Amendment of Federal Law No. 2 of 2015 on Commercial Companies
On 23 November 2020, by a Presidential Decree, the United Arab Emirates (“UAE”) introduced extensive changes to Federal Law No. 2 of 2015 on Commercial Companies (“Companies Law”). The major change announced is the allowance of 100% foreign ownership in mainland/onshore (non-free zone) companies, effectively eliminating the requirement for a local Emirati majority shareholder.
The UAE government has confirmed that these amendments became effective starting 1 June 2021.
Limitations to 100% Foreign Ownership under the Amended Companies Law
Mainland companies engaged in certain economic activities classified by the UAE government as having a ‘strategic impact’ will still remain subject to some level of Emirati participation. In line with these changes, a UAE federal government committee has been established to define the list of activities considered to have a strategic impact and the relevant controls. This list has not yet been published.
Despite the abolition of the majority Emirati shareholder requirement at the federal level, companies not involved in ‘strategic impact’ activities may still face Emirati participation requirements (either in share capital or on the board of directors), as determined by the Department of Economic Development (DED) in each Emirate. These Emirate-specific regulations are still pending.
Awaiting Further Implementation Guidance and Regulation
It remains to be clarified by the competent authorities at both the federal and Emirate levels:
- Which activities will be categorized as having ‘strategic impact’
- What conditions and restrictions will be imposed by each DED on companies not engaged in ‘strategic impact’ activities
- The mechanisms and subsequent legislation for the full implementation of these changes
New Standard of Corporate Governance
Under the new amendments, all companies must update their constitutional documents before 2 January 2022 to comply with revised corporate governance standards.
These updates include:
- New procedures for holding and convening general assemblies
- Updated quorum and voting requirements
- Mandatory inclusion of a dispute resolution forum in the Memorandum of Association to handle conflicts between the company and its shareholders
At Al Fahad Legal Consulting, we continue to monitor developments closely and will update clients on any new implementation guidelines or regulatory updates.
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