Overview of Corporate Governance in the UAE

What is the governing legislation?

The UAE Federal Law No. 2 of 2015 on Commercial Companies (the Law) is the main legislation governing corporate governance. The Law applies to commercial companies incorporated in the UAE, excluding free zone companies if special laws/ regulations were issued by the relevant free zone authority.

The regulators of corporate governance at the Federal level are the Ministry of Economy (MOE) and the Emirates Securities and Commodities Authority (ESCA), whereas the Department of Economic Development (DED) in each Emirate is the regulator locally.

The corporate governance rules (the CGRs) vary depending on the type of the company and place of its incorporation (i.e. an onshore company or a free zone company). Under the Law, the following types of companies can be incorporated:

  1. Partnership/ Joint Company;
  2. Limited Partnership Company;
  3. Limited Liability Company (LLC);
  4. Public Joint Stock Company (PJSC); and
  5. Private Joint Stock Company (Pvt JSC).

Some of the CGRs stipulated under the Law are of general application to all types of company. Other types of company have their own additional CGRs.

In addition to the Law, the following resolutions relate to CGRs in the UAE:

  • Resolution No. R.M 7 of 2016 on Standards of Institutional Discipline and Governance of Public Shareholding Companies issued by ESCA (ESCA Resolution).
  • The MOE issued Ministerial Resolution No. 272 of 2016 extending some of the PJSCs’ CGRs to LLCs.
  • Most of the free zones (such as Dubai International Financial Centre and Jebel Ali Free Zone) in the UAE have their own laws/ regulations which contain some CGRs.

General CGRs

For all types of company under the Law except a Partnership/ Joint Company and a Limited Partnership Company (where all joint partners must be UAE nationals), a minimum shareholding of 51% must be held by UAE nationals. A memorandum of association (MOA) must be executed and attested stating, among other things, the rights and obligations of the shareholders and the powers of the directors. In addition, companies established under the Law are required to maintain audited financial accounts at its registered office for a period of not less than 5 years.

Examples of CGRs for LLCs

In addition to the general CGRs mentioned above, LLCs must comply with the following CGRs

  • The LLC must maintain a register containing the name of all shareholders, their nationalities, dates of birth and addresses and details of the transactions relating to their shares and the dates. In January of each year, the LLC must send its register to the relevant authority (i.e. ESCA, MOE, DED) including any changes that have been made in the previous financial year.
  • The manager/ board of directors is vested with a broad power to manage the LLC. However, as a matter of UAE law, there are certain acts such as pledging, donating and granting loans that require special express powers.
  • The manager/board member may not act in such capacity in a competing company or enter, whether on his own account or for a third party’s account, into any competing commercial transaction unless he obtains the approval of the general assembly.
  • The LLC must convene an annual general meeting (AGM) and there are specific rules in relation to notice and quorum for, and convening, AGMs.

Examples of CGRs for PJSCs

The following CGRs must be complied with by the PJSCs

  • The majority of the board members, and the chairman, must be UAE nationals.
  • The board is granted general powers to manage the PJSC. However, certain restrictions are imposed on the board under the Law. These restrictions include borrowing for a period exceeding three years, selling/ pledging the company’s real estate, releasing the PJSC’s debtors, entering into settlements and signing arbitration agreements unless such powers are explicitly stated under the MOA/ Articles of Association (AOA) or obtained by a resolution of a general assembly.
  • The board members should inform the board of any matter that any of them may have an interest in and such member should not participate in voting on the matter in which he is interested.
  • The ESCA Resolution imposes a range of obligations on the PJSC’s directors. Generally, these obligations include ensuring the soundness of financial, administrative and accounting rules, setting a clear authorisation policy to determine the authorised persons and the powers assigned to them and setting policies regulating the distribution of profits and regulating the relationship with the PJSC’s stakeholders.
  • The ESCA Resolution requires the PJSC to appoint a compliance officer who shall be responsible for the PJSC’s compliance with all applicable laws, regulations and the MOA/AOA.
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