Capital Investment is one of the foundations of corporate governance under Federal Decree-Law No. 32/2021 on Commercial Companies Law (Companies Law), which considers shareholders important to a company’s financial success. This article discusses shareholder rights and responsibilities regarding investments and profit sharing and how to legally amend the Memorandum of Association.
According to the UAE companies’ law, particularly under Articles 101 to 104, the shareholders within an LLC have particular rights and responsibilities regarding investment and profit sharing. The law guides the amendment in the MoA to indicate changes in capital and it shall be supported by principles ensuring fair distribution of profit among its shareholders.
Investment and Capital Amendment: According to Article 101 of the Companies Law, any amendment in the MoA or increase or decrease in capital should be approved by at least three-quarters of the shareholders representing membership interests in the LLC. This amendment process will provide that any change in capital is related to a proportional adjustment in shareholders’ membership interest. It is necessary that financial obligations cannot be increased without unanimous consent from shareholders.
Moreover, Article 103 of the same law requires an LLC to set aside 5% of its net profits each year to constitute a statutory reserve unless the shareholders decide to discontinue the allocations once the statutory reserve has reached half of the capital of the company.
Legal Requirements: In accordance with Article 104 states that LLCs must follow the provisions applicable to Joint Stock Companies for matters not explicitly covered in the companies’ law. This provision ensures that corporate governance remains consistent. This includes electing auditors annually and complying with auditing standards to maintain transparency and accountability.
Procedure for the Alteration of Memorandum of AssociationÂ
- Shareholders can only propose amendments to the MoA in writing with a detailed proposal on the nature and justification of such a change.
- Such an amendment must be approved by a three-quarter majority in the general assembly meeting of shareholders.
- Upon approval, the amended MoA shall be filed with the relevant authorities for legality and compliance with regulations.
Investment Rights and Responsibilities: Shareholders in UAE companies have some key rights relating to their investments. These are rights to:
- Participate in major decisions affecting the company’s capital, including amendments to the Memorandum of Association and changes in share capital.
- Financial investments or contributions in kind that contribute to the company’s capital must be accurately valued and documented in order to fulfill legal obligations. Article 347 guarantees that shareholders are protected from the overvaluation of in-kind contributions.
Profit sharing is one of the basic shareholder rights and shows the profitability of the company. The key features are as follows:
- Shareholders have the right to share in the profits of the company as per the memorandum of association and statutory provisions according to Article 348.
- To avoid any violations and the resulting legal consequences, the distribution of profits must comply to the provisions of UAE Company Law.
