AN OVERVIEW ON THE ROLE OF SHAREHOLDERS AND DIRECTORS IN A UAE COMPANY STRUCTURE
Shareholders are the owners of the company, and they have a stake in the company in proportion to the number of shares they own. Shareholders have the power to elect the board of directors and approve major company decisions such as mergers and acquisitions, amendments to the company’s articles of association, and the appointment of auditors. They can also receive dividends and have the right to vote on important matters during general assembly meetings.
Directors are responsible for managing the company’s affairs and ensuring that the company is operating in accordance with the law and the company’s objectives. They are appointed by the shareholders and are accountable to them. Directors are responsible for developing the company’s strategy, overseeing day-to-day operations, and ensuring that the company is profitable. They also have a duty to act in the best interests of the company and its shareholders.
In short, directors are also responsible for making sure the business complies with a few regulatory requirements, including getting the required licences and permissions, and filing annual financial statements and tax reports. Directors oversee daily operations and make the strategic decisions that move the company forward, while shareholders provide the funding and oversight needed.
WHAT IS A CORPORATE STRUCTURE OF A COMPANY?
The ownership, management, and operations of an organisation are outlined by the legal framework and hierarchy known as the corporate structure. It describes the roles, responsibilities, and relationships of the different stakeholders within the company.
There are various levels of management and ownership, including board of directors, executives, managers, and employees. The specific structure will depend on the size and complexity of the company, as well as its legal and tax requirements.
The way decisions are made within the corporation are also governed by the corporate structure. This could involve giving managers and executives more power, appointing and dismissing directors, and allowing shareholders to vote.
In conclusion, a company’s corporate structure establishes the rules that govern it, as well as its ownership, management, and decision-making processes. It has an impact on the company’s operations and is crucial to its success and expansion.
DUTIES OF THE DIRECTOR AND THE LAWS LINKED TO IT
Directors of a company are responsible for managing the company’s affairs and making decisions that are in the best interests of the company and its stakeholders. They have a fiduciary duty to act with loyalty, care, and diligence and to avoid any conflict of interest.
In the UAE, the Commercial Companies Law outlines the roles and responsibilities of directors, and specifies the conditions and procedures for their appointment, resignation, and removal. Other laws that are relevant to directors in the UAE include the Federal Law No. 2 of 2015 on Commercial Companies, the Federal Law No. 18 of 1993 on Commercial Transactions, and the Federal Law No. 5 of 1985 on Civil Transactions.
In addition to these laws, there are also best practices and guidelines that directors should follow to ensure they are fulfilling their duties effectively. These may include attending regular board meetings, staying informed about the company’s operations and financial performance, and seeking independent advice when necessary.
WHAT IS THE ROLE OF NON-EXECUTIVE OR SUPERVISORY DIRECTORS?
Non-executive or supervisory directors are members of the board of directors who do not hold an executive or managerial position within the company. Their role is to provide independent oversight and guidance to the executive directors and to ensure that the company is operating in the best interests of its shareholders.
Some of the key roles and responsibilities of non-executive or supervisory directors include:
- Providing independent oversight.
- Reviewing and approving strategy.
- Assessing and managing the company’s risks and ensuring that appropriate risk management policies and procedures are in place.
- Overseeing the company’s corporate governance framework and ensuring that it complies with relevant laws and regulations.
- Clear and effective shareholder communication.
WHO CAN BE APPOINTED AS A DIRECTOR?
The appointment of a director varies on a few requirements, it includes but not limited to:
- The person must be at least 21 years old.
- The person must possess the knowledge, abilities, and experience required to carry out the responsibilities of a director.
- The person must have a solid reputation and be clear of any financial offences or crimes.
ARE THERE ANY GENERAL RESTRICTIONS OR REQUIREMENTS ON THE IDENTITY OF DIRECTORS?
There may be broad limitations or requirements regarding the identification of directors. A few of the more typical limitations or requirements are as follows:
- Directors must generally be of legal age and have the mental capacity to perform their duties.
- Directors must not be disqualified from acting as a director by law or court order and must not have a criminal record or history of bankruptcy, fraud, or other financial misconduct.
- There may be restrictions on the nationality or residency of directors, particularly in industries or sectors that are considered strategic or sensitive from a national security or regulatory perspective.
- Directors may be required to have certain educational or professional qualifications or experience, particularly in industries or sectors that require specialised expertise or knowledge.
