There are seven types of company referred to in the UAE Commercial Companies Law (Federal Law No. 8 of 1984 (as amended)) - general partnership, simple limited partnership, joint participation, public joint stock company, private joint stock company, limited liability company and partnership limited with shares.
The most common form adopted by foreign companies is the limited liability company and set out below are certain of the key issues to be considered in relation to such entities.
Company name - The name of the company should be derived from its objects or the name of one or more of its partners, although this is not mandatory. It is possible to obtain the approval of the relevant authorities to a particular name prior to proceeding with an application for registration.
Local shareholding - The law provides that at least 51% of the total shareholding in a limited liability company must be held by a UAE national (or a company wholly owned by UAE nationals).
Minimum share capital - The current minimum share capital required for limited liability companies is Dhs. 300,000 (if registered in Dubai) or Dhs. 150,000 (if registered in any other emirate). Share capital must be fully paid up and deposited with a locally registered bank. Contributions in kind are permitted under certain conditions.
Profit and Loss - The profits and losses of a limited liability company can be distributed between the shareholders in, subject as mentioned below, whatever proportions they agree in the Memorandum of Association. 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 Memorandum of Association which purports to entitle the local shareholder to less than 20% of the profits.
Transfer of shares - In the event that any of the shareholders wishes to sell its shares, notification must first be given to the other shareholders who have an automatic right of preemption in relation to those shares. Only if those preemption rights are not exercised is the seller permitted to transfer the shares to a third party. Where federal approval is required for the establishment of the company, such federal approval is also required for the transfer of shares in that company. Note that a transfer must not result in the 51% UAE ownership being reduced.
Management - Limited liability companies should be managed by at least one but not more than five managers. The manager(s) may be an individual or a company. The role of the manager(s) may be compared to that of directors in other jurisdictions. The powers of the manager(s) and manner of appointment and dismissal should be specified in the Memorandum of Association (and possibly additional documentation, such as a separate management agreement). If the number of shareholders exceeds seven, it is also necessary for the shareholders to establish a "Board of Supervisors" comprising at least 3 of the shareholders. This Board is responsible for supervision of the managers/management of the company and has powers of inspection of financial and other documentation, supervision of the budget, preparation of the annual report and the distribution of profits. The Board or Supervisors reports to the shareholders.
General Meetings - A limited liability company must convene at least one general meeting of the shareholders during the four months following the end of the company's financial year. In addition, the manager(s) must call a general meeting if so requested by the Board of Supervisors or by a number of shareholders holding not less than 25% of the share capital. Detailed notice provisions apply in each case. All shareholders are entitled to attend general meetings in person or by proxy with the number of votes held being represented by the number of shares owned.
Shareholders Resolutions - Any amendment to the company's Memorandum of Association or change in its share capital must be approved by shareholders representing at least 75% of the share capital. The company's Memorandum of Association may however provide for a greater majority. Except for the foregoing, resolutions in general meetings are validly passed if approved by shareholders representing at least 50% of the share capital although again a greater majority may be specified in the Memorandum of Association.
Statutory reserve - It is obligatory for all companies 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 company's share capital.
For more information and inquiry, visit Dubai Company Formation or call +971 4 332 5777.
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