DUBAI INTERNATIONAL FINANCIAL CENTRE · PDF fileDubai International Financial Centre P.O. Box 506528 Dubai, U.A.E. email: [email protected] Website:

Conyers Dill & Pearman

Conyers Dill & Pearman Limited Barristers & Attorneys Level 2, Gate Village 4

Dubai International Financial Centre P.O. Box 506528

Dubai, U.A.E.

email: [email protected] Website: www.conyersdillandpearman.com

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DUBAI INTERNATIONAL FINANCIAL CENTRE COMPANIES


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F O R E W O R D

Codan International Limited (an affiliate of Conyers Dill & Pearman) provides secretarial services to companies incorporated in the Dubai International Financial Centre (the “DIFC”). The secretary of a DIFC company may be an individual, a body corporate or a partnership, provided that a corporate secretary must be incorporated, established or registered in the DIFC or registered in a jurisdiction approved by the Registrar of Companies by circular and a secretary that is a partnership must be established in the DIFC. This memorandum has been prepared for the assistance of those who are considering the operation of DIFC companies and deals in broad terms with the requirements of DIFC law in that regard. It is not intended to be exhaustive but merely to provide information that we hope will be of use to our clients. Conyers Dill & Pearman does not generally advise in connection with the incorporation of DIFC companies or other matters of DIFC law. We recommend that our clients and prospective clients seek legal advice in the DIFC on their specific proposals before taking steps to implement them. Persons considering establishing companies to carry on financial services business that is regulated by the Dubai Financial Services Authority should consult legal counsel on that topic. Before proceeding with the incorporation of a company in the DIFC, persons are also advised to consult their tax, legal and other professional advisers in their respective jurisdictions. Copies of the Companies Law, DIFC Law No. 2 of 2009 and of the Companies Regulations made pursuant thereto are available from the DIFC’s website at http://www.difc.ae/. This memorandum has been prepared on the basis of the law and practice as at the date referred to below. Conyers Dill & Pearman Dubai November 2009


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INDEX 1. INTRODUCTION

2. TYPES OF COMPANIES

3. INCORPORATION, COMMERCIAL LICENCE AND CAPACITY

3.1 Pre-Incorporation Matters 3.2 Incorporation Application 3.3 Additional Requirements 3.4 Commercial Licence 3.5 Renewing the Commercial Licence 3.6 Corporate Capacity

4. VARIOUS REQUIREMENTS OF DIFC LAW

4.1 Name 4.2 Change of Name 4.3 Articles of Association 4.4 Changes to Articles 4.5 Registered Office 4.6 Change of Registered Office 4.7 Registers and Records 4.8 Particulars in Correspondence 4.9 Directors or Managers 4.10 Secretary 4.11 Register of Directors (or Managers) and Secretary 4.12 Changes to Register of Directors (or Managers) and Secretary 4.13 Bankers 4.14 Books of Account 4.15 Auditors 4.16 Shareholders or Members 4.17 Register of Shareholders or Members

5. TRANSACTIONS INVOLVING SHARES OR MEMBERSHIP INTERESTS

5.1 Allotment of Shares 5.2 Transfer of Shares and Share Certificates 5.3 Transfer of Membership Interests 5.4 Redemption and Repurchase of Shares 5.5 Dividends and Distributions

6. OPERATION OF A DIFC COMPANY

6.1 Shareholders’ Meetings 6.2 Shareholders’ and Members’ Resolutions 6.3 Annual Returns 6.4 Management 6.5 Directors’ Meetings 6.6 Contracts - Pre-Incorporation 6.7 Contracts - Post-Incorporation


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7. CHANGES TO SHARE CAPITAL

7.1 Alteration and Increase of Share Capital 7.2 Reduction of Capital

8. PUBLIC RECORDS OF A DIFC COMPANY


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1. INTRODUCTION

Dubai is one of the seven emirates making up the United Arab Emirates (the “UAE”). In recent years it has achieved remarkable economic growth and political stability and has become a highly attractive destination for foreign direct investment. Dubai has been transformed from an oil and-gas-dependent state to a broadly diversified economy based on international trade, banking, tourism, real estate and manufacturing.

The Dubai International Financial Centre (the “DIFC”) was established as a financial free zone within Dubai in 2004. As such, it is generally exempt from the federal laws of the UAE (except for criminal and administrative laws and the anti money laundering law). Instead, the DIFC has created a legal and regulatory framework for civil and commercial matters that is largely based on the common laws of England. The DIFC has three independent central bodies: (i) the DIFC Authority (“DIFCA”); (ii) the DIFC Judicial Authority; and (iii) the Dubai Financial Services Authority (“DFSA”). The DIFCA oversees the operation and administration of the DIFC, and is responsible for the development of laws and regulations that do not relate to financial services. The DFSA is responsible for developing the DIFC regulatory framework, including authorising, licensing and registration of financial services and related activities. The President of the DIFC is His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Ruler of Dubai.

The principal statute governing the formation and operation of DIFC companies is the Companies Law, DIFC Law No. 2 of 2009 (the “Companies Law”) and the Companies Regulations made pursuant thereto (the “Regulations”). The DIFC Registrar of Companies (the “ROC”) operates under the Companies Law, and is responsible for incorporating and registering all types of companies in the DIFC. Any entity intending to operate in the DIFC must be incorporated or registered with the ROC under the relevant DIFC law. In addition, businesses engaged in financial services and related activities within the DIFC are subject to authorisation and financial services regulations administered by the DFSA.

