The UAE Companies Law, which governs ownership of businesses, is a particularly sensitive legislation for investors. Thus the recent amendments to the Law continue to be hotly debated as to the likely impact and what this would mean at the ground level.
Although the changes are wide-ranging and influential, there is a need to thoroughly evaluate them to arrive at the right conclusions. Apart from the obvious changes, we can add in some other likely impact points.
The first is about how the changes will have a bearing on both the local partner and the foreign investor. The second is related to the extent to which this affects free zones in the country, which has allowed full foreign ownership for more than three decades.
Left in the lurch
Regarding the first, although many UAE national sponsors benefited from the previous law, a small number have suffered as they still pay heavy installments due to the sudden departure of their foreign partner. And which left the national sponsor sinking into debt and legal tangles resulting from being accountable for the business registered under his name.
This required some of the previous shortcomings of the Law to be addressed, to mitigate the obligations of UAE national sponsors, which are estimated in the tens of millions of dirhams.
To be fair, there are a number of foreign partners who have also been affected after losing their shareholding in their companies because they were not included in the official register of joint stock companies. This led them to losing their agreed upon shares that they were entitled to as partners for lack of legal documents.
This is a situation that will be overcome with the amendments to the Law.
As for the negative effects on the 45 free zones in the country, there will be no significant impacts… for several reasons. First, the free zones enjoy sophisticated infrastructure and which will still see sizeable demand.
Second, the proximity of these zones to ports and airports gives them logistical advantages, and an important aspect in reducing cost of operations.
Third, over the past 30 years, a network of overlapping interests has been established between the business sector in the free zones, creating a sort of stability.
The fourth factor is that country itself operates as one massive ‘free zone’, which lessens the need to shift business operations from one place to another, unless there are special facilities concerning the cost of services, utility tariffs and infrastructure.
The free zones will continue to operate as they did before the amendments to the Companies Law, and will develop their potential further even as new companies are established as onshore entities with full ownership.
A win for all
The new companies will benefit from the accumulated experiences of the free zone-based entities. It is clear that the final outcome of the amended Law is net positive on many aspects, as this preserves the rights of investors and averts “sleeping” local sponsors from falling into financial pitfalls beyond their financial capacities.
The amendments reassure foreign investors and encourage more fund inflows. It will set up the platform for a fair, transparent and productive cooperation between national and foreign investors. And the local economy will emerge as the biggest winner from that outcome.
- Mohammed Al Asoomi is a specialist in energy and Gulf economic affairs.