Unlocking Online Signature Legality for Commercial Lease Agreement in UAE

How to eSign a document: online signature legality for Commercial Lease Agreement in UAE

thank you everyone for joining us today at today's webinar my name is Senator Amari and I'm the head of Business Development and marketing at Afridi and Angel speakers today are Partners Bashir Ahmed and Abdul Samad before I hand over to Bashir and Samad I want to remind you to submit your questions in Q a throughout the webinar we will address questions during the presentation as well as at the end the webinar is uh 45 minutes long and we will try to address all questions and have any discussion during the 45 minutes the webinar is recorded I recorded a recording will be posted on our website next week and shared with all of you plus the uh the slides thank you again for joining us and uh over to you Bashir thank you very much Samra welcome everybody um we're here to discuss today changes in the UAE commercial companies law as most of you if you've been here more than a couple of years would have noticed there has been a deluge of new legislation uh being enacted in the UAE in the last couple of years we've seen uh reforms right across the board all numbers of subjects and so on and the fact that a number of the federal laws are being published as Federal decree laws is significant uh this indicates that they're not going through the usual consultation process which involves uh all seven Emirates and are being if I can say hurriedly pushed through as decree laws the company's law of number 32 of 2021 is no exception again was pushed through as a decree law however I should add that the reforms to the company's law were in place quite a while before this firstly the company's law the original company's law came out in the in the late 80s and was largely static there wasn't much happening in the company's law space until 2015 when the company's law was revamped and the Old Law was repealed and a new law number two of 2015 was enacted almost as soon as it was we saw a Spate of further amendments developments in the law which indicated that the environment was becoming much more dynamic and this is now culminated in the 2021 company's law which came into Force last year in January 2022 the law I would say hasn't really changed much for those of us who are dealing with LLCs and so on but is significant in the public sector that's where we've seen the most changes and that's what Summit is going to talk about so the driving force behind the 2021 law as opposed to earlier amendments has really been I would say regulatory introductions of new Concepts into the uh legal legal space such as spax uh introduce introducing concept just spin-offs D mergers Etc so I will hand over to Summit who will run through these for you thank you thank you Bashir now as as bashira said there's there have been subtle but important improvements and and adjustments to the company's law regime here in the UAE before I get into um the specific changes and and sort of the the issues to note I'd like to just dwell on what we see as a theme if I may 4 20 23. now what we as a as a law firm have seen is a is a trend towards at a focus on on enhanced compliance traditionally in particular private sort of limited liability companies established onshore have seen a light touch regime insofar as corporate governance and corporate compliance requirements are concerned we feel that the time that has changed and that will continue to change and there will be going forward an enhanced focus on making sure that the even private Companies Incorporated onshore here in the UAE comply with the with the letter and the requirements of the law insofar as filings are concerned or insofar as corporate governance requirements are concerned and I think that that that that will um be the theme for for 2023 now Federal uh decree law 32 of 2021 introduced a number of changes and we'll focus on some of the specific changes later on but just as a highlight as machine mentioned they've the law introduced certain new corporate vehicles that we had not seen in the past um the intention behind this is to modernize the the the corporate law regime in the UAE to allow for sophisticated transactions and transaction structures that are perhaps well known elsewhere to be to be familiar to become familiar um to the UAE market and to allow for flexibility for investors to structure corporate transactions in the way that they're they're accustomed to elsewhere we also saw too much fanfare the introduction of the concept of a special purpose acquisition company or a SPAC or a blank check company as it's known in certain parts of the world and we'll we'll discuss some of the some some of the developments on that front later in so far as private limited liability companies are concerned notice requirements for General meetings have once again been updated and modernized as well as the method of notifying shareholders of General meetings have again the the permitted methods have been made more flexible and have been modernized in addition um the the some of the thresholds for shareholder initiated actions such as a shareholder of a limited liability company calling a general meeting those thresholds have been reduced um so so again we fear we see a flexibility being certain degree of flexibility being introduced and the law being modernized to reflect best practices um in the market coming back to the introduction of new types of vehicles we have two concepts of note the first being the so-called special purpose vehicle which the law simply describes as a company that is incorporated for the purposes of ring fencing assets and liabilities now as a concept that is not that this is not new to to most corporate advisors but we have not yet seen this concept being applied and tested in in legal practice or in structuring um now there's a question there as to how a so-called special purpose company is different from a single shareholder Company Incorporated for the purposes of Simply holding assets a limited liability company under law allows for limited