UAE steps towards more flexible company law
THE UAE federal government has approved a new proposed corporate law, which aims to give greater flexibility to those setting up companies, and strengthen corporate governance of joint stock companies.
The new legislation lays down a general framework for governance of public companies; guarantees the rights of all shareholders; and will help ensure transparency and disclosure of financial data, as well as the efficiency and integrity of boards of directors.
This major overhaul of corporate law introduces unified accounting standards for all businesses; amends guidelines for share offerings in local capital markets, and extends the possibility of foreign majority ownership of companies nationwide.
Currently, foreigners are not allowed to own more than a 49 percent stake in businesses outside the specially-designated free zones and only large – usually public – businesses are held to international accounting standards.
The planned changes, the biggest in nearly 30 years – which took four years to prepare – widen foreign access to the internal UAE market, and may encourage more investment internally. No date has been set for final approval of the new law, analysts say its adoption by the federal cabinet in the first week of December was a significant step forward.
Majority business ownership by foreigners has long been resisted by local businesses, but government officials say they hope the move will improve the general business environment, raise standards and encourage new company formation.
“The law makes it easier to set up a business, strengthens the protection of shareholders, and lays down a framework for the governance of public companies; we think this will encourage the establishment of more new companies in Dubai because it makes the regulations and business environment more attractive for foreign investors,” Hamad M. Buamim, director general of Dubai Chamber of Commerce and Industry told media. “The law’s impact will not happen overnight, but, by showing that the government is putting the best practices into place, it will affect the psychology of investors interested in the UAE.”
He said the new law is just one of a set of developments to be rolled out “in the early part of next year, with a number of new laws and amendments to existing laws set to be approved, including competition, foreign investment, arbitration, intellectual property, industries and small – to medium-size businesses.”
Details will be clearer when the new corporate law has completed its five-stage approval process – with its early December adoption by the Federal National Council it crossed its second hurdle and now has three to go.
While the Ministry of Economy said in February is was aiming for completion this year, analysts say they expect some slippage into early 2012. Following its adoption by the council, the draft must still be submitted to the president of the UAE for review. If he signs it — the fourth stage — it will finally become operational when published in the UAE Official Gazette.