2. TYPES OF COMPANIES

The Companies Law provides for the incorporation of: (i) companies limited by shares (sometimes referred to as “LTDs”); and (ii) limited liability companies (sometimes referred to as “LLCs”). The Companies Law also provides for the registration of a branch office of a pre-existing foreign company (a “Recognised Company”), and for the transfer of an existing company to the DIFC from another jurisdiction (a “Continued Company”). LTDs and LLCs are incorporated entities that have separate and independent legal status from their incorporators, while a Recognised Company is a registered entity that is an extension, and an inseparable part, of the foreign-incorporated company. A Continued Company is treated as if it were incorporated under the Companies Law. This memorandum is concerned only with the formation and operation of DIFC LTDs and LLCs. It does not address either Protected Cell Companies or Investment Companies (Funds) within the meaning of the Regulations, to which additional and separate regulatory requirements apply.

An LTD is a company incorporated with share capital. The liability of its shareholder(s) will be limited to the amount, if any, that remains unpaid on the shares held by them. This is, of course, the most common form of company. There is generally no distinction under the Companies Law between public and private LTDs.

The offer of shares or other securities by a company in or from the DIFC is regulated by the Markets Law, DIFC Law No. 12 of 2004 (the “Markets Law”) and the Offered Securities Rules made thereunder.


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An LLC is a company incorporated with capital divided into membership interests. The liability of its member(s) will be limited to the obligation to pay the amount of their membership interests, which may not be represented by securities. An LLC may not offer membership interests by way of a public offer, and it may not issue securities of any kind. Its authorised capital must be fully subscribed and paid for at the time of incorporation.

3. INCORPORATION, COMMERCIAL LICENCE AND CAPACITY

3.1 Pre-Incorporation Matters

No person may conduct or attempt to conduct business operations in or from the DIFC unless and until such person has been duly permitted to do so by the Registrar. Due permission is evidenced by the issuance of a Certificate of Incorporation, registration or continuation (as the case may be) along with a commercial license as provided for in the Regulations.

As a preliminary matter, anyone proposing to establish operations in the DIFC must meet with a DIFCA representative. A person that does not propose to carry on financial or ancillary services will be required to submit an application form, together with a business plan, to DIFCA. A person that proposes to carry on financial or ancillary services will need to apply to the DFSA for a licence. Additional information in this regard can be found under the caption “Our Services – Registration Procedures” on the DIFC website (www.difc.ae). The approval of DIFCA, or if the applicant’s business is financial or ancillary services, authorisation from the DFSA, must be obtained before incorporation in the DIFC may be completed.

3.2 Incorporation Application

One or more persons may apply for incorporation of a DIFC company by signing and filing an incorporation application in the form prescribed by the ROC that includes certain information set out in section 11.2 of the Companies Law and Regulation 2.1 (including the company’s articles). Where the ROC registers a company, the articles approved by the ROC will also be registered. On registration of the company and its articles, a certificate of incorporation will be issued and the ROC will assign a registered number to the company. The ROC has discretion to refuse to register a company, and no grounds are required to be given for such refusal. The ROC’s decision in this regard is not subject to appeal or review.

Once the company’s application has been approved by the ROC, within thirty (30) days the company must take steps to establish its operations in the DIFC (subject to any applicable exemptions). Otherwise, the application is considered inactive for a further thirty (30) day period following which the application is considered cancelled if the company has not taken such steps.

Any company that proposes to seek a licence from the DFSA must obtain ‘in principle’ approval and a draft licence from the DFSA before incorporation. The applicant is then given three (3) months to complete registration with the ROC. Then after satisfying other DFSA requirements, if any, DFSA will issue the regulatory final licence.


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3.3 Additional Requirements

The ROC requires that certain documents accompany the application to incorporate a DIFC company, including the names and addresses of all beneficial owners of at least 10% of the shares of the incorporating shareholder of the DIFC company under formation, regardless of the name in which such shares are held, and copies of the passports of all directors, officers and individual shareholders or members. Lists of the relevant accompanying documents can be found under the caption “Checklists” on the DIFC website (www.difc.ae). It is prudent to provide drafts of all prescribed forms and accompanying documents to the ROC for review and approval prior to finalising and filing the incorporation application. We understand that the ROC encourages this approach.

3.4 Commercial Licence

The application to the ROC for incorporation is also considered to be an application for a commercial licence and, in accordance with the DIFC Operating Regulations, the ROC issues a commercial licence together with the certificate of incorporation. The purpose of the commercial licence is to expedite contracting for municipal and commercial services. The commercial licence sets out the licence number, the licensee’s name, operating name, legal status, address, permitted activities, authorised manager’s name and its issuance and expiry dates. The commercial licence does not authorise the licensee to undertake financial services, which requires a separate DFSA licence.

3.5 Renewing the Commercial Licence

The commercial licence is renewed annually by payment of an annual renewal fee to the ROC no later than thirty (30) days after the expiry date.

3.6 Corporate Capacity

A DIFC company has the capacity, rights and privileges of a natural person. Its capacity is not limited by anything in its articles or by any act of its shareholders or members.

However, an LLC may not carry on any activity that is regulated by the DFSA under the Regulatory Law, DIFC Law No. 1 of 2004 (the “Regulatory Law”) (e.g., financial or ancillary services).

4. VARIOUS REQUIREMENTS OF DIFC LAW

4.1 Name

An application may be made to the ROC for reservation of a name using a prescribed form. The ROC will reserve such name for ninety (90) days.