liability and protection for the shareholder in most instances so it remains unclear to us what particular purpose this vehicle was intended for but perhaps we'll see more clarity in the coming months and and years the special purpose acquisition company or stack again there is much media speculation on when this was introduced eska the Securities and commodities Authority which is in charge of oversight off-listed companies was very quick to issue decision one of 2022 which set out the eska requirements for a special purpose acquisition company to be listed on one of the UAE public markets the first UA stack has been Incorporated and is listed on the adx being the exchange the public market in Abu Dhabi it's ADC acquisition cop but as far as I'm aware they've not yet actually completed a transaction so it remains to be seen how that that particular concept will flow through with physiological end result of of having this pack merge with another company as Bashir mentioned there have also been a number of changes to the regime for public joint stock companies again the focus has been to allow flexibility in the structuring of corporate transactions so there's now some legislation allowing for spin-offs demergers for public companies to be split up um and and and and that should depending on how these these rules are implemented and forced in practice allow greater flexibility um in in corporate transactions again just going through the list issuance of pgsc shared at a discount subject to ask approval has has been allowed there's there's further further rules um on on on the issuance on the value the par value of shares of a public joint stock companies again we see a trend towards flexibility insofar as limited liability companies are concerned as mentioned earlier we've seen a move back to to the requirement for notices for General meetings of LLCs to be to be for um 21 days rather than the previously introduced standard of 15 days whereas the previous one was 21 before correct so so it's been changed back to what was the original standard before the 2015 law was introduced um notably and this will be this will be of interest to many the statutory Reserve contributions have actually been reduced so that previously it was the case that um a minimum of 10 of annual profits had to be set aside for the statutory Reserve up to the point at which the company has a reserve equal to 50 percent of its issue share Capital uh that contribution requirement has now been reduced to five percent potentially freeing up some cash in certain companies for reinvestment additional flexibility as I mentioned earlier has been introduced on the methods for convening General meetings now the law specifically says that so-called modern means of Technology modern technological means can be used to issue notices to shareholders now I'll pause at this issue to just just Analyze That a bit further what does that mean and can um Can companies that do not have memorandum of Association that contemplate this flexibility rely merely on this provision of law so let's let's examine this a bit further let's assume that there is a limited liability company established in Dubai which does not have within its MOA flexibility to issue general meeting notices by email for example our view is that such companies should probably be take a conservative approach and follow the letter of their memorandum of Association and if they want to in addition to the specific requirements of the memorandum of Association issue additional notifications through for example electronic means then of course they may do so but they should make sure that they're satisfying the requirements of their constitution until such time as as that Constitution being their memorandum of Association is updated to to incorporate this flexibility that the law provides so I'm just uh I've just seen some questions that have come through and these are very good questions um which I'll pause here to answer uh the first question is whether an egm can be conducted virtually now the law actually does clarify this and it says that General meetings for LLCs specifically can in fact be conducted through technological means include which we read to mean virtually however again um our view is that if the memorandum of Association of the company doesn't have flexibility to hold these meetings in a certain way then the conservative approach and The Prudent approach is to hold those meetings in the manner prescribed by the memorandum of Association until and until such time as that Constitution is updated to incorporate this flexibility and the modernization and the law we do not consider that it will be prudent to hold a general meeting in a way not contemplated in the memorandum of Association now the next question um that we've received is whether a limited liability company can can adopt or Implement a employee share option scheme now this is a um I don't think it this is the correct form for fully exploring this topic but the answer is in theory yes however the way that a limited liability company operates in practice and the way that shares or interests in a limited liability company are transferred registered with the Note 3 public and then the economic Department in the relevant Emirates um I typically don't consider that an LLC onshore in the UAE is an appropriate vehicle through which to adopt employee incentive schemes such as an ESOP I would never recommend it it would be be a bureaucratic Nightmare and you know one would be stuck with all sorts of issues as to what to do when the employee leaves you cannot force a transfer back of the shares what you do with errors Etc so I I think it would be a complete disaster for an LLC to be issuing uh esops agreed Bashir so just one other change that I'd like to quickly mention which is not identified on these slides and that is that the so in the earlier the 2015 law provided that a manager of an LLC has to convene a general assembly where 20 where shareholders holding at least 25 percent of the capital of the company uh request for for a general meeting to be convened that