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Amendments to the Commercial Companies Law

26 January 2022

The CCL 2021 came into effect on 2 January 2022, replacing the old Commercial Companies Law No.2 issued in 2015 (the "CCL 2015"). This client alert discusses key amendments and practical implications of the CCL 2021.  

Further to our client alert "Amendments to the Commercial Companies Law - Limited Liability Companies", which can be accessed here.

New Corporate Vehicles

The CCL 2021 provides for two new corporate vehicles: the Special Purpose Acquisition Company (a "SPAC") and the Special Purpose Vehicle (a "SPV"). 

  • SPAC: Established as a public joint stock company (a "PJSC"), the SPAC would be utilized for the sole purpose of acquiring or for merging with companies. While SPACs would require the UAE Securities and Commodities Authority (the "SCA") to designate it as a PJSC, we understand that the SCA shall issue resolutions in due course providing further clarity on the manner in which SPACs will conduct their business.  
  • SPV: The SPV is defined as a company established to separate the obligations and assets associated with a particular financing operation from the obligations and assets of the parent company. Separating the obligations of the SPV and the parent company allows the financing to be made through various methods such as credit transactions, credit operations, borrowing, securitisation, and issuance of bonds.

As the CCL 2021 came into force very recently, it remains untested at this early stage. We will monitor this development to see how the SPACs and SPVs work in practice. However, the creation of these new entities is a step in the right direction for facilitating Mergers and Acquisition (M&A) transactions. 

Other Noteworthy Amendments 

The CCL 2021 details other key changes which should provide further clarity on the existing provisions of the law and allow for greater business flexibility. Some of the key changes are:

  • The restrictions on the nominal value of shares has been removed. Therefore, whilst the nominal value of shares in a joint stock company must be equal to the amount specified in the company's articles of association, a share can now have a nominal value of more than AED 100 or less than AED 1. 
  • Public subscription periods are now more flexible and may be adjusted, ranging from 10 to 30 days. 
  • The CCL 2021 now allows founders to subscribe for any unsubscribed shares upon the expiry of the subscription period, subject to the requirements of the SCA. Previously, under the CCL 2015 there were certain limits on the percentage of shares that founders could subscribe to, in PJSCs.
  • The conversion requirement, that a company must have achieved an average of 10% operational profits for the previous two (2) years, no longer exists under the CCL 2021. Furthermore, certain other restrictions on the sale of shares in a conversion have also been removed.
  • Restrictions on founders of a PJSC trading their shares upon conversion of the company have been removed. 
  • The CCL 2021 amends the corporate governance provisions for PJSCs.  Some of these changes include the possibility of board members being paid a lump sum fee not exceeding AED 200,000 as remuneration, where the company fails to achieve profits in a financial year (subject to certain approvals and express provisions in the company's articles of association).  

The notice of general assembly meetings has been increased to 21 days from the previous 15 days' notice, for limited liability companies and PJSCs (including closed joint-stock companies).

Next Steps

Companies that are subject to the provisions of the CCL 2021 have one year to rectify their position and to comply with the recent changes in the law. As a next step, companies should review their internal procedures and processes and undertake any necessary amendments to their constitutional documents to ensure that they are fully compliant with any relevant amendments to minimize regulatory risks.

For further details, please contact any of our lawyers below. 

This Client Alert does not constitute legal advice and should not be used as a substitute for competent legal advice from counsel.

Further Reading