10 facts on the Commercial Companies Law that you cannot ignore

01 Feb 2017

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1. What is the Commercial Companies Law (the “CCL”)?

1. The CCL is the Federal Law governing the operation and regulation of commercial companies.

2. What companies does it apply to? Does it cover companies established in Free Zones?

1. The CCL governs entities incorporated in the UAE.
2.  The Rules and Regulations of the relevant Free Zone shall apply to free zone companies. However, the CCL aims to increase the level of corporate governance and compliance in the UAE and best practice dictates that you should observe these standards, especially where free zone regulations do not provide for it.

3. What is a memorandum of association?

1. A memorandum of association (“MOA”) is the constitution of a company. It is the notarised document under which a company is incorporated and sets out the rules by which shareholders agree to govern that company.

4. Why do I need to amend my MOA?

1. The CCL obliges companies established and governed under its rules to make the necessary amendments by 30 June 2017.

5. What happens if I don’t amend the MOA by the deadline?

1. Companies will be fined AED 2,000 dirhams per day should they fail to amend the MOA by the deadline. Companies will also be deemed to be dissolved. What this means is that your company will have no legal standing. It will, amongst other things, be unable to continue its operations, pass resolutions and access its bank accounts. The original deadline of 30 June 2016 was extended by one year due to the time-consuming process of implementing the amendments. It is unlikely that this deadline will be extended yet again.

1. A General Manager is responsible for registering a company’s MOA and any amendments made to it; should they fail to do so, they shall be held liable to compensate the company, its shareholders or third parties for any damage caused. This places an obligation on General Managers to ensure that the amendments to the company’s MOA are done before the deadline of 30 June 2017.

2. A General Manager shall not be allowed to operate any business in competition with the business of his company without first obtaining the approval of the company’s shareholders. Any General Manager who violates this restriction will be removed from his position and must compensate the company.

3. Any provision in the MOA of a company which states that any person shall not be personally liable for their actions shall not be considered legal and enforceable.

4. If false profits are distributed to the partners or shareholders, the General Manager shall be liable towards the shareholders and the creditors of the company for distribution of these false profits.

5. All companies must keep accounting records at their head offices for a minimum of 5 years. This is to ensure that a company should be able to accurately reveal, at any time, its financial position and enable shareholders to verify that the company’s accounts are properly kept. A failure to do so will result in the company being fined between AED 20,000 and AED 100,000.

James Berry & Associates provides compliance services to help companies amend their constitution. We also offer company secretarial services to assist Legal and Compliance Officers of a company to carry out their duties; thereby protecting them and the company from heavy fines and penalties arising from a failure to observe legal duties outlined in UAE law. Should you wish to benefit from these services, we would be happy to assist you and answer any queries you may have. Please feel free to contact James Berry at compliance@jamesberrylaw.ae