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UAE Commercial Companies Law: PJSC

Published on : 05 Sep 2014
Author(s):Z Rizvi

Private Joint Stock Companies and UAE Law

Private Joint Stock Companies and UAE Law

When the weather changes, nobody believes the laws of physics have changed. Similarly, I don't believe that when the stock market goes into terrible gyrations its rules have changed.- Benoit Mandelbrot

The UAE economy in the wake of the financial crisis continues to inspire positive sentiments amongst investors, entrepreneurs and the residents. It is constantly fuelled by low-interest rates and lucrative investment opportunities which when combined with the willingness of local and international companies to test the waters in the Middle East by establishing in UAE stands testament to its unprecedented growth. The winning bid for Expo 2020 is another witness to the UAE being slated as the desired international business nucleus. In recent years, UAE has observed a rapid appreciation in the real estate sector, locally owned companies being listed on the world’s stock exchanges and record breaking deals in retail, investment and banking sector.


In a historic move, equity index compiler Morgan Stanley Capital International upgraded UAE to an emerging market. This move is expected to attract a large institutional portfolio investment in the UAE. A successful privately owned business deems floating shares on the stock market as the most natural way of progression. A number of concerns that surround the process of being listed include but are not limited to the expansive process relating to the Initial Public Offering (IPO) which is followed by a thorough scrutiny of the disclosures and an extensive list of requirements by regulating authorities for each of the exchanges. In the UAE, the current Commercial Companies Law (being Federal Law Number 8 of 1984) the CCL lays down certain precise requirements that have previously deterred investors and their interest in listing their company on a UAE stock exchange.


The year 2013 saw UAE’s federal government passing a new draft for the Commercial Companies Law with certain clemencies being awarded towards the requirements for a public joint stock company. The draft of the new law spells out welcome additions to the existing law as it introduces the provision for sale of pre-emptive rights to a third party or an existing shareholder. The new draft also provides for share capital to be in form of authorized and issued share capital. A notable feature of the new draft is the provision of an employee incentive scheme allowing the employees to subscribe to shares of the company. The draft reduced the number of founding partners to five (5) instead of the previously required ten (10). In the same draft though, the minimum capital requirement for a public joint stock company was increased to AED 30 million. That being said, the draft law has not been enacted and remains under consideration.

In an initiative to relax the present regulations surrounding the Initial Public Offering and listing of companies on the UAE stock exchanges, the regulatory body for Dubai Financial Market and Abu Dhabi, the Securities and Commodities Authority (SCA) has introduced SCA Board of Directors Decree No. 10 of 2014 Concerning the Regulation of Listing and Trading of Shares of Private Joint Stock Companies (the Decision). The Decision is aimed at encouraging Private Shareholding Companies to be list their shares and increase capital injection and shareholder liquidity.

Pursuant to the Decision, Private Joint Stock Companies can now be listed on a UAE stock exchange subject to fulfillment of the requirements specified under the Decision. A private shareholding company (as defined under the CCL), can now list its shares on the stock market once the board of directors approve the same and the following requirements are met:

i)                 the share capital of the company is fully paid up;

     ii)                 the company submits audited budget for the last two financial years as per the prescribed international standards;

iii)               there are at least 30 shareholders at the time of listing; and

iv)               the shareholder equity is not less than the capital equity.


A Private Joint Stock Company fulfilling the above requirements needs to pay consideration to the legal requirements involved in the listing process. The Decision provides greater flexibility by doing away completely with the IPO process for a Private Joint Stock Company and therefore allowing the shareholders to sell their shares soon after the listing process. However, the legal requirements for listing process need to be met and have not been done away with. These include approval of the SCA, company’s constitutive documents to be submitted with an exhaustive detail of company’s background and finally with the submission of the prospectus. The disclosure requirements have remained similar with not much altercations.

The UAE capital markets have recovered marvelously from the dry spell it was experiencing. The onslaught of the third quarter of 2013 saw the markets gain significant momentum. If a report published by an international audit firm is to be believed, the capital raised in the country and the wider MENA region saw the highest levels in 2013 since 2008. With the SCA’s Decision to open gates of capital market for private joint stock companies, activities on the UAE stock exchange will captivate interests of locally held private joint stock companies. The further onset of Expo2020 has instilled hopes in many international businesses for further relaxations from the SCA to enable them to list their shares on UAE stock markets, however this remains a point of speculation. 

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