- Directors must avoid conflicts of interest and declare any interests they may have in any matter being considered by the board.
- There may be restrictions on the number of directorships that an individual can hold at any given time, particularly if they are holding executive positions in multiple companies.
HOW IS A DIRECTOR APPOINTED?
In the UAE, the process for appointing a director involves the following steps:
- Obtain the necessary approvals from the relevant free zone or Mainland authority.
- Prepare the necessary documents including the appointment letter and the director’s acceptance letter.
- Register the appointment with the relevant authority.
ARE DIRECTORS ALLOWED OR REQUIRED TO OWN SHARES IN THE COMPANY?
In the UAE, directors are generally allowed to own shares in the company. However, there are no specific requirements for directors to own shares in a company under the UAE Commercial Companies Law.
Notably, companies are permitted by the UAE Commercial Corporations Law to add clauses pertaining to directors’ ownership of shares in their Articles of Association. Therefore, a business may stipulate that in order to serve on the board of directors, a director must own a minimum quantity of shares. This requirement may be intended to align the interests of the directors with those of the shareholders and to encourage the directors to work towards the long-term success of the company.
However, if such a requirement is included in the Articles of Association, it should be carefully considered to ensure that it is not in violation of any other laws or regulations in the UAE.
DUTIES OF THE SHAREHOLDERS
Shareholders are subject to several obligations and responsibilities under the UAE law, including:
- Payment of share capital must be paid by the shareholders.
- At the company’s annual general meeting, shareholders are entitled to vote. This involves casting a vote on issues like the choice of directors, the endorsement of financial statements, and amendments to the Articles of Organisation.
- Shareholders are expected to abide by all the UAE laws and rules that are relevant to the business. They are also in charge of making sure the business complies with all relevant legislation.
- Certain activities, such the sale or transfer of a sizable percentage of the company’s assets or the issuance of new shares, may need the approval of shareholders.
- Shareholders are required to disclose any interests they may have in transactions involving the company.
- Shareholders are accountable for safeguarding corporate assets and making sure they aren’t used for personal advantage.
- Shareholders have a fiduciary duty to act in the best interests of the company and to avoid conflicts of interest.
WHAT IS THE MINIMUM NUMBER OF SHAREHOLDERS IN A COMPANY?
The minimum number of shareholders required to form a company in the UAE depends on the type of company being formed.
For a limited liability company (LLC), which is the most common type of company formed in the UAE, the minimum number of shareholders is one (1) and the maximum number is fifty (50).
For a public joint-stock company (PJSC), the minimum number of shareholders is three (3). A PJSC is a company whose shares are traded publicly on the stock exchange. A PJSC must have a minimum share capital of AED 10 million.
WHAT ARE THE GENERAL RIGHTS OF ALL SHAREHOLDERS?
HOW CAN SHAREHOLDERS’ RIGHTS BE VARIED (FOR EXAMPLE, ATTACHING ADDITIONAL RIGHTS OR LIMITATIONS TO A CLASS OF SHARES, OR WAIVERS OF SHAREHOLDERS’ RIGHTS)
The general rights of shareholders in a company include:
- Right to vote.
- Right to receive dividends.
- Right to transfer shares.
- Right to information.
- Right to participate in the company’s management.
The rights of shareholders may be altered by adding extra rights or restrictions to a class of shares or by surrendering particular rights. For instance, a company’s Articles of Association may establish various share classes, such as ordinary shares and preference shares, each having unique rights and limitations. The articles may also permit shareholders to forego certain rights, such as the right to dividends or the right to meeting notices.
Any modification of a shareholder’s rights, however, must abide by all applicable laws and rules. For any change in rights, shareholder approval may occasionally be needed. To ensure that all shareholders are aware of their rights and restrictions, any modification of a shareholder’s rights must be expressly stated in the company’s articles of associations, bylaws.
TAKEAWAY
In conclusion, understanding the company structure in the UAE is crucial for any business looking to establish or restructure their operations in the region. At Creation Business Consultants, we specialise in providing comprehensive company restructuring services to help our clients navigate the complex regulatory landscape of the UAE. Our team of experts can guide you through every step of the process, from conducting a thorough analysis of your current structure to developing and implementing a tailored restructuring plan that meets your specific needs. Contact our Corporate Structuring or Tax team for more information, email on [email protected] or call UAE +971 4 878 6240.
