UAE's new businesses take to 100% ownership as updated Commercial Agency Law comes into effect
New Commercial Agency Law is now in effect, allowing full ownership across sectors
Dubai: As the UAE’s updated Commercial Agency Law comes into full effect, new businesses and their owners are making full use of the 100 per cent ownership option that is now allowed across categories.
The benefits will cut through into multiple sectors - retail, services, and consultancy, among others – and will also be a draw for international companies to expand their presence in the UAE. Because the law specifically allows those international companies that do not have an UAE agent currently to take on that role for their products.
The changes brought on by the law – principally not having to take on a UAE National or UAE National owned company as a ‘commercial agent’ – are among the most consequential of recent reforms brought on by the government.
“While there are no stats that we are aware of on how many new ventures are choosing 100 per cent ownership under this Law, it is anticipated many businesses will take advantage of this opportunity,” said Shahram Safai, Partner at the law firm Afridi & Angell. “(The updated Law) provides greater control over their operations – (and) without having to enter into a partnership with local sponsors or shareholders who may not be actively involved in day-to-day activities.”
For the wave of new businesses being launched in the country these days, the process of setting up has becoming smoother, say industry sources. “With the right kind of documentation, a mainland entity can be set up in 1-2 weeks,” said Siddharth Kohli, CEO at Dubai-based Indigenesis Consulting.
But businesses such as manpower outsourcing still require a commercial agent's services, continue to attract a lot of attention. This demand will continue to grow as multiple sectors see growth.” (For free zone based businesses, the commercial agent aspect does not apply.)
It was in January this year that the UAE announced the major update to the Law, which had been an integral part of the business landscape over decades. The intent was clear – give business owners the required degree of flexibility in launching their operations. In the shortest possible time.
For established businesses in the UAE that operate with a commercial agent in place, a timeframe has been set to go through a transition and be 100 per cent owned by the original shareholder(s).
This is how the transition will work:
- After a period of two years from the date of the new law's coming into effect, the termination rights instituted by it will be applicable to all registered commercial agencies in the UAE.
- For existing registered commercial agencies that have been registered with the same commercial agent for more than 10 years or in which the agent's investments exceed Dh100 million, the termination rights will only apply after 10 years from the date of the law taking effect.
- The UAE Ministry of Economy will determine the parameters for evaluating the agent's investment.
These provisions of the law should bring about a major shift to existing alliances with local commercial agents, but with the cushion of ample time being provided for all parties involved to adjust.
“The new Commercial Agency Law expands the legal grounds for dissolving a registered commercial agency,” said Anoop Pillai, CEO of 3A Global. “This is in stark contrast to the earlier version, which restricted the principal's ability to terminate a registered commercial agency without a court order.”
Dispute settlement
More leeway is also there when it comes to any settlement of disputes between the principal and the commercial agent.
Earlier, disputes could only be adjudicated/decided by a special Commercial Agencies Committee, and appeals of such decisions fell under the exclusive jurisdiction of the UAE courts
Bring on the arbitration
“The new Law permits parties to elect for the Commercial Agencies Committee decisions to be appealed and resolved through arbitration” added Pillai. “This demonstrates the UAE's growing acceptance of arbitration as an alternative dispute resolution method.”
‘Positive’ and ‘negative’ lists
Even with the changes, the updated Law still requires the presence of a commercial agent for certain business categories. And these details must be front and center for any new business venturing into this market.
“The Law permits foreign investors to have full ownership only in specific business sectors and activities mentioned under the ‘Positive List’ issued by the UAE Cabinet,” said Safai.
It is essential to note that even if companies meet these criteria, they must still obtain necessary approvals from relevant authorities before starting operations pursuant to other regulatory requirements, such as licensing, based on their industry sector or activity.
But the overall sentiment among businesses – prospective ones and existing – is that a decisive point has been reached in how they can conduct their operations in the UAE. As with any new law or update, the rest of it is about managing that transition.
That, business owners will say, is the easier part.
The key changes and effects from the UAE's updated Commercial Agency Law
- Expansion to the types of companies that can be registered as commercial agent, including granting the right for international companies to apply to act as agents for selling their own products in the UAE where they do not already have a commercial agent. Or the agency is not registered in the UAE.
- Allows for agency agreement to terminate, where either the agreement expires and either party does not wish to renew. Or a party exercises the right to terminate for breach in agreement.
- It is now possible for parties to resolve agency disputes through an arbitration agreement, which was previously not permissible.
- Credit: Greg Hastings, Head of Corporate Structuring and Compliance, PRO Partner Group