Federal Decree-Law 32 of 2021, known as «On Commercial Companies,» has become a landmark event for businesses in the United Arab Emirates. It not only updated the legal framework governing the activities of organizations on the Mainland, but also partially covered Free Zones. The law has become an important step in the development of the country’s business environment, providing clear rules and regulations for the registration and management of companies. Let’s take a closer look at the key changes that this law has brought to business.
1. 100% foreign ownership
Previously, foreign investors on the mainland could only own 49% of shares in local enterprises and had to attract a local sponsor, which limited their opportunities. Now this measure opens up new horizons for foreign investors, allowing them to fully control their business projects and minimize the risks associated with local partners.
2. Introduction of SPAC and SPV
The decree-law also introduced new structures such as SPAC (Special Purpose Acquisition Company) and SPV (Special Purpose Vehicle).
These instruments are regulated by the Securities and Commodity Markets Commission (SCA) and provide companies with flexible options for financing, asset consolidation, and ownership structuring. In particular, SPAC provides a perspective for organizations to enter the stock market by attracting capital from investors, which can significantly speed up the IPO process.
3. Corporate governance reform
One of the key innovations was the permission to hold shareholders’ meetings in an online format. This is especially important in the context of global challenges such as the COVID-19 pandemic, and allows companies to keep in touch with shareholders from the comfort of their homes.
In addition, legal entities in the UAE are now required to include dispute resolution procedures in their constituent documents. This innovation helps to increase transparency and reduce the risks associated with conflicts between shareholders and management.
4. Flexibility of equity
The decree-law also reduced the mandatory reserves of equity from 10% to 5%. This change provides greater flexibility in managing their finances and enables them to allocate funds for business development more efficiently.
5. Regulation of state-owned enterprises and NGOs
One of the features of the updated legislation is to preserve the validity of certain regulations for certain categories of organizations. In particular, State-owned enterprises and non-profit structures continue to be regulated by special laws. State-owned enterprises include organizations established on the basis of decisions of the governments of individual emirates or federal authorities. Such structures, as a rule, operate within the framework of relevant legislation and in some cases do not fall under the Federal Decree-Law No. 32/2021 on commercial companies.
A similar approach applies to non-profit organizations. Separate legal norms are provided for them, taking into account the specifics of their activities. Such a regulatory system allows taking into account the specifics of the functioning of state and public structures, as well as providing them with the necessary legal support and protection.
6. Registration of companies on the mainland
The legislation introduces simplified procedures for the registration of Mainland companies. This allows entrepreneurs to create their business more efficiently, while complying with all necessary legal requirements. One of the key aspects is the choice of organizational and legal forms, such as a Limited Liability Company (LLC), a Public Joint Stock Company (PJSC) and a Namesake Limited Liability Company (GSC). This variety of forms helps entrepreneurs to adapt the structure to their needs and goals.
7. Corporate governance and shareholder protection
The law also focuses on corporate governance and the protection of the rights of shareholders, including minority shareholders. This is important to ensure transparency and fairness in the field of entrepreneurship. Investors can be confident that their rights are protected, and corporate decisions are made taking into account the interests of all shareholders.
8. Liquidation and reorganization
The Federal decree also regulates the processes of dissolution and closure of firms, as well as the procedure for transformation, including the allocation of assets. This creates a more predictable and secure business environment, allowing entrepreneurs to effectively manage their assets and liabilities.
9. Free zones
Another important characteristic of the UAE business environment is the availability of free economic Zones. These territories have a certain degree of autonomy and can set their own requirements regarding the corporate structure of companies, management rules, and business licensing procedures.
For example, the Dubai Multi Commodities Centre (DMCC) free zone has a minimum authorized capital of 50 000 dirhams. Such conditions allow entrepreneurs to choose the most suitable jurisdiction for company registration and to organize their activities more flexibly. As a result, free zones make it much easier to enter the market and make starting a business more accessible to foreign investors.
It is also worth noting DIFC (Dubai International Financial Centre) and ADGM (Abu Dhabi Global Market), which have the greatest autonomy. These zones offer unique opportunities for financial activities and attract international companies due to their favorable conditions.
Despite the autonomy, enterprises registered in the frisons are obligated to comply with federal anti-money laundering (AML/CTF) regulations, criminal law, and the tax system. However, a 0% tax regime is provided for qualified income earned in free zones. This makes the FEZ attractive to international investors who are focused on exports and international markets.
The federal decree-Law «On Commercial Companies» has become an important step towards modernizing the legal system of the Emirates in the field of business. It opens up a huge potential for entrepreneurs, offering them to choose the most appropriate organizational forms, ensure the protection of shareholders’ rights and effectively manage their assets. The introduction of 100% foreign ownership, new structures, corporate governance reforms and a reduction in mandatory reserves — all this creates more favorable conditions for conducting business and attracting investments. As a result, the UAE is becoming an even more attractive destination for international investors and entrepreneurs looking to expand their horizons.
Remember that the choice between registering on the mainland and the FEZ depends on the goals and strategy of the business. We recommend working with consulting specialists to select the right economic zone and types of activities, as well as to quickly complete all stages of registration in compliance with legal regulations. Sign up for a free consultation with a Makebiz lawyer and learn more about how to open a company in Dubai.
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