Federal Law No. 32 of 2021 on Commercial Companies replaced the previous UAE Companies Law of 2015 and introduced several changes that have direct implications for day-to-day corporate practice. This guide covers the provisions that appear most frequently in the research queries we handle for UAE commercial counsel, with references to the primary text so that any point can be taken directly to the source.
Scope and the relationship to free zone legislation
Federal Law No. 32 of 2021 applies to companies incorporated in the UAE mainland. It does not apply to companies incorporated in financial free zones including the Dubai International Financial Centre and Abu Dhabi Global Market, which operate under their own separate companies legislation. The law also does not apply to companies established in non-financial free zones such as Jebel Ali Free Zone, Dubai Silicon Oasis, or the various Abu Dhabi economic zones, which are governed by their respective free zone authorities under separate federal enabling legislation.
This scope distinction matters in practice because a significant number of queries about UAE company law come in with the assumption that the Federal Companies Law applies universally. For a company with a DIFC holding entity and UAE mainland operating subsidiaries, the applicable companies law differs by entity. The DIFC entity is governed by DIFC Law No. 5 of 2018 on Limited Liability Companies or DIFC Law No. 2 of 2019 on Prescribed Companies, as applicable. The mainland subsidiary is governed by Federal Law No. 32 of 2021.
Key changes introduced by the 2021 law
Several provisions introduced or amended in 2021 are worth specific attention for corporate counsel advising UAE companies.
The most practically significant change was the removal of the requirement for a UAE national sponsor holding at least 51% of the equity in most commercial company types. Article 10 of the law, as amended by Federal Decree-Law No. 26 of 2020 which was incorporated into the 2021 consolidation, permits up to 100% foreign ownership across a broad range of commercial activities. The exceptions include activities on a restricted list maintained by the relevant Cabinet Decision, certain strategic sectors, and activities in which UAE nationals must hold a minimum share as determined by the competent authority. Counsel advising foreign investors on equity structure should verify the current restricted activities list separately, as it is amended by Cabinet Decision rather than by statutory amendment.
For corporate governance, the 2021 law introduced specific provisions on board composition, meeting quorum, and delegation authority for public joint-stock companies. Articles 83 through 92 govern board composition and director duties for public joint-stock companies. For private companies and limited liability companies, the governance provisions are set out in Part 8 of the law and are generally less prescriptive, giving parties significant latitude in the memorandum of association.
Limited liability companies: the practical framework
The limited liability company remains the most commonly used vehicle for commercial activity in the UAE mainland. Part 8 of Federal Law No. 32 of 2021, Articles 71 through 104, governs the L.L.C. structure. Key provisions that arise regularly in corporate practice include the following.
Minimum share capital for an L.L.C. is not specified at a fixed amount in the federal law but is subject to requirements set by the relevant licensing authority. The Department of Economic Development in Dubai and the Abu Dhabi Department of Economic Development each set their own minimum capital requirements for specific activity types. Counsel should verify current requirements with the relevant authority rather than relying on a general figure.
Transfer of shares in an L.L.C. is governed by Article 88. A shareholder wishing to transfer shares must first offer them to existing shareholders on a right of first refusal basis, unless the memorandum of association expressly waives this requirement. The transferability provisions in the memorandum of association are therefore important when advising on M&A transactions involving UAE L.L.C. targets, as the right of first refusal can create practical complications in a competitive sale process.
Manager authority and liability under an L.L.C. are addressed in Articles 97 through 100. The general manager acts as the legal representative of the company with authority to bind it within the scope defined by the memorandum of association. Article 99 sets out the personal liability of managers for losses arising from their exceeding the scope of their authority or acting in violation of the law. This provision is relevant in transactional contexts where the adequacy of managerial authorisation for a particular act needs to be confirmed.
Shareholder meetings and resolutions
For limited liability companies, resolutions on ordinary matters generally require approval by shareholders holding more than 50% of the share capital, unless the memorandum of association specifies a higher threshold. Article 93 specifies the matters requiring a higher quorum, including amendment of the memorandum of association, increase or reduction of capital, winding up the company, and merger. These require approval by shareholders holding three-quarters of the capital, unless a higher threshold is specified in the memorandum.
This has a practical implication for minority protections in L.L.C. structures. A shareholder holding more than 25% of the capital has a blocking right on fundamental corporate decisions. Investors taking a significant minority stake should assess whether their shareholding reaches this threshold and consider whether additional contractual protections in a shareholders' agreement are necessary given the statutory framework.
Dissolution and liquidation
Articles 305 through 324 govern the dissolution and liquidation of companies under the federal law. A company may be dissolved voluntarily by resolution of its shareholders or upon expiry of its term if a fixed term is specified in the memorandum. Compulsory dissolution grounds include where the company's losses reach half of its paid-up capital and the shareholders do not resolve to continue or to reduce the capital correspondingly, as provided in Article 310.
For practitioners advising on distressed companies, the Article 310 provision is worth tracking. It creates an obligation on the board to call a general assembly when losses reach the threshold, and failure to do so creates potential personal liability for management. In a corporate acquisition context where a target company's finances are marginal, confirming that the board has not already triggered Article 310 obligations should be part of the due diligence scope.
Recent regulatory developments
The 2021 law is supplemented by implementing Cabinet Decisions and Ministerial Decisions that are issued separately and updated more frequently than the parent statute. Cabinet Decision No. 58 of 2022 relates to the beneficial ownership requirements that apply to UAE companies and supplements the 2021 law by specifying the register maintenance obligations on companies. Counsel advising on compliance should ensure that the client's beneficial ownership register meets the requirements under both the 2021 law and its implementing decisions, as the two documents together form the operative compliance framework.
This is the practical challenge with UAE Companies Law research: the statutory text is a starting point, not a complete answer. Any research into compliance obligations under the 2021 law should include verification of the current state of implementing decisions, since the most recent amendment to a ministerial order may have changed the applicable procedure without altering the parent statute.
At Qanooni, we handle this by returning citations that identify not only the parent article but the relevant implementing decision where one affects the answer. The research output tells the practitioner whether they need to look beyond the statute to get the operative rule.
