The UAE commercial company's law and it's significance in debt collection

The UAE commercial company’s law and it’s significance in debt collection

In a 2018 study by Euler Hermes, the UAE was ranked the second most complex country for debt collection.Debt collection in the UAE is a rather complicated affair and is governed by Federal Law No. (8) of 1984 or the commercial companies law in the UAE, issued by Late Sheikh Zayed bin Sultan Al Nahyan and published in the Official Gazette No 137 of April 1984.

The major amendments to this law include Federal Law No (1) of 1984, Federal Law No (13) of 1988, Federal Law No (15) of 1998 and Federal Law No (4) of 2000.

One of the latest and important amendments to this law was issued on  August 10, 2009 by HH Sheikh Khalifa bin Zayed Al Nahyan, UAE President abolishing the minimum capital requirement of AED 150,000 for setting up a limited liability company (LLC) in the UAE, which was widely seen as a significant step for the small and medium enterprise sector.

The provisions of this law apply to commercial establishments that are either incorporated in the UAE or have their activities based in the country. The law stipulates that the nationality of every company established in the country must be the UAE. Companies established in the free zones which are governed by special rules and regulations related to special economic zones are exempt from the provisions of this law.

With the exception of acquiring the nationality of the country, the law does not apply to companies that operate in drilling, excavation, marketing and transport of oil and companies that produce, transport and market electricity, gas and desalinated water, as well as the companies which are excluded by the a resolution.

The law defines a company as a contract under which two or more individuals commit themselves to contributing to a business venture aimed at making profits by providing their share of money or efforts or run under a profit / loss sharing basis.

Articles of the Law

Some of the main articles of the Commercial Companies Law are detailed below.

Article (4)
A business venture, as per the Article (4) of this law, includes every commercial, financial, industrial, agricultural, real estate or other types of economic activities.

Article (5)
The company established in the country should take one of the following forms: General Partnership Company, Simple Limited Partnership Company, Partnership Limited with Shares Company, Joint Participation Company, Private Joint Stock Company, Limited Liability Company and Public Joint Stock Company.

Article (8)
With the exception of Partnership Limited with Shares, the company incorporation agreement or any of its amendment should be written in Arabic and authenticated by a public notary, otherwise the contract or amendment will be null and void.

Article (14)
The partner’s share can be a certain amount of money (cash share) or a property (corporeal share). Except for cases derived from the provisions of this law, the partner’s share can be his work and efforts, but should not be in any case the reputation or authority he holds.

Article (17)
If it is agreed in the Memorandum of Association to exclude a partner from profits or losses, the memorandum will be null and void. However, the partner who contributes only with his efforts can be relieved from the losses.

Article (19)
If the Memorandum of Association does not specify a certain percentage of profit or loss for a partner, his share thereof will be proportional to his share of capital. If the Memorandum only specifies the share of profit for a partner, his share in losses will be equivalent to his share in profits, and vice versa.

Other Provisions
The law also explains the definitions of various forms of companies and issues relating to their ownership, capital requirements, management of company assets, distribution of profits and losses, responsibilities and obligations of the company manager, holding ordinary or extraordinary general meetings, role and responsibilities of auditors and supervisory board and arbitration, among others.

Opening a foreign company branch in the country, company reorganization and merger and company termination and dissolution are other issues covered by the UAE commercial companies law.

Articles 322, 323 and 324 deal with inspection of companies and penalties for violating the law.

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