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April 7, 2015
United Arab Emirates, Dubai, April 2nd, 2015 - The long awaited new companies law will be advantageous to IPO activity in the UAE and according to lawyers, will boost corporate governance.
Sheikh Khalifa, President of the UAE on Wednesday, issued the Commercial Companies Law No 02 for 2015. This brings a multi-year legislative process to a close. According to Husam Hourani, Managing Partner at Al Tamimi & Company, “the new law will bring significant improvements, particularly in the level of corporate governance expected of listed companies.” It would also “encourage financial markets and new IPO activity on UAE markets.”
The legislation allows companies to flat a minimum of 30% of their equity according to the state new agency Wam. Previous laws required companies to float at least 55% and were widely perceived as making IPOs in the UAE les attractive than other areas.
Murad Abida, Head of Corporate Governance at DLA Piper said “Under the new law, founders can keep 70% of the company’s equity, which they can offload at a later date at valuations that are higher than the initial valuations. This is more attractive for a company’s founders.”
Underwriting has been given statutory recognition for the first time, which means that companies will also be able to use a book-building process to price shares. This was not allowed under previous regulations.
The new law also introduced the concept of a sole owner to UAE commercial law. An individual can now establish a private or limited liability company. This change should make it easier for entrepreneurs based in the UAE.
Abida also said “For a single entrepreneur, the only options heretofore was an unlimited liability sole partnership, which some people are not comfortable with because they want to separate personal and financial liability. Segregating personal liability and business deals will give them much greater comfort to venture into the world of business and commerce.”
Additionally, listed companies will be allowed to convert debt to capital for the first time. However, the law does not relax restrictions on foreign ownership that remains capped at 49%. Officials previously displayed support for allowing majority foreign ownership, but the concept was scrapped after disagreement between government departments.
An upcoming cabinet decree would specify the terms under which free zone companies could do business onshore, the drafted law stated. Until the full text of the new law is published, it is not known whether these provisions were included.
The drafted law contained further information on accounting and reporting procedures, as well as rules governing shareholder meetings and board composition.
Sultan Al Mansouri, the Minister of Economy said the law’s goal is “to raise the level of competitiveness of the national economy and achieve one of the main objectives of the national agenda of reaching the 10th position on the World Economi Forum’s Global Competitiveness Index. “ Al Mansouri also expressed that he hopes for the UAE to be in the top 10 counties on the World Bank’s Ease of Doing Business Index. It is currently ranked 22nd.
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