standard has actually been reduced from 25 to 10 of of the capital of the company quite a drastic and important um change and one that is very relevant to those LLCs that have multiple shareholders that are not necessarily related parties or connected parties so it in fact is a is a is an enhancement to the rights of of for example a minority investor now one or more shareholders holding 10 percent rather than the earlier standard of 25 can make can compel the general manager of an LLC to call a general meeting so an important change now this is a again an issue that that has come up in the work that we've done over the last year as a law firm one of the long-standing issues of confusion is this is this provision in the company's law which has been there for for for the past few iterations that the provisions applicable in the law uh stated in the law for public joint stock companies also apply to limited liability companies and this this cross-referencing has caused much headache and confusion for advisors across the board now shortly after the 2015 law was issued there was actually a cabinet decision that clarified which um or rather ministerial decision that clarified which Provisions off of pjsc's date and did not apply to limited liability companies and this was quite a welcome clarification for lawyers and for advisors however since that 2015 law has been repealed um and replaced we've not seen a further iteration of the 2016 ministerial decision that updates those references and those Concepts so the while the new law being the 2021 iteration preserves decisions in implementing regulations issued under the Old Law it also provides that where there's inconsistency uh the new federal law prevails in each instance so the question remains are there there may be one or more provisions of the pjsc section of the new company's law that could possibly be construed as being applicable to limited liability companies and um it's not yet clear or rather we do not have the desired level of certainty on to to advise with confidence and clarity as to which Provisions apply and which Provisions don't apply because we don't have the comfort of an updated decision or implementing regulation on this issue one of the issues that we've considered and and which we frequently consider is the financial assistance prohibition and whether or not it currently applies to limited liability companies again this was an issue that had been clarified under the 2015 regime but at present we do not feel that the requisite Clarity is there and an issue of this level of importance in terms of action items um as I mentioned earlier there's been a cabinet decision that sets out administrative penalties again a focus on compliance with the letter of law of the law so all companies were required to regularize and update their status to make sure that their constitution complies with federal law 32 of 2021 the deadline for compliance has now passed it was January 2023 and and and fines are in theory applicable pursuant to Cabinet decision 78 of 2022. so whether or not a company has in fact regularized its position it should look to do so now in order to make sure that its Constitution is in line with the most recent iteration of the law quite importantly as I've mentioned there have been changes to the arrangements for convening and holding a general meeting so in line with some of the good questions we've received the constitution of the company should preferably be updated to allow and to incorporate the flexibility that the law now allows and so so so that companies can benefit from Modern means of of of corporate of of satisfying corporate governance requirements and item number three on on on the current slide that you see goes back to what I consider as a theme for me for 2023 which is compliance historically and this is a particular issue um we see when diligencing limited liability companies on show in the UAE often basic corporate governance requirements are overlooked because historically they've not um been the subject of sanctions or penalties I expect that in the near future there's a there's a chance that that will change and matters like ensuring that annual General meetings even for private companies are held in the manner contemplated the law and the company's Constitution this will become important um ensuring that accounts are prepared by the manager we are put to an audit by an external auditor licensed in the UAE and then laid before a general meeting for approval following that process which again is has always been there in the law but commonly has been ignored and ingly we suggest that companies start looking at what are fairly basic requirements and making sure that they do in fact comply with with with these matters also of course we it would be remiss to also I mention that we are looking at corporate taxation being introduced um in the coming months so it's a good idea for all businesses to look at making sure that their accounting and their audit um is is properly completed this year in order to make sure they are correctly prepared for the introduction of tax in the UAE corporate tax in the UAE next year and now uh I will leave the floor once again for for for Q a um uh yes some of there were a couple of questions actually there are some questions but one of the one of the questions that came through um uh what are the special requirements that apply to company name for a single shareholder LLC okay um this is one of the silliest provisions of the company's law in my view and I just find it ridiculous so I'm going to let someone answer that one okay so historically for for those that may not not not be aware historically it was the case that a limited liability company had to have at least at least two partners that position was changed in the 2015 law that allowed for single shareholder companies to be incorporated uh the drawback was that the law introduced a somewhat bizarre naming convention which is um which is now that a single shareholder company must have must have its name and then after the the the the the letters LLC or the words