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For an LTD, the name must end with the word “Limited” and for an LLC it must end with the words “Limited Liability Company”.1

The name must also comply with other requirements set out in Regulation 2.3.2. It must be written using the English alphabet, numerals or such other characters as are acceptable to the Registrar, and it must not so closely resemble the name of another entity so as to be likely to mislead. The name must not suggest a relationship with any governmental authority in the DIFC, Dubai or the UAE unless the relevant body has consented in writing, must not contain the words “bank”, “insurance” or “trust”, words that suggest it is a bank, insurance company or trust company or words that suggest it is authorised to carry on financial services within the DIFC unless the DFSA consents in writing, and must not suggest a connection with or the patronage of any prominent person or organisation unless such person or organisation consents in writing. Where a company uses a trading name different from its registered name, the trading name must meet the same criteria, and it must not so closely resemble the trading name of another entity so as to be likely to mislead.

4.2 Change of Name

The shareholders or members may change the company’s name by Special Resolution (which has the meaning set out in section 6.2 below on Shareholders’ and Members’ Resolutions).

The company must file a notice of change of name in prescribed form with the ROC and submit all documentation required by the ROC. The ROC will issue a certificate of name change. The change of name takes effect from the date of issuance of the certificate.

A company that changes its name must amend its articles to reflect such change within thirty (30) days from the date of issuance of the certificate of name change (or such longer period as the ROC may allow).

4.3 Articles of Association

The articles set out the rights and duties as between the company, the shareholders (or members, in the case of an LLC) and the directors (or managers, in the case of an LLC). If the company is to have various classes of shares or membership interests with differing rights, the rights attaching to each such class must be set out in the articles. The articles must contain the information set out in section 12(2) of the Companies Law including: (i) the company’s name; (ii) the address of its registered office; (iii) the nature of the business to be conducted by the company; (iv) the amount of its authorised share capital and the amount of its share capital paid upon incorporation2; (v) in the case of an LTD, the number of shares into which such share capital will be divided, and in the case of an LLC, the number of membership interests into which such share capital will be divided and the value of each such interest; (vi) the full name, nationality and address of each of the incorporators and of the directors or managers; (vii) other matters contemplated by the Companies Law for

1 Sections 32 and 84 of the Companies Law say “Ltd.” and “LLC” may also be used, but the Regulations

refer only to “Limited” and “Limited Liability Company”. However, the ROC should accept an abbreviation if desired.

2 The paid up capital must not be less than the minimum required by the Regulations. However, the

Regulations do not currently stipulate any minimum.


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inclusion in the articles; and (viii) such other matters as the shareholders or members wish to include.

A company may be incorporated with: (i) a prescribed form of articles3 (“Standard Articles”); (ii) Standard Articles with modifications (“Modified Articles”); or (iii) customised articles (“Special Articles”).

If Standard Articles are not adopted by the company in their entirety, the company must submit to the Registrar a legal opinion from its external qualified legal advisor stating that the articles proposed to be adopted comply with requirements of the Law prior to such articles being adopted by the company.

If the Standard Articles are not adopted, then the articles that are adopted must provide, at the least, for the matters set out in Regulation 2.4.3 and they must be submitted to the ROC for approval prior to adoption. Regulation 2.4.3 requires such articles to provide for: (i) the purpose for which the company is formed; (ii) the creation of classes of shares or membership interests that the company contemplates creating; (iii) alteration of share capital; (iv) the rights attaching to shares or membership interests or classes thereof; (v) the transfer of shares or membership interests; (vi) an annual general meeting; (vii) the requisition by shareholders or members of general meetings; (viii) the proceedings (including voting) at general meetings; (ix) accounts and other information to be provided to shareholders or members before every annual general meeting; (x) the appointment, retirement, disqualification and removal of directors or managers and other officers; (xi) the remuneration of directors or managers; (xii) the powers of directors or managers; (xii) the appointment of the secretary; and (xiii) the keeping of minutes.

A board resolution of the incorporator must be submitted to the ROC along with the incorporation application forms stating that the articles of association have been duly adopted by the shareholders or members of the DIFC company under incorporation.

4.4 Changes to Articles

A company may by Special Resolution amend its articles. Any amendment to the articles must be submitted to the ROC together with a written legal opinion from the company’s external qualified legal advisor stating that the proposed amendments to the articles comply with the requirements of the Companies Law prior to such amendment taking effect

If there is more than one class of shares or membership interests and provision is made for the variation of the rights attached to such class in the articles or by the terms of issue, such rights may only be varied in accordance with those provisions. If such provision is not made, any variation of such rights must be approved by the relevant class, even where such shares or membership interests do not normally carry voting rights. In such case, the variation must be approved by either the written consent of the holders of two-thirds in value of the shares or total membership interests of the class or a resolution passed at a separate meeting of the shareholders or members of the relevant class. Any alteration of a provision in the articles for the variation of the rights attached to a class of shares or membership interests, or the insertion of any such provision into the articles, is itself treated as a variation of those rights.

3 For an LTD or an LLC, see standard forms under the caption “Templates” on the DIFC website

(www.difc.ae). For Standard Articles for an LTD, see also Appendix 2 of the Regulations.


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4.5 Registered Office

A DIFC company must at all times have a registered office in the DIFC, to which all communications and notices may be addressed. A company must carry on its principle business activity in the DIFC unless the ROC otherwise permits. A document may be served on a company by leaving it at, or sending it by post to, the registered office.

