserve of 10% from the net profit. But, now this limit has been reduced from 10% to 5%. However, this reduced limit is subject to the discretion of the partner.
  • The quorum in an adjourned general meeting is valid, irrespective of the number of members present in the meeting.
  1. Amendments related to Public Joint Stock Companies (PJSC)
  • The new law has relaxed the requirement of minimum and maximum capital contribution by the founder during a public offering. Prior to the amendment, the founders were required to subscribe to a minimum of 30% and a maximum of 70% prior to the invitation to the public subscription.
  • The subscription period for the public offering was only for 10 days. However, this new law has increased this period to 30 days, which can be further extended after making an application to the SCA.
  • Under this new law, the company is allowed to issue shares at a price below the nominal value of shares, if the market price of the share falls in the market.
  • As a progressive step to improving corporate governance, it is mandatory for a PJSC to appoint a replacement director within a period of 30 days from the date when the vacancy arises in the board of directors. Further, in an year when the company didn’t achieve profit, the remuneration of a director can’t exceed AED 200,000

In short
The new law has made various notable changes, such as the introduction of SPAC & SPV, board composition of LLC and minimum capital contribution in a PJSC. For all investors, it is very important to note that the government has given a deadline of 1 year to comply with all the new regulations as prescribed in this law. The non-compliance may result in the liquidation along with penal punishment for the officers in default. For all the compliance related information, contact below

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