By Walid Jaafar

We have been observing a number of initiatives and measures by the UAE Ministry of Economy to increase the awareness and abidance with corporate compliance regulations. Especially in regards to private joint stock companies, i.e. joint stock companies whose shares are not being publicly traded, the Ministry bemoans a lack of awareness and inherent tardiness of companies when faced the compliance requirements. This has become a target in a time where company restructurings and insolvencies in the UAE are on the increase, when most of the compliance regulations are to protect the shareholders and minority shareholders. In private joint stock companies, the missing of public exposure and the usually smaller number of shareholders may explain this phenomenon nevertheless, non-compliance can have severe consequences.

Private Joint Stock Companies are largely governed by the same provisions as Public Joint Stock Companies, namely with regards the requirements for the annual general assembly. Still we see many of the requirements neglected. The Ministry of Economy has issued a circular at the end of last year urging companies specifically to adhere to the rules and regulations concerning annual assemblies and went as far as outlining and explaining the most important rules. It can be expected that a harsher regime of enforcing these rules will follow.

Every joint stock company is required to hold a general assembly within the first four months following the end of its fiscal year, which in most cases should be between January and April. There are certain items that have to be on the agenda, such as the hearing and approving the board of directors’ report and the auditors report, discussing and approving the company’s balance sheet and profit and loss account, the board’s proposal for distribution of dividends and the discharging of the directors’ liabilities.

Further the general assembly is the authority to appoint new and release old directors. There are specific rules for the convening of the general assembly which are mainly guided by underlying principles of equal openness, transparency and availability to all shareholders. It should be mentioned that the invitation to the general assembly must be approved by the Ministry of Economy prior to its announcement in two Arabic newspapers and should contain the agenda. Equally strict are the rules for the conduct of the assembly, especially the conducting of votes and for the recording of the minutes of the meeting. The latter also have to be filed with the Ministry of Economy.

Many extraordinary activities such as the increase of capital through subscription do not only require the involvement of the Ministry but also require an extraordinary shareholder meeting to be convened. A different larger amount of votes present are required here to form a necessary forum.

The adherence with these rules, which are stated in Articles 119 – 143 of the UAE Commercial Companies Law is required in order to clear the board of directors and its chairman from any liability. In other words the same may be vulnerable to liabilities if the rules are not complied with. It is therefore in the utmost interest of the board of directors to make all necessary arrangements in order to comply with these rules and regulations.

Fichte & Co offers all necessary advice and services in this regard. Our Corporate Law Department comprises of experienced consultants who are able - both in Arabic and English – to act as company secretary and to advise prior to the convening of a general assembly or to carry out important compliance functions during a general assembly meeting. The same applies to board meetings as well as to any other corporate or compliance issues.

This circular of the Ministry stands in line with the introduction of a new compulsory share register for private joint stock companies in November last year which makes outsourcing the administration of the same to professional service providers mandatory, as well as the initiative for an all new compliance regime in the form of a law which can be expected earliest in April. It can be expected that such a new law will introduce a stricter and more efficient regime and may even include Limited Liability Companies to a certain extent.