The address of the registered office is registered with the ROC and must include, where applicable: (i) the floor or level; and (ii) the name of the building where the registered office is situated. The address must consist of a location and a postal address.

4.6 Change of Registered Office

A company may change its registered office by resolution of the board4. The company must file with the ROC, at the time of the change, a notice of change of registered office in prescribed form.

4.7 Registers and Records

Subject to any specific requirement in the Companies Law, any register or record must be kept at the registered office of the company or at such other place as is determined by the directors.

A decision of the directors to keep any register or records at a place other than the registered office must be made by the directors at a directors meeting and minutes must be kept of the decision including the decision as to the place where such registers or records will be maintained.

4.8 Particulars in Correspondence

The name of a company and the address of its registered office must appear in legible characters in all its business letters and order forms.

4.9 Directors or Managers

The business and affairs of an LTD are managed by the directors. The number of directors is fixed by the articles. However, the minimum number of directors of a DIFC company is two. Each director must be an individual. There are no residency requirements applicable to directors.

A director may appoint an alternate director by a written instrument. The name of the alternate must be given in writing to the secretary of the company. An alternate is entitled to attend meetings and vote in the absence of the appointing director.

Neither directors nor alternate directors need hold any shares in the company in order to act as such.

An LLC is managed by one or more managers, which may be members or any third party appointed by the members. The number of managers generally would be fixed

4 This is not specified, but the Companies Law does not specify that a Resolution or Special Resolution

is required to change the registered office so such change should fall within the directors’ powers.


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by the articles. There are no residency requirements applicable to managers. The articles generally also provide for the appointment of an alternate manager.

4.10 Secretary

Every DIFC company must have a secretary who may not be a director. Where the proposed company secretary is a body corporate or a partnership (i.e., not an individual), it must be a body corporate that is incorporated, established or registered in the DIFC or registered in a jurisdiction approved by the Registrar of Companies by circular5 or a partnership that is established in the DIFC. The secretary generally attends all meetings of the directors and shareholders of the company and keeps the records of the company. Joint, assistant and/or deputy secretaries may also be appointed.

4.11 Register of Directors (or Managers) and Secretary

Every company must keep at its registered office a register of its directors (or managers) and secretary. The register must set out, in respect of each such director or manager and secretary, their full name, any former names, date and place of birth, address, any former addresses within the last five years, date of appointment and, if relevant, date of cessation of office.

4.12 Changes to Register of Directors (or Managers) and Secretary

Whenever a director, manager or secretary is appointed (after incorporation or registration) or retires, is removed or for any other reason ceases to act, then a company must file a notice of change of director, manager or secretary with the ROC in prescribed form within fourteen (14) days of the change.

Whenever there is any change in the name or address of a director, manager or secretary, the company must file a notice of change of name or address with the ROC in prescribed form.

4.13 Bankers A DIFC company may open and maintain bank accounts in or outside the DIFC. 4.14 Books of Account

Every company to which Part 9 of the Companies Law (related to accounts and audits) applies6 must keep accounting records sufficient to show and explain its transactions so as to: (i) disclose with reasonable accuracy the financial position of the company at any time; and (ii) enable the directors or managers to ensure that any accounts prepared by the company comply with the requirements of the Companies Law.

5 See Circular dated 8th April 2008. 6 Part 9 of the Companies Law does not apply to a company which is an Authorised Firm, Authorised

Market Institution, Recognised Body or Recognised Member under the Regulatory Law. In general, the operation of such entities, including accounting and audit requirements, is regulated by the DFSA and in such cases, the Regulatory Law and other relevant regulations must be reviewed.


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Accounting records must be kept at such place as the directors or managers think fit unless specifically prescribed in the Regulations7. The records must be preserved for at least 10 years from the date to which they relate, or for some other period as may be prescribed in the Regulations and must be open to inspection by an officer or auditor of the company at all reasonable times.

The first financial year of a company starts on the date of incorporation and lasts for a period not exceeding 18 months. The second and any subsequent financial year starts at the end of the previous year and lasts for 12 months or some other period which is within seven (7) days shorter or longer than 12 months.

The directors or managers must cause accounts to be prepared in relation to each financial year in accordance with accounting principles or standards approved by the ROC or prescribed in the Regulations. Accounts must be kept in accordance with Regulation 6.2, which generally provides for the application of International Financial Reporting Standards. The accounts must show a true and fair view of the profit or loss of the company for the period and of the state of the company’s affairs at the end of the period.

The accounts must be approved by the directors or managers and signed on their behalf by at least one of them.

Subject to the Companies Law and the Regulations, within six (6) months after the end of the financial year, the accounts must be: (i) prepared and approved by the directors or managers; (ii) examined and reported upon by an auditor; and (iii) laid before the annual general meeting for discussion and, if thought fit, approval of the shareholders or members together with a copy of the auditor’s report.

A copy of the accounts and the auditor’s report must be provided to shareholders together with notice of the annual general meeting. Any shareholder or member is entitled, on written request, to be furnished with a copy of the company’s latest audited accounts and auditor’s report.

Each company must file with the ROC within seven (7) days after the annual general meeting a copy of the accounts and auditors report8.

4.15 Auditors

Each DIFC company to which Part 9 of the Companies Law (relating to accounts and audits) applies must appoint a firm of auditors to examine and report on the accounts. The auditor must be registered under the Companies Law.

