Q&A: UAE companies law is updated

Prominent business experts discuss how the UAE's new companies law will affect the economy, and what exactly has changed from past legislation.

“The law is very modern and will provide options to corporations to structure their business,” says Essam Al Tamimi, the founder of the law firm Al Tamimi & Company. Silvia Razgova / The National

The companies law passed by the UAE Cabinet on Sunday includes a long list of provisions.

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Here, legal and business experts offer their thoughts on the significance of the new legislation, and how it differs from the old regulations.

q&a

q What was missing in the old companies law?

a The UAE was a different place, legally speaking, when the law was first passed more than two decades ago, lawyers say. The revisions bring the law up to date, and better reflect economic and legal priorities that have emerged with the UAE's development as a regional business hub, they say.

a "The companies law in the UAE was enacted in 1984," says Essam Al Tamimi, the founder of the law firm Al Tamimi & Company. "The UAE was still an infant. It was a basic law and did not have a lot of innovative ideas. It did not have a vehicle to encourage people to set up different mechanisms and assist them with the corporate structure. The corporate structure around the world, since 1984, has evolved and developed. The [UAE's] companies law that currently exists does not catch up with that."

q So how has the new law evolved from the older version?

a The full text of the new law has yet to be released, but lawyers say its general form will give companies a more modern set of standards that comport with the constantly changing global business landscape. It offers "new ideas of how corporations can be structured and shares allocated," Mr Al Tamimi says. "The law is very modern and will provide options to corporations to structure their business, but also provide corporate governance guidance."

q What does this new law mean in terms of how the UAE is trying to compete for business with other countries today?

a One major reason the law was up for revision was to sharpen the UAE's competitive edge in the region. Modern regulations give comfort to businesses trying to decide where to set down roots, some observers say.

"It means the legal system in the UAE is getting more advanced and international from a judicial perspective as well as from the legal side," says Amna Al Owais, the deputy registrar and small claims tribunal registrar for the Dubai International Financial Centre's Courts. "You can come here [as a business] and be rest assured that laws, and the judicial system, are both operating on an international standard."

q The new law may allow for some foreign investors to own a majority of their business and not be located in a free zone. Which businesses will qualify for this?

a That key factor has not yet been clarified. It is understood that businesses in some sectors will not be subject to foreign ownership limits, but officials have yet to specify which those will be.

"We need to wait and watch [for a] formal announcement about raising the foreign shareholding in particular sectors or in general," says Jitendra Gianchandani, the chairman and managing partner of the business advisory Jitendra Consulting Group in Dubai. "I think it will [be] in line with the previous announcement in 2009. That is, to extend foreign equity participation of a maximum 75 per cent [to] some sectors requiring high investments such as technology, insurance and research and development programmes."

q How could that affect the economy?

a Lifting foreign ownership restrictions is likely to have the largest impact, observers say.

"Whatever the actual changes, raising the foreign shareholding will definitely have a positive impact on the foreign direct investment," Mr Gianchandani says. "It will increase, which is the need of the hour. Investors are looking for the opportunities and the UAE's decision to increase the foreign shareholding will give the confidence to foreign investors and [foreign direct investment] will improve in UAE."

q Part of the law states the Ministry of Economy will supervise the record of brand names to avoid repetition. What is the significance of that?

a The new law will go further to formally protect brand names in the UAE, which was a grey area under the old companies law.

"I think their intention seems to go beyond the technical," says Vishnu Deuskar, the managing director of Salvus Strategic Advisors, a business consultancy in Dubai. "If you're The Grocer, and someone comes in as The Groucer, then technically it may not be the same company. What they intend to do is see the spirit of it as well, to [ensure] there's nobody taking undue advantage of the technicality. That's a good thing, because otherwise you get free brand promotion. I think it'll help all established brands, whether local or international."