10th February, 2020
Opening up the Market in the United Arab Emirates – Financial Reporting and Corporate Governance
This is the Fifth in a series of 6 articles with regards to establishing a business in the United Arab Emirates.
Financial Reporting and Corporate Governance
Unlike in the UK, any limited liability company registered under the Company Commercial Law does not have a requirement to file any accounts until the company is closed down or liquidated.
Even if an overseas company has a branch within the UAE, there is no filing requirement of branch accounts, although such a branch would need to comply with its own native jurisdictional law.
An LLC, under the Commercial Company Law, is required to keep certain records at its head quarters including records of the names, nationalities and professions of the shareholders and the number and value of shares owned by each of them. Any actions involving movement of shares must be recorded and records kept.
There is a general obligation for LLCs to display the name of their company at the premises from which they operate and the licence number should be given together with the name of the company on any letterhead and invoices.
Any name of an LLC must include the phrase “Limited Liability Company”.
Contracts entered into by an LLC will be signed by a manager, director or authorised signatory, or, In some instances, under company seal.
A number of key documents in relation to each company, such as the Memorandum of Association or any form of Power of Attorney, need to be signed before a notary public.
Change in the constitutional documents will require new documents to be notarised before presenting them to the Department of Economic Development to give effect to the changes.
There are minimum capital requirements in relation to limited liability companies depending on the activity of the company and this will dictate the minimum capital requirements.
As a general rule, shares can be transferred within an LLC to one of the other shareholders and also to a non-shareholder; however, there is a general principle within the Commercial Company Law giving rights of pre-emption to existing shareholders.
[It is interesting to note that although there is an accepted provision in relation to the protection of minority shareholders in the free zone, there is no express provision under UAE Law.]
Board members within a UAE LLC are referred to as managers and great emphasis is put on the general manager of the entity.
The general manager will have his name on the trade licence, will have full power to carry out management activities within the company and have a right to bind the company in relation to third parties.
It is possible to have up to five managers and if this is the case, then the Memorandum of Association tends to provide for a managers’ panel or board of managers.
There is also a concept of a supervisory board, which is constituted under Commercial Company Law where the number of shareholders exceeds seven. In this instance, a supervisory board will be formed with at least three of the shareholders as members.
That board has the power to examine the company’s books, take stock of cash or goods within the company and requires the managers or general manager at any time to submit reports. The supervisory board does not have an accountability role.
At shareholders’ meetings, the general principle under UAE Law is that 50% of the voting rights based upon paid up shares is considered a quorum. However, there is no concept of special resolution requiring, for instance, 75% of votes under UAE Law.
Article 1 – Legal System and General Business Vehicles
Article 2 – Free Zone Companies
Article 3 – Other ways of doing business in the UAE
Article 4 – Forming a Private Company
Article 5 – Financial Reporting and Corporate Governance
Article 6 – General Outline Relating To Employment Matters
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Stuart HaynesCorporate & Commercial Partner |
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