The appointment of a firm as auditor must be made by the company at each annual general meeting and the auditor holds office until the conclusion of the next annual

7 The Regulations do not contain a specific provision in this regard. However, see section 4.7 Registers

and Records above. 8 The Regulations provide that unless the ROC otherwise directs, a company which is not a Reporting

Entity (as defined in the Markets Law and, effectively, a company that has filed a prospectus or whose shares are listed on an Authorised Market Institution) or an Ancillary Service Provider (a person licensed by the DFSA to carry on legal and accountancy services) is exempt from the requirements contained in Part 9 to have its accounts audited and to file accounts with the ROC (this exemption does not apply to a Protected Cell Company). However, the ROC requires all DIFC entities that are not regulated by the DFSA to appoint an auditor and submit audited accounts to the DIFC every year.


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general meeting. An auditor may be removed by Resolution (which has the meaning set out in section 6.2 below on Shareholders’ and Members’ Resolutions) at any time.

The directors or managers of a company may fill any casual vacancy in the office of auditor on such terms as they see fit, which auditor shall hold office to the conclusion of the next annual general meeting. Subject to the foregoing, the company in general meeting may fix the auditor’s remuneration.

The auditor must consent in writing to its appointment prior to the appointment. A company must file a notice of appointment of auditor in prescribed form with the ROC immediately upon such appointment.

A company must file a notice of cessation of auditor in prescribed form with the ROC immediately upon the resignation or removal of an auditor.

4.16 Shareholders or Members

A DIFC company must have at least one shareholder or member. However, a shareholder or member may hold its shares as nominee for another person.

Entities not regulated by the DFSA must have share capital authorised and share capital paid upon incorporation of at least US$50,000.

4.17 Register of Shareholders or Members

Every LTD shall (either itself or through an agent) maintain a register of shareholders which contains: (i) the names and addresses of its shareholders, together with a statement of the shares held by each shareholder, distinguishing each share by its number (so long as the share has a number) and, where the company has more than one class of issued shares, by its class; (ii) the date on which each person was registered as a shareholder; (iii) the date on which any person ceased to be a shareholder; and (iv) the date on which the number of shares held by any shareholder increased or decreased.

In the case of an LLC, an up to date register of members must be maintained in which: (i) the name; (ii) date of birth or incorporation; (iii) nationality; (iv) address; and (v) value of membership interest must be recorded. Any transfer of membership interests in an LLC must also be recorded in the members’ register. Each member holds only one membership interest of each class of membership interest. When a member makes a new subscription or acquires an increased interest from another member, the value of the member’s interest is increased accordingly if the interests are of the same class. If the interests are of a different class, then each interest will be registered separately in the members’ register.

The register of shareholders (or members) must be kept: (i) at the registered office; or (ii) if the register of shareholders (or members) is maintained on behalf of the company by an agent, at the offices of the agent with a copy of such register to be kept at the company’s registered office. The copy must be updated to reflect the register of shareholders (or members) within ten (10) days of any amendment.


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5. TRANSACTIONS INVOLVING SHARES OR MEMBERSHIP INTERESTS 5.1 Allotment of Shares

Immediately upon the initial allotment of shares or upon any subsequent allotment, the company must file with the ROC a notice of allotment of shares in prescribed form.

5.2 Transfer of Shares and Share Certificates

A transfer of shares must take place in accordance with the articles, provided that no transfer may be registered unless the company receives an instrument of transfer in writing or the transfer accords with any Regulations that allow title to securities to be evidenced and transferred without a written instrument. The Standard Articles provide that the instrument of transfer may be in any form approved by the directors. Within fourteen (14) days after: (i) the allotment of any shares; or (ii) the date on which a transfer of any shares is lodged with the company, the company must have share certificates ready for delivery unless title to shares is evidenced in accordance with the Regulations. The Standard Articles provide that unless the conditions of allotment of shares provide otherwise, every shareholder is entitled to a share certificate for their shares.

For purposes of the foregoing, the Regulations provide that title to securities may be evidenced in accordance with the following requirements: (i) when the details of a shareholder are added to, removed from or amended in the register of shareholders, the company will provide written notice to the relevant shareholder of such change being made; (ii) where share certificates have previously been issued by the company, the company may require the return of share certificates which shall be cancelled; and (iii) the company will not recognise the rights of third parties in respect of issued shares.

Where a company evidences title to securities without a written instrument (e.g. a share certificate), then entry in the register of shareholders is evidence of: (i) the person being a shareholder; (ii) the number of shares held by that person; (iii) the class of shares held; and (iv) the date on which the person became a shareholder. A transfer takes place in accordance with the articles or, if the company’s shares are listed, in accordance with the rules of the relevant exchange.

5.3 Transfer of Membership Interests

In the case of an LLC, the transfer of a membership interest or the admission of a new member must be authorised by Special Resolution, unless the articles require a unanimous resolution9. On a transfer to a person that is not a member, the existing members have a right of first refusal to acquire the interest to be transferred on a pro rata basis. Membership interests may only be transferred in accordance with the requirements set out in the Companies Law.

5.4 Redemption and Repurchase of Shares

If authorised by its articles, an LTD may issue shares redeemable at the option of the company or the shareholder.

9 The Standard Articles provide that the admission of new members requires a “Special Resolution from

the Board”. As this would conflict with the Companies Law and the definition of “Special Resolution”, it is likely an oversight in the form.


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Shares may be redeemed only if:

(a) the share value is paid out from paid up share capital, share premium or other reserves of the company; and

(b) any premium payable on the redemption is from realised or unrealised profits,

share premium or other reserves of the company.

