Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, has enacted changes to the Dubai International Financial Centre authority’s legal and regulatory framework (New DIFC Law).
The newly enacted laws, which update the DIFC’s companies and property regimes, as well as the overall operating environment for entities based in the centre, aim to ensure that the DIFC remains the most sophisticated and business-friendly common law jurisdiction in the region.
The new law will now follow a public and private company regime after substantial research, consultation and global benchmarking to allow maximum flexibility, especially for small private companies. In addition, it will provide appropriate levels of oversight for complex corporate arrangements, such as those associated with listed entities, mergers, schemes of arrangement and debt restructurings.
The changes to the companies law are accompanied by a complete revamp of the Centre’s companies and operating regulations to facilitate ease of doing business, whilst complying with the latest requirements of the Financial Action Task Force and the Organisation for Economic Co-operation and Development on transparency of beneficial ownership and anti-money laundering requirements.
The changes to the Real Property Law and Strata Title Law implement an updated property regime that ensures better protection for owners and mortgage holders of DIFC properties, and also introduces an off-plan register and escrow requirements for developers. Essa Kazim, chairman of DIFC Authority Board of Directors and Governor of the DIFC, said: “A robust and comprehensive legal framework is one of the foundations of a major financial hub, such as the DIFC, as it ensures businesses and investors can operate easily and with confidence. We continue to develop and adapt our legislative system, in line with international best practices, reinforcing our position as one of the world’s top financial centres.”
He added: “In addition to elevating transparency standards and protecting purchasers and investors, the changes will continue to enhance our business environment and reduce barriers to entry, while increasing the cost-efficiency and flexibility of small businesses, which constitute an increasing number of companies operating within the DIFC.”
The new law replaced the former Companies Law and its operating regulations. We will glance through the key changes under the Companies Law and Regulations and Operating Law and Regulations.
Key Changes to the Former Companies Regime
- Key changes in the Companies Law and Regulations
- The new law has abolished limited liability companies and has introduced a new classification of public and private companies. The private and public company regime will now allow maximum flexibility, especially for small private companies. With the introduction of the new law, private companies limited by shares (Ltd.) can have up to 50 shareholders and public companies limited by shares (Plc.) can have any number of shareholders. Moreover, there will be a distinct set of requirements for both of them.
- A public company must operate with at least two directors and a company secretary whereas a private company is not required to appoint a company secretary and can operate with just one director.
- The new law will further expand directors’ duties for DIFC companies. They are expected to disclose any interest in a transaction that is entered into or is proposed to be entered into by the company that conflicts or may conflict with the interests of the company. Furthermore, directors are required to act honestly, lawfully and in good faith keeping the best interest of the company.
- Another change is, a public company is required to have a minimum of USD 1,00,000 capital, of which at least 25% must be paid up. However, a private company is not required to have a minimum share capital.
- The new law also introduced a statutory pre-emption right for existing shareholders of the companies to guard against undue dilution of their existing rights.
- The new law has enacted a new schedule of administrative fines that the Registrar of Companies can impose on a company.
- As per the new law, companies are not required to notify ROC about the initial allotment of shares. Notification is required only in case of subsequent allotments.
- The law further provides new provisions for ‘whistle-blower’ protection.
- The law also enhanced the company accounting and auditing requirements.
- Key changes in the Operating Law and Regulations
- The new law provides a detailed framework for the role of the Registrar of Companies. ROC’s role will now include supervision and monitoring of the DIFC law and ensuring that the companies operating within DIFC are complying with the law.
- The new law further enhanced the licensing regime by providing a detailed framework concerning the licenses issued by the Registrar of Companies and their types. The new licensing regime will enable companies to conduct more business within DIFC or from DIFC. The new law requires companies to file a confirmation statement in case of license renewal.
- The law has strengthened the powers of the Registrar relating to inspection and investigations.
- The law also provides an extension of the ROC’s enforcement powers.
What are the objectives of the legislative changes?
The legislative changes are aimed at providing flexibility to the companies operating in the DIFC. The law further aims to enhance the business environment and reduce entry barriers in the DIFC. Moreover, it will increase the cost-efficiency and flexibility of small businesses, which constitutes a major portion operating within the DIFC.
As per the law, the Free Zone companies should appoint an auditor from those approved by the Free Zone Authority. In practice, the auditing services should only be delivered by audit firms that hold a valid professional license under the Economic Department. Eligibility of a firm is a key factor to consider when hiring an Auditor. Otherwise, you face the full force of the law.
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