While the UAE has been actively preparing for Expo 2020, a new foreign investment regime has been under discussion within the government and new regulations have come into effect, namely the Jebel Ali Free Zone Authority Offshore Companies Regulations 2018 and Dubai International Financial Centre Authority revising companies law and its operating regulations.
The countless hours dedicated to that major project have resulted in the recent introduction by DIFC of the new companies’ regime under its Companies Law (DIFC Law No. 5 of 2018), its Operating Law (DIFC Law No. 7 of 2018), and the Companies Regulations and Operating Regulations (“new legislation”) all of which came into effect on 12 November 2018.
The new legislation has been long-awaited by a wide variety of international and regional parties. These include medium- and small-size private companies limited by shares, their shareholders and directors, as well as legal and financial professionals advising entities considering the DIFC as its jurisdiction to operate from or those already operating in the DIFC. The decision taken by the DIFC to revamp the company’s regulations and introduce the new legislation demonstrates the commitment the DIFC is taking towards boosting the attractiveness of doing business there.
The new legislation changes appear aimed at giving more flexibility to companies operating in DIFC and giving them more leeway to rely on their own internal checks and balances and the prudence of the board of directors, whilst prescribing a robust sanctions regime should the companies not comply with DIFC law.
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Similarly, to some other jurisdictions globally, the DIFC Registrar of Companies (ROC) role will be to supervise and monitor DIFC law compliance by the companies rather than over-regulate day-to-day operations.
To ensure that companies adhere to the provisions of the new legislation, administrative fines ranging from $2,000 to $30,000 per breach of DIFC law have been introduced.
The key changes to the former regime introduced under the Companies Law and Regulations concern the following areas: Types of companies and their classification; articles of association; directors' duties; and fines that can be imposed by the DIFC ROC for compliance with the new legislation.
Previously, two types of companies were available for incorporation in the DIFC, namely a limited liability company and a company limited by shares. Currently, limited liability companies have been abandoned and the only companies that can operate in the DIFC are companies limited by shares, both private and public.
Therefore, the ROC will instruct each LLC currently registered within the DIFC to convert to either a private or public company limited by shares in order to comply with the new legislation.
The approved name of a private company limited by shares under the new legislation must also end in the word ‘Limited’ or its abbreviation, ‘Ltd.’ However, there are significant changes under this structure in comparison to the previous Ltd structure, which are: No minimum share capital requirement and at least one director, while the company secretary is optional.
The approved company name of a public company limited by shares must end in “Public Limited Company” or its abbreviation “PLC”. A PLC under the new legislation has no limitation in terms of number of shareholders; the company is required to have a minimum share capital of $100,000 of which at least 25 per cent must be paid up, and shall appoint at least two directors and at least one secretary.
Unlike the previous company’s law where director duties were not expressly prescribed, the new legislation has introduced a number of duties that the directors must abide by, such as the duty to act within powers, to promote the success of the company, to exercise independent judgement and reasonable care, skill and diligence, to avoid conflicts of interest; not accept benefits from third parties and declare interest in a proposed transaction or arrangement.
The introduction of the new legislation enhances the already sophisticated legislative regime of the DIFC, giving existing DIFC companies and new investors greater flexibility in terms of managing their business, with wider options with regards to the regulation needed. Moreover, the introduction of director duties heightens their level of responsibility and accountability which in turn gives extra comfort to investors.
Izabella Szadkowska is a partner and Noff Al-Khafaji is an associate, corporate structuring, at Al Tamimi & Company