Upon the redemption of shares, the company’s share capital shall be diminished by the share value of such shares, but the authorised share capital will not be reduced (and may be used in connection with the issue of new shares) unless the shares are cancelled.

A company may purchase its own shares, including any redeemable shares. Unless the company is a wholly-owned subsidiary, any such purchase must be approved in advance by a Resolution, and the shares to be purchased do not carry the right to vote on the Resolution authorising the purchase.

No redemption or re-purchase of shares may take place if, as a result of such redemption or re-purchase, there would no longer be a shareholder holding shares.

With respect to an LLC, the redemption of membership interests is only allowed as provided in the articles and provided that the redemption is carried out from net profits of the company that may validly be used for payment of dividends or with excess share capital.

5.5 Dividends and Distributions

An LTD may declare a dividend or resolve to make a distribution at any time if the directors resolve, on reasonable grounds, that the company will be able to pay its debts as they become due in the normal course of business immediately after payment of the dividend or distribution.

The company may pay a dividend or make a distribution out of profits and/or surplus of the company if: (a) it has been declared as set out above; (b) it is paid out of profits and/or surplus of the company as shown in accounts

prepared: (i) as at the end of the last financial year; or (ii) as at the end of such period as is sufficient to enable the directors to form a reasonable view as to the amount of the profits and/or surplus from which the dividend or distribution will be paid; and

(c) the directors resolve, immediately prior to the payment, on reasonable

grounds that the company will, immediately after the dividend is paid or the distribution is made, be able to pay its debts as they become due in the normal course of business and at no time between the dates of the resolutions passed to declare and to pay the dividend or distribution did the directors consider that the company would not be able so to pay its debts after payment of the dividend or distribution.


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In the case of an LLC, a Resolution must be passed immediately prior to the payment of the dividend or distribution to the effect that on reasonable grounds, the solvency test set out above will be met immediately after such payment.

6. OPERATION OF A DIFC COMPANY

6.1 Shareholders’ Meetings

The minimum notice with respect to the calling of any general meeting is twenty-one (21) days. Notice must be in writing.

However, a general meeting may be called on shorter notice if such shorter notice is agreed to by a majority in number of the shareholders having a right to attend and vote at such meeting, being a majority together holding not less than 95 per cent of the share capital represented by the shares giving a right to attend and vote at general meetings.

A notice of a general meeting must: (i) set out the time, place and date for the general meeting; (ii) state the general nature of the general meeting’s business; (iii) set out the intention to propose any Resolution or Special Resolution and state such resolution(s); and (iv) include a copy of any accounts and auditor’s report that are to be laid before the general meeting. Subject to the articles of the company, meetings may be held by electronic means so long as the shareholders can hear each other.

Every company must hold an annual general meeting in each year, but so long as a company holds its first annual general meeting within eighteen months of incorporation, it need not hold it in the year of its incorporation or in the following year.

Subject to the foregoing, not more than fifteen (15) months may elapse between the date of one annual general meeting and the date of the next and not more than six (6) months may elapse between the end of the financial year of the company and its next annual general meeting.

A general meeting of an LTD is called by the directors (or, where requested by the shareholders in accordance with section 63 of the Companies Law, the directors or the secretary).

Except in the case of a company having a single shareholder, at any general meeting two its shareholders personally present or represented by proxy are a quorum.

For an LLC, members’ meetings may be called by the managers or by a member or members whose interests represent more than one third of the company’s share capital. The procedures for calling and conducting a members’ general meeting are as set out in the articles. Unless otherwise provided in the articles, the manager’s authority may be overridden by a Resolution.

At the general meeting of a company any matter which may properly come before the shareholders or members may be dealt with. The following matters must be dealt with at the annual general meeting:

(a) consideration of the financial statements and auditor’s report (unless the

company is exempt from the requirement to appoint an auditor under the Regulations);


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(b) appointment of the directors for the next year (unless another term has been determined by the shareholders); and

(c) appointment of the auditors for the next year (unless the company is exempt

from the requirement to appoint an auditor under the Regulations).

The shareholders will also determine the level of the directors’ fees, if any.

Shareholders may vote at general meetings in person or by proxy. The holder of a proxy may, but need not, be a shareholder. Every notice calling a general meeting must include a statement that a shareholder is entitled to appoint a proxy or, where allowed, one or more proxies, to attend and vote instead of him, and that a proxy need not also be a shareholder. A corporate shareholder of a DIFC company may appoint such person as it thinks fit to be its representative at general meetings.

It would be usual to follow the annual general meeting with a meeting of the newly elected or re-elected board of directors for the purposes of appointing the officers.

6.2 Shareholders’ and Members’ Resolutions

The Companies Act requires that certain matters be authorised by a resolution of the shareholders (in the case of an LTD) or of the members (in the case of an LLC) as a “Special Resolution” or a “Resolution”, as such expressions are defined in the Companies Act.

For an LTD, a Resolution is passed by a simple majority of the votes of such shareholders as (being entitled to do so) vote in person or, where proxies are allowed, by proxy, at a general meeting for which notice specifying the intention to propose the resolution has been duly given. A Special Resolution is passed by at least 75% (seventy-five percent) of the votes of such shareholders as (being entitled to do so) vote in person or, where proxies are allowed, by proxy, at a general meeting for which notice specifying the intention to propose the resolution has been duly given10.