limited liability company must have single owner or sole proprietorship or something similar that denotes that it only has one partner within its trade name and its legal name uh now as Bashir says this is somewhat um unusual requirement um not unheard of in in in in in in in some jurisdictions but somewhat inconvenient in particular where you have a company that historically had more than one partner and is now converting to a single shareholder company and which may then need to adopt a completely different naming convention and have to update its various registrations it's Banks bank accounts like invoicing Arrangements simply to reflect the fact that it is now a single shareholder company so a somewhat inconvenient uh requirement of the law but but but yes that in a nutshell is um is is what the convention is for single shareholder companies uh thank you so much another question uh that came in earlier have you seen administrative penalties being applied for non-compliance with the new law we have not as yet um bearing in mind that these wouldn't necessarily be the subject matter of public so they wouldn't be public record because they would be imposed on on companies privately however the deadline has only just passed so it remains to be seen how um strict or Vigilant the relevant Emirate level Regulators will be onshoring compliance but again um my expectation is that there will be an enhanced requirement for uh for for companies to ensure compliance and there will be the Advent of of monetary sanction for those that are continuously non-compliant yeah I would say it is too early but we have seen in other sectors such as ESR notifications uh the labor requirements Etc the authorities are becoming much more aggressive and imposing fines and uh really not wasting much time and doing that they're very quick at sending out notices and I think it's only a Metro time before we see that with the company's law okay so also uh summer I've just received a question on whether the new law has affected um UAE Branch offices of foreign companies and whether there have been changes in terms of governance so the UAE company's law does not directly deal with governance matters insofar as Branch offices are concerned I mean remember that a branch office in the UAE is not a distinct legal entity it is an extension of the foreign parent so insofar as corporate governance is concerned a branch office doesn't have its own um direct Board of Directors for example it'll typically have a single manager however bear in mind that the law also states that in theory and this is observed is not observed rather as far as I'm aware a branch office of a foreign company is required to prepare and file accounts with the ministry of economy with Wizards meant to be registered now again um as far as I'm aware this is not a requirement that most Branch offices of foreign companies observe in the UAE it remains to be seen again with the new focus on annual filings and compliance whether this requirement to prepare and file accounts will also um be more actively enforced and don't forget this links into as machine mentioned issues like economic substance and with again the Advent of corporate taxation which also requires compliance with economic substance requirements and with with respect to compliance with transfer pricing rules I suspect that Branch offices of foreign companies may also find that they have an additional or heightened compliance burden to deal with in the UAE whereas historically it's been like touch um okay uh there are a few more questions uh some of that came through um uh what it has a new law impacted civil companies established in the UA in Dubai so the the so-called civil companies are actually um a bit of an anomaly insofar as as the word denotes they're not Incorporated pursuant to or established pursuant to the company's law they are by definition um established pursuant to the enabling certain enabling Provisions in the UA civil court so so those companies are by definition not within the purview of the company's law because they are not companies as such okay um uh another one is is it compulsory for an LLC to maintain the audited financials and for how many years and if an entity was a dormant uh was dormant that had no major Financial transactions is it required to get the audited financials how important would it be in the context to corporate tax so so as I mentioned the the the UAE company's law has always had a requirement for all LLCs to prepare accounts to maintain sufficient accounting records and books of account and then at the end of their financial year of its Financial year to subject its accounts to an audit through an external auditor that requirement has been there even in the 1984 regime and there was no carve out or exception for smes or dormant companies or similar situations so the blanket requirement unfortunately is that all LLCs must maintain accounting records and then subject their books of account to an audit at the end of the financial year and lay that audited account in at an AGM in front of one or more of their of of of of of the shareholders or shareholder as the case may be um as I mentioned this is important and has always been important from a compliance perspective but the reason it's becoming more important now is because we have corporate taxation due to be or ha is being rolled out in the UAE as for financial Years starting after June 2023. now what this means is that companies in the UA need to make sure that their accounting systems and their books of account this year being the financial year before their first tax year are correctly audited and in in in in a good state so that they they can ensure that when they need to file corporate tax returns their accounts aren't a mess which need to then be corrected after the fact so that's why in in in in the shadow of corporate taxation coming in this issue has become of heightened importance but it has always been an important compliance issue this into this requirement is not new okay okay thank you um one more question uh actually a couple more but what