|
Prior to
the promulgation and implementation of the Company Law in l984, companies were
established in accordance with local laws and practices generally implemented
by the Municipal and other local authorities in the different Emirates, These
laws, rules and practices provided that any person or entity intending to conduct
business activities in the UAE had to register in the "Commercial Register" organised
by the "Competent Authority" which was usually the Municipality of the Emirate.
Such a person was required in the first place to acquire the requisite trade licence
issued by the Municipality Department in the particular Emirate where the business
was to be carried out. Therefore, with the exception of companies exempted
by the Ruler of an Emirate or operating by means of a special concession, it was
imperative for foreign individuals or business entities wishing to establish a
presence in the UAE to acquire a trade licence issued by the relevant Municipality.
Foreign
companies could acquire only one trade licence, while UAE nationals could obtain
as many trade licences as their business might require. With the exception of
certain professions, having a UAE national sponsor or partner was mandatory for
acquiring the requisite trade licence and for establishing such a presence by
a foreign business entity in the UAE. A national sponsor merely provided the legal
requirement to establish a presence, but did not need to participate in the capital
of the branch or office of the foreign company nor was he responsible for management,
and therefore did not share in any of the liabilities for its debts. A sponsor
usually received a consideration calculated as a percentage of the contracts concluded,
the net profits of trading or an agreed lump sum depending on the type of business
activity performed by the company sponsored. Obviously joint venture partnerships
were different, where partners shared in the capital and management of the partnership
and consequently its profits and liabilities. A
few public joint stock companies and limited liability companies, which could
only be incorporated by Emiri Decrees (sometimes referred to as "Decree/Charter
Companies"), were therefore not easily available, were generally reserved for
the establishment of companies that conducted important business activities such
as operating an oil concession, banking, insurance or serving a public interest
or utility. The majority of companies operating in the UAE were either individual
establishments, partnerships or sponsored branches of foreign companies. The liability
of the foreign company operating a branch office, or entering a partnership was
unlimited. Some
such joint ventures were true partnerships where the parties participated in providing
the capital required and in the management of the company to varying degrees as
well as sharing its profits. However, whereas companies established with 51% of
their capital owned by UAE nationals qualified to enjoy the privileges granted
to national companies, some fictitious partnerships were formally concluded which
were in fact disguised sponsorship agreements. To discourage this practice the
Chambers of Commerce required the presentation of bank statements certifying that
the company capital was deposited. Another safeguard was that the Notary Public
would not notarise any side agreements. The Emirate of Dubai issued instructions
to the effect that Public Notaries should not notarise documents having a clear
or implicit reference, declaration or confirmation that another document or a
part thereof was not genuine, or was contrary to the provisions of the Company
Law. This is understood as a reference to side agreements declaring that the conclusion
of a partnership agreement was merely for formal official purposes. In the unique
environment of the UAE, where the majority of businesses are either owned, managed,
or operated by foreigners in accordance with agreements concluded with nationals,
the Authorities and the Courts wished to discourage the formation of fictitious
ventures by requiring partners in a joint venture to share in its profits and
losses. In the absence of these conditions it was decided that such joint venture
companies would be null and void. The
Company Law was published in the UAE Official Gazette on 1st April, 1984. Initially,
it was intended to become effective three months from the date of its publication.
All companies operating in the UAE were allowed a grace period of one year from
the effective date to conform to the provisions of the Law. The Company Law, which
may be considered a relatively advanced legislative instrument, was based mainly
on the practice and experience of neighbouring Arab countries which have used
the French legal system of companies classification. Its provisions
classify companies into seven types, with incorporation requirements specified
for each type. A special chapter of the Law provides for the registration of foreign
companies in the UAE. The Ministry of Economy and Commerce ("the Ministry")
was charged with the task of implementing the Law. The
promulgation of the Law led to extensive discussions concerning the consequences
of its enforcement. The Chambers of Commerce in the Emirates made extensive representations
that further time was required to analyse and consider the practical effects of
the Law. Consequently, the effective date of the Law was extended at first to
the end of 1984, and later until the end of 1986. However, at the end of the extended
period for compliance with the provisions of the Company Law which was 31 December
1986, it was not implemented and applied. Committees
were formed to co-ordinate the positions and views of the various federal and
local Municipal Authorities and business interests. These activities culminated
in the promulgation of Law No. (13) of 1988 ("Law No. (13)"), amending the Company
Law, which was published in the Official Gazette on 8th January, 1989, and made
effective from the date of its publication. The aforementioned grace period, during
which companies already operating in the UAE had to conform to the provisions
of the Law, was extended to two years from the effective date of Law No. (13),
therefore ending on 7th January, 1991. This period may further be extended for
a third year by a decision of the Minister of Economy and Commerce ("the Minister")
In 1992 the grace period for the application of the Company Law was extended for
one year as from 8th January 1992, which could be extended by a decision of the
Council of Ministers for another year. The Company Law as amended,
provided that the Minister with the co-operation of the Competent Authorities
in the Emirates should issue the By-Laws necessary for the application of the
Law. The
Ministerial Decisions for the implementation of the Company Law ("the By-Laws")
were published in the Official Gazette on 30th September, 1989, and made effective
from the date of publication. The
time gap between the expiry of the initial period for compliance at the end of
1986 and the issue of the new law in 1988 has led to arguments concerning the
legal status of companies registered and operating in the UAE during this period.
This argument is somewhat diminished by the application of the generally accepted
concept in Arab countries of the defacto companies (companies in fact).
For
further information on UAE Company Law and Practice,
it is recommended that the full text be referred to. Click on the link to obtain
a copy. For specific legal advise, please contact Sabah
M A mahmoud or other reputable Law Firm.
| |