For an LLC, a Resolution is passed by the votes of members holding membership interests representing more than 50% (fifty percent) of the share capital of the company held by members entitled to vote and voting in person or, where proxies are allowed, by proxy, at a general meeting for which notice specifying the intention to propose the resolution has been duly given. A Special Resolution is passed by the votes of members holding membership interests representing more than 75% (seventy-five percent) of the votes of such shareholders as (being entitled to do so) vote in person or, where proxies are allowed, by proxy, at a general meeting for which notice specifying the intention to propose the resolution has been duly given.

Subject to a company’s articles, anything that may be done by Resolution or Special Resolution (excluding a resolution removing an auditor or director) passed at a meeting may be done by a resolution in writing signed by each shareholder who

10 Note that while the statutory definition of Special Resolution refers to a resolution passed by 75% of

votes cast, in the Standard Articles for both an LTD and an LLC it is defined as a resolution passed by the positive vote of shareholders (or members) holding at least 75% of the shares entitled to vote on the resolution, which is a more rigorous requirement.


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would be entitled to vote11. Such resolution is deemed to be passed when the instrument is last signed or on such later date as is specified in the resolution.

If a company has only one shareholder and the shareholder takes a decision that may be taken by the company in a general meeting and have effect as if agreed by the company in general meeting and the decision is not taken by way of resolution in writing, then the shareholder must provide the company with a written record of the decision.

6.3 Annual Returns

Every company must, before the end of March in every year after the year in which it is incorporated, file with the ROC a return that states, in respect of each class of shares or membership interests: (i) the name and address of each shareholder or member who, as of the 1st January in that year, held 5% or more of the shares or the total value of the membership interests of any class and the number of shares or the value of the membership interests held by him; and (ii) the number of shareholders or members that held less than 5% of the shares or the value of the membership interests of that class, and the total number of shares or the total value of the membership interests comprised in those holdings; or (iii) the name and address of every shareholder or member who on the 1st of January in that year held any shares or a membership interest of that class and the number of the shares or value of the membership interests of that class held by him.

The return must also contain such information, declarations and verifications as may be prescribed and be accompanied by the prescribed filing fee. The Regulations provide that the return must include: (i) the name of the company; (ii) the company’s registered number; (iii) the registered office address; (iv) the principal business activities of the company; (iv) the name, address and date of birth of the secretary, directors or manager; and (v) the total number, value and class of allotted shares or membership interests.

6.4 Management

The management of an LTD is the responsibility of its board of directors. The directors are elected by the shareholders for such term as the shareholders may determine. Subject to the Companies Law and any limitations in the articles, the shareholders’ only control over the management of the company is through their power to appoint and dismiss the directors. The directors owe fiduciary duties and a duty of skill and care to the company. The Standard Articles provide that the directors may appoint a person to be the agent of the company, and may delegate any of their powers to a managing director, executive director or a committee of directors.

An LLC is managed by one or more managers, who may be members or any third party appointed by the members. The Standard Articles provide for the appointment and retirement of managers and set out the powers of the managers. They also provide that the board (meaning the management board formed by the managers) may appoint any one or more of its number to executive office, may appoint any person to be the agent of the company, and may delegate any of its powers to an attorney in fact or to a committee of managers.

11 The Standard Articles for both an LTD and an LLC provide that an Ordinary Resolution (as defined

therein) includes any unanimous written resolution expressed to be an ordinary resolution. They do not include a similar provision in the definition of Special Resolution.


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6.5 Directors’ or Managers’ Meetings

The articles of an LTD or an LLC generally provide that the directors (or members) may regulate their proceedings as they think fit. The Standard Articles provide that a director or manager may, and the secretary at the request of a director or manager shall, call a meeting of the directors or the managers, and that matters arising are decided by a majority of votes with the chairman having a second or casting vote. They provide further that the quorum for the transaction of business is two, or any other number fixed by the directors or managers. Notice of a meeting of the directors or managers should be given to all directors or managers, in accordance with the provisions of the articles. Subject to the articles, meetings of the directors may be held by telephone or other electronic means, provided that each director participating in the communication can hear what is said by all of them. Further, the articles generally also provide for the transaction of business by a written resolution signed by all of the directors or managers in lieu of a meeting.

A director must disclose to the company the nature and extent of any direct or indirect interest in a transaction by the company (or a subsidiary) which to a material extent conflicts, or may conflict, with the interests of the company and of which the director is aware, as soon as practicable after the director becomes aware of the circumstances which give rise to his duty to disclose. A notice in writing that the director is to be regarded as interested in a transaction with a specified person is sufficient disclosure of his interest in any transaction entered into after the notice is given.

The Standard Articles for an LTD provide that a director shall not vote on any resolution concerning a matter in which he has a direct or indirect conflict of interest, which for purposes of that article includes an interest of any person who is connected to the director. Further, a director shall not be counted in the quorum in relation to a resolution on which he is not entitled to vote. The company may by Resolution suspend or relax any provision prohibiting a director from voting at a meeting. The Standard Articles for an LLC include similar provisions with respect to managers.

6.6 Contracts - Pre-Incorporation

Where a person purports to enter into a contract in the name of a company or on behalf of a company which has not yet been incorporated, he will be personally liable under the contract unless otherwise agreed by the parties to the contract. After incorporation, the company may unilaterally adopt such a contract and will become a party thereto to the same extent as if the contract had been made after the incorporation. Such adoption by the company will discharge the person who purported to act on its behalf.

