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Amendments to the Commercial Companies Law - Limited Liability Companies

22 December 2021

As a part of the current wave of reforms to its legal system, the United Arab Emirates' government recently published the Federal Decree No.32 of 2021 making notable changes to the Commercial Companies Law (the "CCL 2021"). The CCL 2021 comes into effect on January 2, 2022 whereby it will replace the current Commercial Companies Law No.2 issued in 2015 (the "CCL 2015"). We discuss the key amendments concerning limited liability companies ("LLCs") incorporated in the UAE (except free zones) below. 

Amendments concerning Board of Managers

- Pursuant to the CCL 2021, if upon the expiry of the term of a board of managers, a new board of managers has not been appointed, then the existing board shall continue to manage the LLC for a period of six (6) months. If, upon the expiry of such six (6) month period the LLC fails to appoint a new board, then the Department of Economic Development would be authorized to appoint a board whose term shall not exceed one (1) year, during which period the LLC must appoint a new board of managers. As such, the CCL 2021 provides a default fallback mechansism in the event that a LLC fails to appoint a board of managers in a timely manner.

- Under the CCL 2021 an individual who is not a manager, may now act as a proxy for a shareholder at a general assembly meeting.

- Quorum requirements to convene the general assembly meeting have been amended. Specifically, if the applicable quorum requirements are not met at a meeting of the general assembly, a second meeting is to be convened which shall be validly constituted regardless of the number of attendees at such meeting. Therefore, the memorandum of association of an LLC - no longer needs to provide a specific quorum requirement for the purposes of convening a second meeting of the general assembly. However, a company may choose to include a quorum for a reconvend meeting.

Amendments concerning the Supervisory Board

- In regard to the management of an LLC, the CCL provides that the partners of an LLC with at least seven (7) shareholders must appoint a 'Supervisory Board' to supervise the managers, consisting of at least three (3) partners. According to the new CCL 2021, the requirement to appoint the 'Supervisory Board' is now applicable to an LLC with at least fifteen (15) shareholders. The 'Supervisory Board' overseas the LLC's annual reports, managers, budget distribution of profits and submits relevant reports to the general assembly.

Amendments concerning Decrease in Legal Reserve

- The percentage of net profits which must be allocated each year to the statutory reserves of an LLC has been reduced from the current ten percent (10%) requirement to five percent (5%). Shareholders can discontinue such allocation if the legal reserve reaches fifty percent (50%) of the share capital.

In light of the fast approaching effective date of the new CCL 2021, it is prudent that LLCs are actively aware of the new timelines and revised mechanisms. Going forward, LLCs may need to review and revise internal constitutive documents and procedures to ensure that they are in compliance with the new CCL 2021 requirements.

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

Authors: Umera Ali, Zainab Muhammad and Sana Sheikh.

Further Reading