happens if the term of the board of managers uh or of an LLC expires and a new board is not appointed so I don't I don't should I don't know this offhand but I believe the the the requirement in law is to ensure that the board is reappointed within a prescribed period of time and failing that I would imagine that that a general meeting needs to be convened to make sure that a board is reappointed I don't think that the position is that the board um the term of which has expired can continue indefinitely after you know it's it's reached the end of the term of its appointment so I think the logical The Logical approach would be to convene a general meeting which would then need to reappoint or replace the board but but yes perhaps I can I can um come back to the the individual who's asked this question offline yeah can I just add that the requirement is that a company must at all times have a manager so it cannot function without one and if it ceases to have one then I think the onus is on the shareholders to make sure that that is remedied okay all right thank you thank you both um uh uh one last question uh are there any restrictions uh on a German of uh shareholder meetings [Music] the the position in the new law is that when um so when a shareholder meeting is convert convened For the First Time The Quorum requirement is um whatever if a higher requirement I believe it's it is 50 at least 50 percent of shareholders must be in attendance um unless a higher threshold is specified in the memorandum of Association so in the first time that a general meeting is convened you need to have either the standard specified or at least 50 percent then assuming you do not have Quorum in the first attempt your general meeting has to be has to be adjourned and reconvened within a certain amount of time I believe it's between 5 and 15 days and whoever attends that reaching constitutes Quorum under the law so that issue shouldn't um I imagine a rise anymore okay okay [Music] um uh there was a related uh sort of unrelated question uh I'm not sure that the answer will have it uh readily in your notes but do you know the date for corporate tax registration on Mr attacks so I don't know this offhand um but I believe that the federal tax Authority has issued invitations to certain companies to large taxpayers to start registration I imagine that once this first phase of Invitation Only registration is complete they will roll out some sort of mechanism for beginning registration for others okay uh uh I it looks like we have uh gone through the discussion points and the questions and um I'm just going to if in the next few seconds uh if no more questions are coming in uh we can end the webinar and I thank you all for joining us and thank you and Samad and uh as I mentioned earlier uh uh okay there's one question that just came through uh we can you know Can an LLC be owned by one shareholder at 100 percent sorry we were on mute yes um an LLC can be owned by one shareholder a hundred percent uh however as as just discussed earlier there is a special naming convention that applies to single shareholder companies and that's an issue that one needs to bear in mind if one is proposing to have a single shareholder limited liability company but yes in theory yes you can have it yes the name must identify the fact that it is a a single shareholder company as part of the name of that LLC which is a bit cumbersome all right um can you include different classes of shares under a local LLC no you cannot an LLC must have a single class of shares all ranking the same way so again taking a step back perhaps the limited liability company the term company is actually a bit misleading when you talk about llc's one should look at them as closer to that of uh in form to a partnership than to a company as as is traditionally understood in for example common law regimes and so a company an LLC um more correctly has interests rather than shares even though the term shares is frequently used But to answer the question all shares of an LLC must be of the same class and rank the same yeah it might be better to look at shares in an LLC the word share being perhaps closer to a portion rather than a share certificate so it's it's much more similar to I guess a partnership having said that I would add that uh recently this year there is a new federal family business law which seems to override the company's law on a number of subjects and one of them is the provision to allow for shares voting and non-voting um we just received another question to elaborate on on an answer that you gave to the previous question on sole shareholder on a sole shareholder uh shall the company still conduct an annual meeting and appoint an auditor in a case of a one shareholder so look I appreciate it seems a bit bit perhaps excessive um and and it doesn't need to be in the case of a single shareholder company one imagines that it doesn't need to be a formal an affair as it would be where there is more than one shareholder but yes the requirement to upon an auditor as I said exists in law without exception it must be done the manager which may not be the same as as a sold shareholder must then call a general meeting which again would consist of just one shareholder and then go through the process of getting the accounts approved by the sole shareholder now admittedly in a single shareholder situation this would not really be one imagines a formal meeting that would be convened but but yes the process needs to be followed um that is there's no exception to that okay thank you very much um I think we will just uh end here and um as I mentioned earlier this session is recorded and we will share the recording and the slides with you uh any questions that have come in uh that have not been addressed uh during the webinar will be uh addressed offline and feel free to approach um any of us all of you have my email address I sent the the zoom link and the confirmations and feel free to uh uh approach Bashir or Samad directly if you have any further questions and uh thank you again and see you at our next webinar thank you