6.7 Contracts - Post-Incorporation

A person acting under the express or implied authority of a company may (subject to the articles) make, vary or discharge a contract, or sign an instrument, on behalf of the company in the same manner as if the contract were made, varied or discharged, or the instrument signed, by a natural person. It is usual to present most major contracts to the board of directors (or managers) for approval by resolution prior to execution. In general, the directors (or managers) may appoint a person to be the agent of the company to sign contracts or other documents.


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6.8 Seal

DIFC companies are not required to have a seal. However, it is common for companies to have an ink stamp for dealing with third parties and suppliers in Dubai. In general, local business partners that a DIFC company will deal with after incorporation will insist on having stamped documents with an ink seal. An embossed seal is not popular in Dubai and in some cases is not recognised at all.

7. CHANGES TO SHARE CAPITAL

7.1 Alteration and Increase of Share Capital

A company may, by Special Resolution: (i) increase its share capital by creating new shares of such share value as it thinks fit; (ii) consolidate and divide all or any of its shares (whether allotted or not) into shares representing a larger share value than their existing share value; (iii) sub-divide its shares, or any of them, into shares representing a smaller share value than their existing share value; and (iv) cancel shares which, at the date of the passing of the Special Resolution to cancel them have not been allotted, or agreed to be allotted, to any person, and diminish the amount of the company’s share capital by the aggregate share value of the shares so cancelled.

A cancellation of shares under the relevant provisions of the Companies Law does not constitute a reduction of share capital to which section 47 (Reduction of Share Capital) applies.

An LLC may increase its share capital if authorised by Resolution. On any such increase the members have a preferential right, on a pro rata basis, to increase their membership interests unless otherwise provided in the articles or the Resolution approving the increase.

7.2 Reduction of Capital

A company (including an LLC) may, if authorised by a Resolution and its articles, reduce its share capital in any way and on such terms as it may decide.

Not more than thirty (30) days and not less than fifteen (15) days before the date from which the reduction of share capital is to have effect, the company must cause a notice to be published in the appointed newspapers stating: (i) the amount of the share capital as last previously determined by the company; (ii) the share value of each share (for an LTD only); (iii) the amount to which the share capital is to be reduced; and (iv) the date from which the reduction is to have effect.

An appointed newspaper is a publication best suited to bring the reduction of share capital to the attention of any persons who may be affected by it. Notice given in the publication must be legible and clearly state the necessary details of the reduction.

On the date from which the reduction is to have effect, a certificate must be signed by at least two directors of an LTD or by any one of the managers of an LLC declaring either: (i) that on that date the company is solvent; or (ii) that all the creditors of the company on that date have consented to the reduction.

The company must file within thirty (30) days after the date from which the reduction has effect, a copy of the publications and certificate with the ROC stating that either section 47 (in the case of an LTD) or section 90 (in the case of an LLC) of the Companies Law has been duly complied with.


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8. PUBLIC RECORDS OF A DIFC COMPANY

The following records of a DIFC company are maintained by the ROC on the register of companies and are available for public inspection during normal business hours at the offices of the ROC, and at all times on the DIFC website:

(a) current name; (b) registered number; (c) date of registration; (d) type of company; (e) former names; (f) date of registration of every change of name; (g) current registered office; (h) former registered offices; (i) date of registration of former registered offices; (j) current directors or managers; (k) date of registration of current directors or managers; (l) former directors or managers; (m) dates of registration and cessation of former directors or managers; (n) current secretary; (o) date of registration of current secretary; (p) former secretaries; (q) dates of registration and cessation of former secretaries; (r) number and class of issued shares or membership interests, nominal value of shares,

if any, and amount of paid up share capital; (s) names of shareholders or members of the company or, in the event of a company

whose shares are listed on an exchange for trading, the twenty members holding the most number of shares;

(t) in the case of a Recognised Company, the country in which the Recognised Company

is incorporated; (u) the company’s financial year end; (v) date of commencement and cessation of schemes of arrangement, receiverships, or

liquidations;


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(w) name and address and date of appointment and date of cessation or vacation of office

of:

(i) each nominee or supervisor of a voluntary arrangement, within the meaning of the Insolvency Law 2004; and

(ii) each office-holder within the meaning of the Insolvency Law 2004; and

(x) date of dissolution of the company, if any.

In addition, the register of directors and secretary must be available for inspection by the ROC, a shareholder or director at the registered office of the company, and the register of shareholders must be available for inspection by any shareholder (without charge) and any other person (on payment of a reasonable sum) at the registered office of the company or, if the register is kept at the offices of an agent, then at such offices.

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This publication is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.

About Conyers Dill & Pearman Conyers Dill & Pearman is a multi-jurisdictional law firm that advises on the laws of the Cayman Islands, British Virgin Islands, Bermuda and Mauritius. The firm specialises in company and commercial law, commercial litigation and private client matters. Conyers’ structure, culture and expertise enable the firm to consistently deliver on its promise of responsive, timely and thorough service. Conyers provides clients with the highest quality legal advice from strategic global locations including offices in the world’s leading financial centres in Europe, Asia, the Middle East and South America. Founded in 1928, Conyers comprises 600 staff including more than 150 lawyers. Affiliated companies (Codan) provide a range of trust, corporate secretarial, accounting and management services. Conyers Dill & Pearman was named Offshore Law Firm of the Year 2009 by The Lawyer.

www.conyersdillandpearman.com

Documents

DUBAI INTERNATIONAL FINANCIAL CENTRE · PDF fileDubai International Financial Centre P.O. Box 506528 Dubai, U.A.E. email: [email protected] Website: